For a while, on this blog, I attempted to pick one startup for that year which truly “broke out” of its shell. Dialing back the clock, one could say 2011 was Uber and Airbnb; in 2012, I wrote about Stripe; in 2013, I wrote about Snap; in 2014, I prematurely said there were none but then backtracked when Slack exploded; in 2015, I didn’t write one, and in 2016, my thesis was the big tech incumbents would grow even more powerful from the web’s and mobile’s network effects that startups wouldn’t even have the chance.
Now with 2017 nearing the end, I’m back to the point where I can point to this year’s tech breakout company: Coinbase. I know, it’s likely an obvious pick, but I unpacking “why” is a fun exercise I’ll attempt below.
Right Person(s): Founded by Brian Armstrong and Fred Ehrsam, blending backgrounds in finance, computer science, math, and engineering. Also noteworthy that Armstrong spent time as an early engineer at Airbnb, where he could see how much money the company would spend on Forex with transactions happening worldwide. To grow the company, Brian and Fred recruited and attracted some of the best folks in their space and some of the scrappiest startup builders and execs out there in a dangerously hyper-competitive recruiting environment in the Bay Area.
Right Idea: Initially, the idea to let folks hold Bitcoin in a wallet. And, eventually, the idea morphed into powering buying and selling, and getting real banks to back them up. That idea, coupled with adding Ethereum to broaden the offering, set the company on a course to be a potential kingmaker of tokens in the future.
Right Product: The exchange is the thing. Right now, we know of three ways to make money in this sector. One, you can trade tokens like a hedge fund; two, you can design the outline of a protocol and draft a whitepaper to market an ICO and raise money for yourself from the crowd; or three, you can be the preferred exchange with a banking moat as people buy, hold, and sell worldwide. I like to describe Coinbase as one of the key central nervous systems in this new world
Right Time: Coinbase went through YC in Summer 2012 and raised their Series A from USV in Spring of 2013. While it was a competitive deal, it was not a huge deal in terms of dollars going in, and very few firms had any theses in this space, let alone investment conviction. Fast-forward four years, and with Ethereum and ICOs exploding, Coinbase transformed into one of the world’s most trusted destinations. The company started well before it was “cool” to be in this space and therefore nailed its timing.
Right Market: CRYPTO! Enough said. Well, I can say a bit more… while lots of activity is frothy and could capture the attention of regulators, governments, and class-action lawyers, it is an immutable fact that if thousands of developers worldwide were incentivized to build new protocols to transmit information, and if those models could help rewrite how applications are built, how open source software is used, and a host of other use cases we can only theorize about today, it stands that “cryptocurrencies” can address a growing global market and be worth (if it all works) a multi-trillion dollar market. And if that happens for real, Coinbase will have the mindshare and a massive headstart on others.