BitGo, the maker of multi-signature cryptocurrency wallets for enterprises, has closed a $42.5 million Series B funding round in a sign that demand has at last arrived for institutional-grade services in the market.
Led by Valor Equity Partners with participation from Bill Lee and David Sacks, the round of venture capital brings BitGo's total funding to more than $55 million, following a Series A in June 2014.
As part of the investment, Antonio Gracias (who sits on the boards of SpaceX and Tesla) and Sacks (who co-founded PayPal and Yammer) will join BitGo's board of directors. Strategic investor Don Wilson, the founder of asset trader DRW and a co-founder of blockchain startup Digital Asset, will also join BitGo as an advisor.
Announced today, the fundraising caps a transitional year for the veteran bitcoin startup, which was founded to serve businesses back in 2013 - long before this year's influx of institutional money helped drive the currency to record highs.
As a result of that market maturation, BitGo turned a profit for the first time this year. Based in Palo Alto, CA., the firm was building institutional products when most other startups in the space were focused on bringing bitcoin to the masses.
With clients such as CME Group, which is expected to launch a much-anticipated bitcoin futures product next week, BitGo now facilitates a total $8 billion-worth of bitcoin transactions per month, charging a fee on each one.
In an interview, BitGo co-founder and CEO Mike Belshe discussed the firm's long path to achieving profitability and scoring one of the largest venture capital raises in the blockchain industry.
All this time, Belshe said:
"We've been behind the scenes plotting away, building a bigger, better system."
When BitGo was founded, it focused on enabling businesses to securely use bitcoin with wallets that require multiple cryptographic signatures to access.
But over the years, the company has evolved to meet an institutional demand for both "hot" (online) and "cold" (offline) storage of six currencies, including bitcoin, ethereum, ripple and bitcoin cash.
With the new investment, Belshe said the company will be able to expand that pool of currencies by "at least" three in 2018 - and perhaps more importantly, to more quickly on-board new currencies that result from forks of existing ones. Currently, adding these spinoff currencies can sometimes take days or weeks to accommodate.
In addition to supporting new currencies, Belshe indicated that BitGo intends to invest in helping develop and implement scaling solutions, such as the Lightning Network, "that are able to drive off-chain payments" - something he says is crucial to helping his corporate clients build at scale.
Lastly, Belshe spoke in broad terms about "a number" of other opportunities that will be explored as a result of the additional funding.
One area he mentioned specifically included services that could be offered as a result of BitGo having a bird's-eye view of where transactions are coming from and going to.
"What we see now is a big opportunity ahead," he said. "We know that it's going to take some strong growth, and we are aligning the resources that we need to be able to capitalize on that."
Patience makes perfect
BitGo was born the same year bitcoin's price surged from less than $100 to more than $1,000, before beginning a long slow decline in the wake of the Mt. Gox exchange collapse.
As the industry emerged from that trough, largely due to retail purchases at exchanges like BTCC, Coinbase and Kraken, the institutional investors BitGo courted largely stayed on the sidelines.
"We had a quiet 2014, a quiet 2015, 2016 started to grow a little bit, but still pretty quiet," said Belshe. "Then 2017, finally traditional finance and institutional investors are here. They are looking around desperately for, what do they do?"
Surviving a hack of one of BitGo's largest clients in 2016, the company went on to become profitable for the first time earlier this year, largely thanks to a single revenue stream: the transaction fees charged to those using the hot wallets. A less significant amount of revenue comes from cold storage.
While the privately held firm isn't sharing actual revenue or user numbers, Belshe said both are "strong," enabling BitGo to double the size of its team from 20 employees in January to 40 today.
In spite of the patience Belshe and his team seem to have exhibited over the past few years, he maintains a humble stance when explaining this year's rapid expansion, saying:
"The industry has grown, and it's made us strong with it."
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in BitGo, BTCC, Coinbase and Kraken.
Mike Belshe image via CoinDesk archive