A partner at the $3bn venture capital fund General Catalyst Partners, Hemant Taneja focuses on investing in early-stage technology companies. He is a board member of Stripe and ZenPayroll, among other companies.
Last week, GC joined with Breyer Capital and Accel Partners to lead a $17m Series B investment in Circle Internet Financial, a digital currency company with services for both consumers and businesses. General Catalyst had already led a $9m Series A investment in Circle with Accel last fall.
CoinDesk caught up with Taneja at CoinSummit in San Francisco to find out more about his investment plans, what it will take for bitcoin to hit the mainstream and why the space is so popular with venture capitalists.
CoinDesk: What are your goals for investing in the bitcoin space?
Hemant Taneja: We don't think about bitcoin per se as a space and say 'we have to have 10 investments in that space'. We think about the small and medium business sector in general, and what are the tools that create a level playing field for small businesses to be competitive in the 21st century. The same sophistication that FedEx provides from a logistics perspective – what are the payments systems that provide that level of sophistication that large companies enjoy?
Circle fits in that regard: how do you create a platform so that businesses can safely accept payments in bitcoin and not be subject to the volatility that exists in the currency, for example, and how can consumers safely store bitcoins and transact with them? That's the core premise of the Circle investment.
We think about other areas in this space. We think about: how does this infrastructure really become a trusted platform, something that's accepted by the banks? If you're accepting bitcoin, how do you get your financials audited, for example? We think a lot about: what are the tools required so this currency can be fully functioning from a business perspective?
How far away are we from that point?
If you think about the current global financial systems, the dollar is today's bitcoin. That's what everything gets pegged to due to volatility. Systems are expensive, there are fees, there are foreign exchange issues, there are lots of issues, but it's a regulated currency. There is credit that exists around dollars, derivatives exist, financial instruments. All that infrastructure needs to be created when it comes to bitcoin.
This is not going to be an overnight success. This is something where you have to have a long term point of view. Start by using it for areas where, even in the absence of regulation, they can start to provide advantages to businesses. Then over time the various federal agencies will put their stakes in the ground and it will become a deeper part of our system. But that's a decade or more, that's not the next two years.
I think you'll see some regulation in the next 12 to 24 months, as various states put a stake in the ground and the Federal Reserve starts to have a point of view as to how they want to regulate it. But it will be an evolving structure.
There's this whole debate over how much should bitcoin be regulated. At Circle we have the philosophy that financial instruments should be regulated, so we want to work with regulators and bring them along.
That's what will accelerate the more pervasive use of bitcoin, the creation of financial instruments. The broader use case for bitcoin will only happen once states have come along.
Can you explain in more detail what Circle does?
Circle is a two-sided platform. On one side, how do you provide the consumer with the ability to safely buy, store and use bitcoins? On the other side, how do you help merchants accept bitcoin without having to deal with the volatility and the other issues that pop up?
So it's an alternative to CoinBase for the consumer, and to BitPay for merchants?
Yes, it's an alternative wallet from a consumer perspective and it's also a payment platform from a merchant perspective. But it's not an exchange.
What are your targets for investing further in bitcoin companies?
If digital currency was to become pervasive, there are some fundamental problems that need to be solved. We need exchanges based in New York and London that institutional capital can use and financial instruments can be created upon. That's one area.
The second thing that's important, as the Bitcoin protocol develops, you need a Red Hat-like company that takes on the open-source protocol and starts to provide services and tools around it, so it can be used in commercial settings more robustly.
From an authentication and identity perspective, you also need a Verisign equivalent in this space. At some point if bitcoin becomes regulated, you could see the agencies saying this kind of authentication mechanism needs to exist. That could be a pretty interesting, large company that could be created.
We're looking at, structurally, how do these pieces get put in place?
Are you looking to invest in a new exchange?
We're looking at exchanges across the board, either new or existing.
There are a lot of great entrepreneurs working on interesting ideas in this space in general. It's an exciting area – that's why we're here.
It seems like there's a flurry of activity in bitcoin startups right now.
The cycle has been: there was the early days, the Magic card traders at Mt. Gox. Then speculation drove a lot of the price enhancements, and with speculation, merchants started accepting it more and more.
What's happening now is really serious entrepreneurs like Jeremy Allaire at Circle, who has built multiple-platform companies before, are now getting into this space and saying, we could make this our life's work.
The quality of entrepreneurs being attracted to the space now is phenomenal. That's really what drives our interest. We're in the business of following smart people.
Is there also a difference in the number of pitches you get?
We saw a couple of dozen companies focused on various aspects of bitcoin last year, and that's getting enhanced.
Now that a number of early bitcoin investors have made enough money to become angel investors, is there more competition to fund startups in this space?
The competition to fund startups has not increased substantially. The number of people who changed status because of bitcoin is not that high. It was folks who were already well off who were speculating. The reason it's attracting angel investment is the quality of the entrepreneurs in the space.
Would you consider General Catalyst to be on the forefront of bitcoin investing?
We've been looking at it for about three years. I saw the first bitcoin companies over three years ago. We'd been talking through what we ought to do here, especially with our payments companies. I'd had several conversations with the companies – how does this play out? Through Y Combinator we made a small investment in Coinbase and Buttercoin.
And how has the interest level in the VC community changed since then?
Everybody's intrigued. There are a few firms that are actively looking in the area and then others that, it's on their radar, they are thinking about what to do. People worry about regulation.
Is there a critical mass point where most investors became aware of this? Are we past the point of initial scepticism?
I think it's still pretty early. The reason it's been on investors' radar is more because of their personal positions in bitcoin as a speculative asset class than as investors.
There's a common saying that, if you want to take advantage of bitcoin, the best thing is to buy bitcoin. That's not our business. We invest in technology companies. If you separate that out – how many companies are actually investing in technology companies – it's not a lot.
Have you encouraged the leadership of your payments startups, other than Circle, to start working with bitcoin?
Yes, to start thinking about it. But even without our encouragement they are thinking about it. All the relevant companies are getting their arms around it.
Are Stripe and Bigcommerce actively using bitcoin now?
To sum up?
Great entrepreneurs are entering the space and that's what's catching the attention of large investors like us.
This interview has been edited for length and clarity.
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