5 insights from Bitcoin's founder's quest for funding

Simon Burns, co-founder of bitcoin investment services startup Wealthcoin and recent graduate of California incubator Boost VC, shares insights from his journey to raise a seed round.

One of the most talked-about trends in the bitcoin ecosystem is that raising funding for early-stage bitcoin startups is becoming more difficult than it was a year ago.

Sure, bitcoin investments are up year-over-year, but funding is down quarter-over-quarter, and there are other reasons why venture capital dollars are reluctant to enter bitcoin startups.

In 2012, the industry’s growth rate was unclear, so it was easy to “sell the dream, not the data.” Now that the data on consumer wallet usage and merchant adoption is available, some investors are starting to stay away. In this context, our team has begun exploring raising a seed round of funding.

I have met early stage Bitcoin founders in San Francisco and New York who have done what I set out to do, from enterprise Bitcoin data as a service providers with a few customers to consumer wallet companies with tens of thousands of customers.

Despite their differences, they offered many of the same insights. Here are five things I’ve learned so far:

1. Bitcoin venture capitalists are ranked first, and general venture capitalists are rejected

The most oft-repeated piece of advice I receive from industry founders is this: Never talk to a VC who doesn’t have access to Bitcoin.

This opinion comes from both enterprise and consumer-focused founders, and nearly every founder I spoke to had a story about how they got to meet with a partner at a well-known brand venture capital fund. The next thing the founders knew, they were not the investment target, they were just the guinea pigs to teach the investment team how to use Bitcoin.

This is obviously less than ideal and can be a major source of wasted time.

While it’s possible that billions of dollars’ worth of funds developing Bitcoin will invest in your startup, don’t count on it. Lists of Bitcoin venture capitalists are publicly available on Crunchbase, Mattermark, and other sources.

My favorite lists are compiled from all of these resources and published by CoinDesk.

2. It is never easy, and it is never difficult

The founders I sought advice from spanned a wide range of fields, many had been in the Bitcoin space for years, and several others were new to the space.

While the experience levels for running a Bitcoin startup vary, that doesn’t mean the “golden age” is over.

I can’t tell you how many times I’ve heard “it was easier before X, and you’re going to have a hard time now.” Replace X with “Coinbase,” “Mt Gox,” or “the price of Bitcoin hits $1,000.” In every field, there is a time when raising money is easier, and a time when it is harder.

Few people mention how difficult it was to raise money during Bitcoin’s lows, whether it was the low price or the hard fork in 2013. Don’t let it distract you.

Melanie, CEO of Bitcoin hardware wallet Case, suggested:

“With a simple message, we have ‘we are the best Bitcoin hardware wallet’ and we look forward to your joining.”

3. The East Coast likes private blockchains, while the West Coast likes consumers

I admit that this is a very broad generalization, and I apologize to anyone who does not fit my assessment.

Through our first round of meetings with Bitcoin VCs, it is now clear that VC focus is split along geographic lines. California-based VCs are excited about the emergence of 21 Inc, a global exchange that will spark a consumer revolution with hundreds of millions of wallets.

In contrast, East Coast venture capitalists tend to focus on Wall Street “disintermediation” (meaning skipping all middlemen when conducting transactions and going directly between supply and demand) through private blockchains and other businesses using Bitcoin as a distributed ledger.

Both tend to be taken to extremes, and both opinions are wrong.

4. Bid early and continuously

There are several benefits to making your product public.

What needs to be made clear right away during the fundraising process is that if the meeting starts with “I’ve seen you on Twitter, people love this product and I can really see how this can scale” then investors will be more likely to bid.

Saving time and talking about more intricate details is good for both the VC and you. The only way you can get this far is by getting product into people’s hands and being public about what you’re building.

Matt Schlicht, CEO of bitcoin social network Zapchain, said:

"Go out there and never give up on bidding. Don't sweat the small stuff, bid on the biggest vision you want to build."

5. Find a mentor

For early stage founders looking to raise money right now, take my advice, don’t jump in blindly, talk to VCs.

While I’m no expert in raising seed rounds, I still had the pleasure of bouncing my pitch off with some of the best founders in the Bitcoin space and getting the right references and methodology to get started.

Take the time to discover three to five Bitcoin company founders you admire, and then send them a well-thought-out email that emphasizes how much you appreciate their contributions to the ecosystem and, of course, how much you love their product.

Build your network through these founders.

Practicing your pitch will be extremely valuable, and an introduction to their investors is worth 10 times more than another introduction.