Founded in 2014 and led by CEO and ex-JP Morgan executive Blythe Masters, Digital Asset Holdings had long been the subject of speculation that suggested that, despite its high-profile leadership, the startup was having difficulties raising an initial funding round.
All that uncertainty was laid to rest last week, however, when Digital Asset silenced rumors by raising upwards of $50m (some reports say $52m was the total) from 13 major financial institutions, among them traditional financial giants such as Citi, CME Ventures and Santander InnoVentures.
The $50m round is the largest to date for a startup seeking to use private or permissioned blockchain technology, which unlike the open-source bitcoin network, is purposed for use by a selected number of trusted institutions for use cases including syndicated loans, US Treasury repo, foreign exchange, securities settlement and derivatives.
Further, the news comes amid a decline in funding for bitcoin-focused startups in the sector. Data from the forthcoming CoinDesk State of Bitcoin 2015 Report, for example, reveals that, when revised historically, "blockchain startups" have collected 34% of the estimated $1bn in publicly reported industry funding.
For many observers, the Digital Asset round confirms what they believe is a trend that suggests venture capitalists are increasingly interested in blockchain startups, and that bitcoin-focused companies are experiencing more difficulties.
However, some of bitcoin’s most high-profile supporters in the venture capital community believe that the attention the Digital Asset round brings to blockchain technology is good for ecosystem as a whole, even for startups focused on the public bitcoin blockchain.
Tally Capital founding partner Matt Roszak told CoinDesk:
"At a high level, it’s a positive signal that people are putting money into this space. The public vs private blockchain debate is a different dynamic, but it's important for financial services companies, and Wall Street, to invest in this space."
Bart Stephens, managing partner at Blockchain Capital, an industry-focused fund whose investments include Abra, BitFury and Ripple, voiced his firm’s opinion that the "blockchain not bitcoin" trend is a "false dichotomy".
"Bitcoin and the bitcoin Blockchain are inextricably linked, but not limited," he said. "Certain use cases of blockchain technology might not include the bitcoin blockchain."
Still, Stephens sought to stoke the flames of competition, adding:
“May the best chain win.”
'Sink or swim'
While positive for the ecosystem, investors surveyed also indicated their view that the pressure is on Masters and her team to deliver a product or products worthy of the brand’s big entrance.
Virtual Capital Ventures partner William Mougayar echoed this sentiment, telling CoinDesk that, in his view, it is now on Digital Asset to "showcase actual implementations and deployed use cases".
"I would expect [Digital Asset] to clarify further their product roadmap, given that there is a degree of mashup of technology acquisitions inside their offerings. That said, I'm sure that each one of their investors will also keep them busy with projects, since they are all potential recipients of blockchain technology," Mougayar said.
Less optimistic was Trace Mayer, an angel investor in bitcoin firms such as Kraken and Armory, who said he believes Masters may be fighting an uphill battle against a superior version of blockchain technology.
Mayer further voiced concerns about the backgrounds of Digital Asset's new investors, telling CoinDesk:
"When you look at the list of everyone who’s investing there, it looks like they’re keeping it in the club, and that’s part of the problem. If they would have invented new technology, they would have invented new technology, and yet they’re going back to themselves to try and do this innovation? What do I think is going to happen? I think they’re going to lose a lot of money."
Mayer suggested that Digital Asset would now have to prove the quality of their code, or else face potentially hard consequences.
"Blythe is sink or swim now," he added.
Notably, Digital Asset has already begun the process of opening up about code produced by its team, recently detailing the specifications of its Hyperledger platform, which is being transferred to the Linux Foundation's Open Ledger Project for further development.
Among those who contributed comment, Mayer was more critical about Digital Asset's outlook. As noted by Roszak, the bitcoin industry is currently undergoing a period of acquisitions, but the two were mixed on what were likely to be the results.
In particular, Mayer put forth the criticism that Digital Asset was likely to experience challenges hiring developers who could help it fulfill its technology goals.
"[This is] a seven-year-old industry," Mayer said. "[Masters] comes from an industry with millions and millions of years of [combined] experience. When you need a senior analyst, it’s pretty easy to go find one. But if you want to find a senior blockchain specialist, where are you going to go find one?"
Mayer was also skeptical of the acquisitions Digital Asset has so far made, which have included blockchain startups such as Blockstack.io, Bits of Proof and Hyperledger.
Roszak, in turn, spoke more broadly about this climate, suggesting that developers who have been or will be acquired will now have the chance to contribute to further innovation.
"This is good because those innovators and entrepreneurs are going to continue that innovation track with other companies," he said.
Impact on startups
Cross Pacific Capital Partners’ Marc van der Chijs, an investor in BEX.io and frequent panelist at industry conferences, noted his belief the early-stage startup ecosystem could be most impacted by the deal.
“With this round, Digital Asset is suddenly the leading player in the blockchain field, so it will be harder for emerging startups to compete,” van der Chijs said.
Less concerned was Adam Draper, CEO of the San Mateo-based startup accelerator Boost VC, who called the news "great for the market".
“Bitcoin and blockchain are so intertwined, I think that it brings enthusiasm for both when something good happens."
The statements suggest that Draper believes the deal is unlikely to affect dealflow among Boost’s early-stage applicants, which have included bitcoin startups Blockcypher and Wealthcoin, as well as blockchain startups like Epiphyte and Align Commerce.
Ni'coel Stark, a former investor at Block26, said she didn't believe the funding would impact the early-stage space, given that other use cases are so abundant.
"Our fund won't be looking to the DAH team for any cues as we do not share the same focus. We are interested much more in consumer applications like media and content distribution, Internet of Things and mobile data security," Stark said.
Preference for permissioned
Still, observers were not in agreement that the Digital Asset round would be a boon for bitcoin and other public blockchains.
Alex Tapscott, CEO of North West Passage Ventures, an advisory firm for early-stage companies in the blockchain sector viewed the funding as a strong signal that market interest has shifted.
"[The funding round] demonstrated, once again, banks' strong preference for permissioned distributed ledger systems over open blockchains, such as bitcoin and Ethereum," he said.
Tapscott further lauded Masters as a "pioneer" that has successfully shifted conversation to blockchain technology among industry incumbents.
Van der Chijs added that the announcement confirms "private blockchains are in fashion" and that "public blockchains are dead" in the eyes of institutions and the public.
Now, he said, it's up to the bitcoin ecosystem to respond and innovate, first by ending the block size debate and then proving public ledgers like bitcoin are more secure than private alternatives.
"I think [there could be a] change again."
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