In early trading, the shares of Coinbase have reached a market valuation of nearly $100 billion. The company used a direct listing for its IPO, which means there was no money raised.
Coinbase is the largest marketplace for crypto assets in the U.S. The company has 56 million users, compared to 32 million in 2019.
As crypto currencies like Bitcoin and Ethereum have soared during the past year, so has the growth for Coinbase. During the first quarter, the revenues spiked 9X to $1.8 billion and the net income came to over $700 million.
The origins of Coinbase go back to the summer of 2012. The cofounder and CEO, Brian Armstrong, was an engineer at Airbnb and submitted his pitch to the Y Combinator program. He received an initial $150,000 investment and then recruited Fred Ehrsam, who was a trader at Goldman Sachs.
Coinbase started as a wallet for bitcoin, which made it easier for people to buy and sell the digital asset. And within a year, the company would raise $5 million in a Series A funding from Union Square Ventures.
At the time, this was a huge bet. Keep in mind that the crypto industry was seen as a fringe corner of finance–and seemed more about hiding illicit transactions!
OK, then how did Armstrong make Coinbase so successful? And what about the prospects for the company?
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Well, to get some answers on this, I was able to interview Roger Lee, who is a venture capitalist at Battery Ventures. His firm invested in Coinbase’s $100 million Series D in August 2017 and the valuation was $1.7 billion.
So here’s what Lee had to say:
Tom Taulli: What was the main thesis for Coinbase? Has the thesis changed?
Roger Lee: The thesis was that crypto/blockchain was the next big platform shift for application development and Coinbase was the gateway to this new world. The thesis has not changed. Four years later, we are just getting started.
Taulli: What were some of the right moves the founders made to create the Coinbase marketplace? What can entrepreneurs learn from this?
Lee: They embraced regulation and compliance and made Coinbase the cleanest and most secure platform in the industry. As more and more institutions have looked for platforms to buy, sell, and custody crypto tokens, Coinbase has been an obvious choice.
The key lesson is to think long-term. Coinbase could have taken a bunch of short-cuts in building out their solution—for example, ignoring and minimizing compliance, regulations and so on. But they chose the long game and are accruing huge value as a result.
Taulli: What is your take on the crypto market now? The drivers? Long-term prospects?
Lee: Crypto/blockchain will enable a new suite of applications that will enable user experiences never possible before, such as tokenizing digital assets, distributed finance, and permissionless applications. Coinbase’s IPO will usher in a generation of innovation and investment that will be as impactful as the Internet has been over the past 25 years.
Taulli: What about the potential for a regulatory crackdown? Is this a serious threat?
Lee: We are all hopeful for more regulatory clarity in the future. The risk is that the regulatory pendulum swings too far and stifles a lot of innovation and pushes it overseas. The U.S. has the opportunity to lead and hopefully regulators will be grounded and thoughtful in their work.
Tom (@ttaulli) is an advisor/board member to startups and the author of Artificial Intelligence Basics: A Non-Technical Introduction, The Robotic Process Automation Handbook: A Guide to Implementing RPA Systems and Implementing AI Systems: Transform Your Business in 6 Steps. He also has developed various online courses, such as for the COBOL and Python programming languages.