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Venture Capital Funding for Bitcoin Startups Triples in 2014

(@joonian) | Published on December 31, 2014 at 10:21 BST

It's been a bumper 12 months for bitcoin companies raising funding. In fact, the amount of venture capital flowing into bitcoin startups this year is more than three times the total raised in 2013, according to CoinDesk data.

In total, bitcoin firms raised $314.7m in 2014. This represents a 3.3-fold increase over the previous year, in which $93.8m was invested.

Additionally, this year's total accounts for more than three-quarters of all venture capital raised for bitcoin startups since the start of CoinDesk data in 2012. A total of $410.7m has been invested in the space over that time.

The chart of cumulative all-time VC funding (below) shows two jumps in funds raised this year in March and October.

Twin peaks

In March, a number of big deals were completed that caused the first of those spikes.

Chief among those was Xapo's $20m round raised from Fortress, Benchmark and Ribbit Capital. This was followed by Circle Internet Financial, which raised just $3m less from a group of investors that included Accel Partners, Pantera Capital and General Catalyst.

That month also saw smaller but significant amounts raised by bitcoin exchanges Kraken ($5m from Hummingbird Ventures) and OKCoin ($10m from Mandra Capital, Ceyuan and others).

Six months later, the next round of big deals took place. Wallet and data provider Blockchain led October fund-raising with $30.5m from Lightspeed Ventures, Mosaic Ventures and others. Notably, the Blockchain round was the largest ever single investment made in a bitcoin company.

Bitcoin mining firm BitFury took second place with $20m raised from noted investor Bill Tai and others. Payment processor BitNet closed $14.5m in funding from Japanese e-commerce platform Rakuten and Highland Capital Partners.

Smaller rounds were peppered throughout October, including $2.5m raised by Korean universal Coinplug, $5m for mining hardware maker Spondoolies-Tech and $3m for exchange SolidX.

Big rounds still account for much of the fund-raising activity in the bitcoin sector.

For much of the year, the single largest deal each month was greater than the combination of other rounds completed in the same period. The exceptions were March and October, where a number of large deals took place, and December, where funds raised were relatively well distributed.

Later-stage funding

As the bitcoin ecosystem matures, so do the fund-raising demands of startups in the space. While most funds raised are still allocated to early-stage seed rounds, later stage funds are now increasing.

The grouped bar chart showing a breakdown of funding rounds reveals that only three months went by without later-stage first and second funding rounds being announced. After March, almost every month showed a mix of funding rounds, ranging from small seed rounds to substantial first and second rounds.

In October and November, venture capitalists concentrated more investments on financial services and infrastructure related initiatives such as tools for addressing price volatility, power efficiency and security.

For example, Libra raised $500,000 to incorporate accountancy and tax compliance into the bitcoin system. For the equity market, First Global Credit launched a new derivatives product for bitcoin holders to participate in global equities platforms without cashing their bitcoin in for national currencies.

By contrast, more established business models like exchanges and wallet providers saw three and two startups closing fund-raising deals, respectively. Miners, payment processors and universals all saw two startups in each category raise funding in October and November.

Location, location, location

North America is still the place to be for startups hoping to raise cash for their business. The last two full months of the year showed that the majority of fund-raising deals were completed in the US and Canada. Ten deals were agreed in North America, while Asia saw four successful capital-raising exercises and Europe saw two.

Unsurprisingly, startups boost their chances of closing a fund-raising deal if they are located in San Francisco. Six of the deals completed in the last two full months of the year involved companies based there, compared to three deals for firms located in other US cities.

Venture capitalists clearly remain bullish on bitcoin and its potential, as the amount of capital invested creeps to the half-billion dollar mark.

Location distribution of bitcoin VC deals in October and November 2014. Source: CoinDesk
Location distribution of bitcoin VC deals in October and November 2014. Source: Garrick Hileman, CoinDesk

BitcoinIQ contributed research for this article.

Featured image via Shutterstock

InvestmentVenture Capital

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