How did Coinbase, valued at over $100 billion, get its first venture capital?

Let’s start with a quote from Coinbase founder Brian Armstrong:

“Great things all come from humble beginnings.

Most of the things you see around you started out as little more than a simple idea and a rough prototype, and it took 5 to 10 years to turn it into an “overnight success,” with dozens of setbacks and course corrections along the way.

So pick something you’re passionate about and start doing it.”

Lianwen once introduced to readers the pitch deck that Coinbase used to introduce future development opportunities to its earliest investors in 2012. But in fact, the initial development of Coinbase, which is valued at over $100 billion today, was not all smooth sailing. Fortunately, Garry Tan, co-founder of Silicon Valley venture capital firm Initialized Capital, came to the rescue, signed the first check for Brian Armstrong, and helped him complete his first round of investment.

Garry Tan wrote an article to share this experience.

Written by: Garry Tan, Co-founder of Initialized Capital, a venture capital firm Translated by: Lu Jiangfei

In 2013, I gave Brian Armstrong (founder of Coinbase) a huge help by introducing him to the best investors in Silicon Valley. At that time, Brian Armstrong and another co-founder Fred Ehrsam were still working hard in the SOMA office, but now, the market value of Coinbase they founded has reached hundreds of billions of dollars.

Eight years ago, I attended their seed round roadshow, and it seemed like they didn’t quite understand product/market fit, as if nothing was going right. But after a few years of hard work, it’s clear that Coinbase has solved this problem perfectly.

I remember Brian Armstrong came to me and told me that the company was running out of cash and that the bitcoins were sold out. So I told him that it was time to raise a Series A and start going to market. In fact, this is the most important thing I think I did for Coinbase: helping them expand their capital.

Below, I disclose the email that helped them raise funds at that time (March 3, 2013), hoping it will be helpful to everyone:

Hi, Investors——

I would like to invite you to pay attention to Coinbase and support their Series A. Coinbase is the world's best Bitcoin transaction payment platform and the only exchange with a direct relationship with a US bank insured by the Federal Deposit Insurance Corporation. Its average daily trading volume is $X0,000. Coinbase's daily trading volume is almost 15% of the total trading volume of mtgox.com, the world's largest Bitcoin trading platform.

They have the market demand they need, but are capital constrained, hitting the capital limits set by the (banks) every time they raise funds (4x last month). Obviously, Coinbase is the only legal site that helps people get Bitcoin, which in turn helps more Bitcoin traders benefit. On the other hand, Coinbase is also at the forefront of promoting the legalization of cryptocurrencies, and they recently enabled Reddit (a top 50 social network in the world) for payments. Some of the largest and smartest hedge funds in the market, such as [ , etc.], are using Coinbase as a financial tool to hold long positions in Bitcoin.

I believe Coinbase has the potential to fundamentally reshape two of the largest payment methods in the world:

Credit Cards - The biggest achievement of the Internet is the removal of middlemen, and Internet transactions rely on the credit card infrastructure. However, the credit card infrastructure charges a transaction fee of up to 2.5% when processing transactions. In addition, ACH transactions are too slow to process, so Bitcoin is expected to become the preferred transfer currency because Bitcoin transactions do not cost anything to transfer them, nor do they have to pay a 1% fee to exchange them with US dollars.

Cross-border remittances - (Xoom has gone public today), Bitcoin is actually already an international currency. Just like it has disrupted traditional credit card transactions, Bitcoin will also disrupt cross-border remittances. Nowadays, more and more people are using Bitcoin for cross-border remittances. For example, Filipinos use Bitcoin to pay for commissioned work on oDesk and send it back to their country.

The total global market cap of Bitcoin is currently around $300 million — up 400% in the last year. Given the nascent state of both of these use cases, and Coinbase’s position at the forefront of the market, I think this is one of the most disruptive opportunities I’ve ever seen.

Brian Armstrong is an excellent software engineer who has also worked on Airbnb's anti-fraud team. He is an ideal candidate to start a business in the cryptocurrency field. Coinbase is not the kind of bank that you need to protect with a gun. Brian Armstrong has the ability to protect Coinbase.

I trust them so much that I thought you could provide an opportunity to talk to them as well.

Best wishes

-Garry

Coinbase CEO Brian Armstrong later recalled: "Raising funds sounded like a small thing at the time, but I really didn't have the confidence to negotiate with investors at the time. Garry gave me the right knowledge and helped us achieve this goal."

A month later, Coinbase received a $5 million Series A round from Union Square Ventures, and at the end of 2013, Coinbase raised a $25 million Series B round from Andreessen Horowitz. 2013 was an extraordinary year for all of us. As an early seed investor in Coinbase, Initialized is very proud to play a very important role in their journey to IPO.