Chime has agreed to stop using the word “bank,” after a California regulator pushed back

Chime can apparently call itself the “fastest-growing fintech in the U.S.” but it has agreed to stop referring to itself as a “bank,” per a new report out of American Banker.

Evidently, the eight-year-old, San Francisco-based outfit was the target of an investigation by the California Department of Financial Protection and Innovation after Chime used “chimebank” in its website address, as well as used “bank” and “banking” elsewhere in its advertisements, according to the agency in a settlement agreement.

As noted by AB, Chime made the decision to settle ahead of a deadline imposed by the regulatory body.

The development shouldn’t surprise anyone familiar with banking laws. No outfit can represent itself as a bank or credit union unless it’s licensed to engage in the business of banking. The commission that pushed back on the startup issues such licenses and regulates state-chartered banks in the state of California through the Department of Financial Protection and Innovation and said in the settlement that “at all relevant times herein, Chime was not licensed to operate as a bank in California or in any other jurisdiction, nor was it exempt from such licensure.”

Chime has at times attempted to draw a distinction between itself and a bank. When the company raised its most recent round of funding — a $485 million Series F round last September that valued the business at $14.5 billion — CEO Chris Britt told CNBC: “We’re more like a consumer software company than a bank . . . It’s more a transaction-based, processing-based business model that is highly predictable, highly recurring and highly profitable.”

Still, Chime, like many newer fintech companies, has seemingly embraced the term “neobank” and “challenger bank” and perhaps it’s no wonder. It’s certainly easier to convey to consumers what it is selling, which is banking services that include — in this case —  debit cards, spending accounts, and savings accounts, all offered through users’ mobile phones.

Given the settlement, expect to see more startups like Chime make clearer that in most cases, they do not have a bank charter and instead are being provided services by banks that do. In Chime’s case, for example, it now makes more plain on its website that it is a “financial technology company” and “not a bank” and that its services are being provided by the The Bancorp Bank and Stride Bank, which are both FDIC members.

Emergence, known for its enterprise bets, just rounded up nearly $1 billion across two new funds

Emergence, the 18-year-old, San Mateo, Ca.-based venture firm focused on enterprise tech startups, has rounded up nearly a billion dollars in capital commitments across two funds. It closed its sixth early-stage fund with $575 million; the outfit also raised a so-called opportunity fund for the first time, closing it with $375 million in capital commitments.

It’s a significant shift away from standard operating procedure for Emergence, which has funded a string of highly successful companies at their earliest stages but has, until now, maintained a conservative approach when it comes to fundraising, closing its fifth fund in 2018 with $435 million and its fourth fund with $335 million in 2015.

Emergence was an early investor in Zoom, Veeva, Bill.com, SuccessFactors and Box, among many other outfits.

We talked with cofounder Jason Green late last year about the firm’s approach and he said then that it had picked up the pace during the pandemic.

As he said then, Emergence is now “very much a data-driven, thesis-driven outbound firm, where we’re reaching out to entrepreneurs soon after they’ve started their companies or gotten seed financing.” He’d also said at the time that as of late last year, the firm was poised to close more deal than “maybe [we] have ever done in the history of the firm, which is amazing to me [considering] COVID. I think we’ve really honed our ability to build this pipeline and have conviction.”

Its portfolio company, Zoom, obviously helped too. “Zoom is actually helping expand the landscape that we’re willing to invest in,” Green said at the time. “We’re probably seeing 50% to 100% more companies and trying to whittle them down over time and really focus on the 20 to 25 that we want to dig deep on as a team.”

We talked with Green, who is stepping back from the firm, about this new fund yesterday; we’ll have more from that new conversation tomorrow. In the meantime, the new funds will be managed by cofounder and general partner Gordon Ritter and general partners Kevin Spain, Santi Subotovsky, Joe Floyd, and Jake Saper, each of whom joined the firm as junior investment professionals. They are joined by principal Carlotta “Lotti” Siniscalco, who joined the firm in 2018.

Eclipse Ventures has $500 million more to digitize old-line industries and bring them up to speed

Two years ago, we talked with Lior Susan, the founder of now six-year-old Eclipse Ventures in Palo Alto, Ca. At the time, the outfit believed that the next big thing wasn’t another social network but instead the remaking of old-line industries through full tech stacks — including hardware, software and data — capable of bring them into the 21st century.

Fast forward, and nothing has changed, not inside of Eclipse anyway. While the world has gone through a dramatic transformation owing to the coronavirus pandemic — never has the U.S.’s crumbling infrastructure been so apparent to so many – Eclipse is backing exactly the same kinds of companies that it always has and with the same size fund. Indeed, after closing its second and third funds with $500 million, the firm quietly closed its fourth vehicle earlier this month with $500 million in capital commitments from predominately endowments.

This morning, we talked with Susan about Eclipse’s focus on revitalizing old industries that remain largely untouched by tech, and why the pitch of Lior and the rest of Eclipse’s team has never been more powerful. Excerpts from that conversation follow, edited lightly for length and clarity.

TC: Because of where Eclipse focuses, you were long aware of the coming supply chain crises that the pandemic brought to the fore. Have your priorities changed at all as an investor? Did you have a to-do list going into 2020 and has that changed?

LS: Not really. We’ve been saying from inception that the infrastructure that we are living in is 50 to 60 years old across the board. We’ve been all of this time in those social software and fintech, new ideas and consumer trends. But we don’t live in the internet, we actually live in the physical world. And the physical world is not [receiving investment] at all. But much of that innovation can be applied to the world in which we are living, and what we want to do is bring that $65 trillion backstage economy into the digital age.

TC: In this go-go market, not a lot of funds are raising the same amounts as they have previously. Why did you choose to do so?

LS: We have a very specific strategy. We only lead early-stage investments in around 22 companies per fund, we [want] 20% to 25% with our initial check, and we double down on companies that we think are breaking out and try to lead two or three rounds in a row. And we know how to run the spreadsheets and we know how to make an assumption [about] what is the enterprise value we need to create in order to deliver alpha returns, and [that math leads us to] $500 million.

TC:  The last time we’d talked, Eclipse had also helped created and funded a company, Bright Machines, which primarily develops software for robotic systems inside of manufacturing companies. Have you launched any other companies in the last couple of years? I remember you don’t like the word ‘incubate.’

LS: We call it venture equity internally, but basically, we are very thesis oriented, so a lot of our investments start with us [circling around] an investment thesis and an area that we believe is getting really interesting. I’m right now working on a thesis around insurance in the manufacturing space [that will cover] working comp, facilities, assets . . . It [always] will start with a one-page thesis and we’ll talk inside the firm about it, and we’ll go hunt. But we don’t find what we like in a lot of cases. This is where we’re like, ‘Okay, we come from operating backgrounds. Why not roll up our sleeves and figure out how we can go and build these companies?’

You’re right that we did Bright Machines. We’ve also done Bright Insight (an IoT platform for biopharma and medtech that just raised $101 million in Series C funding led by General Catalyst), Chord (a commerce-as-a-service software for direct-to-consumer brands that just raised $18 million in Series A funding), and Metrolink (a new company that helps organizations design and manage their data flows). We’ve done [this model] a [few] times where we didn’t just invest in the company but we’re part of the founding team or we’re carving out assets. We’re trying to keep it very flexible.

TC: Interesting that you couldn’t find an insurance company focused on the manufacturing industry that you like.

LS: We have a lot of theses like that. We see a lot of horizontal business models and tech that [could work well] in the verticals where we’re playing and that we know need solutions. So, can you do a Slack for construction, or can you find the right people to build a Lemonade for manufacturing, or can you find the Shopify for industrial assets or spare parts?

TC: What size checks are you writing?

LS: I’d say $3 million to $4 million initial checks and up to $20 million or $25 million in a Series B, but you will find a lot of our companies where we invested $150 million plus over the lifetime of the company.

TC: Which company has attracted the most from Eclipse?

LS: I’d guess Cerebras [Systems, which reportedly makes the world’s largest computer chip].

TC: What do you make of what we’re hearing from the new administration in the U.S. on the infrastructure front. Do you think it’s talking about pouring money into the right verticals?

LS:  I was on a call with the manufacturing task force on Monday, and I will tell you — without getting into politics at all, because that’s above my pay grade — that the current administration is going to pour hundreds of billions of dollars, if not trillions of dollars, into upgrading the infrastructure of this country. And it’s going to be semiconductors, batteries, manufacturing, industrial infrastructure as a whole . . .

[I think last year’s ventilator shortage made clear] that we’d lost 100% of the manufacturing capabilities of this country and Western countries as a whole. And I think everyone now understands that you’re going to see a massive swing of investment in infrastructure and the only way to do it is through technology, because we actually don’t have a million people here that want to [work on an assembly line].  We actually need automation lines and software and computer vision and machine learning and everything that Silicon Valley is really good at.

TC: You have insight into what’s happening on the semiconductor front through Cerebras and other bets. There’s obviously a huge chip shortage that’s impacting everyone, including the auto industry. How long will it take for supply to catch up to demand?

LS: I think we’re going to see some big changes, but it’s  going to take many, many, many years. This is not software, we cannot bring everything up [to speed overnight] as you actually need fabs and cleaning rooms and assets. It’s pretty complicated.

It’s going to get worse in the next couple of quarters. It’s good for some of our companies that are working on the problem, but overall, as an economy, it’s pretty bad news.

An Oracle EVP took a brass-knuckled approach with a reporter today; now he’s suspended from Twitter

Companies and the reporters who cover them routinely find themselves at odds, particularly when the stories being chased are unflattering or bring unwanted attention to a business’s dealings, or, in the company’s estimation, simply inaccurate.

Many companies fight back, which is why crisis communications is a very big and lucrative business. Still, how a company fights back matters. And according to crisis communications pros who TechCrunch spoke with this afternoon, a new post on Oracle’s corporate blog misses the mark, as did the company’s related follow-up on social media.

In fact, the author of the post, an Oracle executive named Ken Glueck, a 25-year-long veteran of the company, has been temporarily suspended by Twitter, the company told Gizmodo this afternoon.

The trouble ties to a series of pieces by the news site The Intercept about how a “network of local resellers helps funnel Oracle technology to the police and military in China,” and Oracle’s response to the pieces. While it isn’t uncommon for companies to post responses to media stories on their own platforms (as well as to take out ads in mainstream media outlets), the crisis execs with whom we spoke — and who asked not to be named, given that they work with companies like Oracle — had a few observations that might be helpful to Oracle in the future.

Rule number one: don’t draw attention unnecessarily to work that you might prefer didn’t exist. Oracle’s newest post doesn’t link back to the new Intercept story that Glueck works to dismantle, but in an earlier post about the first Intercept story that ran in February, Glueck hyperlinks to the story on Oracle’s blog. It’s hard to know what Oracle wants its audience to read more — Glueck’s blog post or that Intercept story, particularly given its intriguing title (“How Oracle Sells Repression in China.”). “How many of Oracle’s customers or employees saw [The Intercept piece] and didn’t give a damn and now he’s drawing attention to it?” noted one exec we’d interviewed today.

Rule number two: Don’t attack reporters; attack (if you must) the outlet. In Glueck’s first diatribe against The Intercept over its February piece, he mentions the outlet 26 times and the author of the piece once. In Glueck’s newest salvo against The Intercept, he refers to its author, reporter Mara Hvistendahl, 22 times — mostly by her first name — and even invites readers of Oracle’s blog to reach out to him, writing in boldface: “If you have any information about Mara or her reporting, write me securely at kglueck AT protonmail.com.”

Though Glueck has since said the call-out was a tongue-in-cheek gesture, it was subsequently removed from the post, presumably owing to its “sinister tone” as observed by one of our experts. “No one likes a bully,” notes this comms pro, adding that  “bullying conveys weakness.”

Before

After

 

Rule number three: Know your purpose. By lashing out in what is a plainly derisive tone to The Intercept’s piece, as well as continuing to doubling down on its attack against  Hvistendahl on social media afterward, Oracle’s strategy became less and less clear, says one of the crisis specialists we spoke with.

“You can do what Ken did and mock” the reporter, says this person, “but is that going to stop The Intercept from continuing to do stories about Oracle? And what is the reaction of other media? Are they scared off by [what happened today] or are they going to circle the wagons?” (Below: a note from an L.A. Times reporter to Glueck today in response to his call for information about Hvistendahl.)

Rule four: Keep it short. Two of the pros we spoke with today applauded Glueck’s writing style, remarking that it’s both fluid and funny. Both also observed that his response is far too long. “I couldn’t get through it,” said one.

Last rule: Find another way if possible. The crisis experts we spoke with said it’s ideal to first work with a reporter, then the reporter’s editor if necessary, and if it comes to it, involve lawyers, of which Oracle surely has plenty. “That’s the chain of appeal if a reporter has gotten a story blatantly wrong,” said one source.

Very possibly, Glueck decided to throw out this rulebook by design. Oracle tends to do things its own way, and Glueck is very much a product of that culture. (The WSJ wrote a 1,300-word profile about Glueck last year, calling him a “potent weapon” for Oracle.)

As for Hvistendahl, she suggests there is another reason Oracle took the route that it did.

In a statement sent to us earlier, she writes that “Ken Glueck has published two lengthy blog posts attacking me and my editor, Ryan Tate. But Oracle has not refuted my central finding, which is that the company marketed its analytics software for use by police in China. Oracle also hasn’t refuted our reporting on Oracle’s sale and marketing of its analytics software to police elsewhere in the world. We found evidence of Oracle selling or marketing analytics software to police in Mexico, Pakistan, Turkey, and the UAE. In Brazil, my colleague Tatiana Dias uncovered police contracts between Oracle and Rio de Janeiro’s notoriously corrupt Civil Police.”

Founders Circle Capital has raised a new $355 million fund to buy secondary startup shares

Founders Circle Capital, a nine-year-old, San Francisco-based investment firm that strikes agreements with private, venture-backed companies to buy some of the vested stock options of their founders and employees — so they can buy a house or just breathe a bit more easily —  has closed its newest fund with $355 million in capital commitments, bringing the firm’s total assets under management to nearly $1 billion.

Not surprisingly, the outfit, which has more competition than ever — both by other secondary investment firms, aggressive outfits like Tiger Global that routinely acquire secondary stakes in companies,  as well as special purpose acquisition companies that are taking companies public a lot faster and alleviating the need of early shareholders to cash out via private sales — is also introducing a new twist to its business.

Specifically, according to both cofounder and CEO Ken Loveless and the outfit’s chief people officer, Mark Dempster, Founders Circle is now offering startups so-called flexible capital, too. We talked with Loveless and Dempster via Zoom late last week about the new fund and generally what they are seeing out there. Excerpts from that chat, edited for length and clarity, follow.

TC: This is your third fund. How does it compare with your earlier funds?

KL: We’ve raised three main funds. This is our third, but we’ve raised something like 17 entities [altogether], including some co-investment vehicles and special purpose vehicles to invest in some of our companies.

TC: And you’re now changing your approach a bit. How so?

MD: [We’re now offering] a mix of primary and secondary [investment dollars] and we can [offer these] are any time and in any combination. These [investments] don’t have to happen during a certain [distinct] round of financing; we might get involved in eight to 10 different investments [tied to the company].

TC: Do you have a debt partner so you have more capital at your disposal if you need it?

KL: We have a strategic partnership with Silicon Valley Bank, so they are typically the lender to these individuals as they solve their liquidity. In many cases, we provide an equity backstop to that.

TC: How has your world changed now that people perhaps see a light at the end of the tunnel, with companies becoming publicly traded entities in a variety of ways that we weren’t seeing in recent years? Are employees or founders any more or less reluctant to share their shares in secondary transactions?

KL: There hasn’t been any significant change. We had a portfolio company go public in UiPath that was 16 years old and if you think about how many things change in your life over that kind of time period, it would be quite a long list. We also had [stakes] in DoorDash and Poshmark, and if you look at the time between when they were founded and became publicly traded, it was close to a decade for both. So [while there is some market receptivity for companies] that really are two years old or three years old, the average [time from launch to publicly traded company] is still 10-plus years on average.

TC: A lot of outfits are competing for the same shares that you want to buy, including Tiger Global, which is paying very high prices in many cases. In addition to competing with these companies, I’m wondering if you ever sell your shares to them.

KL: We are typically a long-only investor. We have not sold any secondary shares. We typically hold through a public offering. We’re really trying to focus on those companies that can truly be in enduring, decades-old businesses. We obviously wouldn’t hold that long, but we’re holding into the public markets.

TC: How long do you hold your shares?

KL: We’re not bound [by anything] but what we tell our [investors] is that we typically hold for an average of one year post public offering [then distribute the shares to them].

TC: How, if at all, are you playing this SPAC phenomenon? Are you seeing opportunities to jump into these blank check companies before they merge with brands you’ve maybe been tracking?

KL: We have not directly participated in a SPAC, but we have had some of our portfolio companies merged with some SPACs to become what we hope will be enduring public businesses. So we’ve taken advantage of [those exits] as a financing tool.

TC: You’ve been at this for roughly a decade. How many companies have you backed and how many of these have exited?

MD: We’ve invested in 73 companies and 31 have exited.

TC: I know you tend to invest at a later stage — have there been any shutdowns owing to unforeseen circumstances?

MD: We’ve had zero company shutdowns.

TC: And what about what you’re having to pay? How has that changed over the last year or so?

KL: We just did an analysis of this and if you adjust for growth, we have not seen a substantial raise in valuations that we have paid compared to where prices were pre pandemic. We’re paying the same dollar for a point of growth as we were before [COVID-19 struck the U.S.].

TC: Why do you think that is?

KL: Companies that have solid unit economics have become better at both benchmarking their internal metrics, and investors have become better at understanding those and metrics. The consistency and underwriting by investors is becoming better and better.

Cloudflare rallies the troops to fight off another so-called patent troll

Nearly four years ago, we wrote about a battle between Cloudflare, the San Francisco-based internet security and performance company, and Blackbird Technologies, a firm that quickly amassed dozens of patents, then began using them to file dozens of patent infringement lawsuits against companies, including Cloudflare.

The suit was typical in every way, except how Cloudflare responded to it. Unlike many targets of similar lawsuits that opt to settle, Cloudflare fought back, asking very publicly for help in locating prior art that would not only invalidate the broad patent that Blackbird was using to sue Cloudflare, but to invalidate all of Blackbird’s patents. The public answered the call, and two years and 275 unique submissions later, the case against Cloudflare was dismissed and Blackbird’s operations were diminished.

One might surmise that given the stink that Cloudflare raised, other patent trolls might choose an easier target. Yet last month, Cloudflare was sued yet again, this time by Sable Networks, a “company that doesn’t appear to have operated a real business in nearly ten years — relying on patents that don’t come close to the nature of our business or the services we provide,” as says Doug Kramer, general counsel of CloudFlare.

Unsurprisingly, Cloudflare isn’t going to take this newest action lying down. This morning, after revealing the lawsuit publicly, it invited the engineering community to again “turn the tables” on patent trolls by inviting them to participate in a crowdsourced effort to find evidence of prior art to invalidate the “ancient, 20-year-old patents” that Cloudlflare says that Sable is is “trying to stretch . . . lightyears beyond what they were meant to cover.”

Cloudflare is also offering a $100,000 bounty to be split among entrants who provide the most useful prior-art references that can be used in challenging the validity of all of Sable’s patents, not just those being asserted against Cloudflare.

The idea is to deal a big enough blow to Sable that not only is its case against Cloudflare hobbled but also future cases against other entities.

“We feel fortunate that we didn’t run into one of these cases earlier in our history, where it might have really taken us off our path,” Kramer tells TechCrunch. “Blackbird came along when we had a bit more stability, and we have even more stability now.”

Given that position of relative strength, he says, “We want to go about this in a way that will force [Sable] to define their claims and stand on their claims, and we want to do it in a way that leaves something behind for other folks, particularly smaller companies that may come behind us, so we want to put [Sable’s] entire patent portfolio under scrutiny.”

Certainly, Cloudflare is not the only company to attract Sable’s attention. Indeed, a quick search shows that Sable has also sued the cybersecurity business Fortinet, the data platform Splunk, and networking giants Juniper Networks and Cisco Systems, among roughly a dozen other companies.

Eight of those cases — including with Juniper and Cisco — have already settled. The reality is that most companies see infringement cases by non-practicing entities like Sable as a nuisance to be quickly resolved because they are a distraction and because the expense of fighting is often equal to or even more than the cost of settling.

The companies also lose oftentimes. Though in 2017, the Supreme Court ruled unanimously that patent holders suing corporations can’t seek out a friendly court — their venue of choice was long the Eastern District of Texas, where 2,500 cases were brought in  2015 alone, 95% of them initiated by non-practicing entities like Sable — business remains brisk in Texas, where legal teams bring in a lot of money and often successfully cast major corporations to local jurors as villainous.

A report in the Houston Chronicle last year noted that businesses and individuals filed 747 patent complaints in Texas during the first six months of 2020 — double the number from a year earlier and twice as many as any other state. To underscore the point, it noted that while patent infringement lawsuits jumped 16 percent nationwide in the first six months of last year, the number of new disputes in Texas soared 96%.

Some of those cases landed in the Eastern District of Texas (and mostly in Marshall, Texas, which boasts a population of 23,000). Some landed in the Southern District, which covers Houston and, according to that same Houston Chronicle report, experienced a 43% jump in new patent violation cases last year.

But Waco, the Western District of Texas, has become the new center for patent infringement cases. That’s largely because the district encompasses Austin, where many tech companies have offices, and notably, a key piece of that 2017 Supreme Court ruling limited filings to venues where the defendants have actual operations.

So-called patent trolls have also found a friend, seemingly, in U.S. District Judge Alan Albright, a former trial attorney who was nominated to become a federal judge in Waco in 2018 by former President Donald Trump. In the two years following his confirmation by the Senate, Albright has come to preside over the most popular court in the country to litigate intellectual property disputes, with a very high percentage of plaintiffs winning their cases.

It’s no wonder that outfits like Sable continue on their path. Scoring early settlement agreements can add up to big business. (Their continued success is also why litigation finance funds continue to spring into existence.)

Cloudflare is a much bigger quarry now, too. While Blackbird sued while it was still a privately held entity, Cloudflare went public in 2019 and currently boasts a market cap of $26 billion.

Kramer is acutely aware of the upward battle ahead. It’s why despite its resources, Cloudflare is reaching out to the public again. “I don’t mean to sound self-serving, but we have a very intense group of engineers and people in this space who read [our] blog regularly,” Kramer says of the detailed post he published this morning relating to the case. “I also think this really strikes a nerve with some people because they are so bothered by” the practice of patent infringement suits.

Kramer says it’s impossible to overstate the impact of these far-flung engineers in Cloudflare’s fight against Blackbird, “It wasn’t just people who thought, ‘Oh, it’s a chance to make some money and I’m gonna go do this.’ There wasn’t a lot of junk in [what they submitted]. Instead, we had people saying, ‘Hey, listen, I worked on this back in the ’90s when I was over at this company, and it’s crazy that they’re trying to say they invented this,’ and they would send us articles that they had written.

“We had people doing research at libraries and stuff like that,” adds Kramer, “but we also had people who had worked in the industry and said, ‘I worked on this three years before they ever got that patent; there’s no way they should be able to create this [trouble] based something that I did.'”

Cloudflare is hoping again that a lot of its followers will get energized, but “also the exact right people, who are motivated by this and and who are very, very knowledgeable in this space,” says Kramer.

“We’re hoping to get the gang back together.”

Bobby Goodlatte has designs on how to succeed in venture, and so far, so good

Bobby Goodlatte has only been an investor for about a decade, but he appears to have already made tens of millions of dollars, contrary to the expectations of some traditional VCs who have privately, and publicly, griped that too many novice investors have flooded into the industry.

“I remember a very prominent investor saying at the time, ‘All these new angel investors, they’re all going to lose all their money; they’re fools for doing this’,” recalls Goodlatte, who was recruited out of college to become a product designer at Facebook and left four years later, when the company went public. “I’m glad that I didn’t get shaken off of it.”

As it happens, Goodlatte’s second check — from his own pocket — went to Coinbase. It was an auspicious start for Goodlatte, who more recently formed his first institutional fund, Form Capital, with entrepreneur Josh Williams, an outfit that offers up to 40 hours of design help with logos or packaging or whatever else a team might need, with each check that it writes.

We talked with Goodlatte this week about the venture firm and its $12 million debut fund, which is largely funded by Goodlatte (it also counts the fund of funds Cendana Capital as a limited partner). He shared why he thinks the biggest returns in the coming years will flow to very small funds that feature a big financial commitment from the general partners. He talked about investing in other small funds to ensure strong deal flow. He also shared why three months ago he moved to Miami, where he believes a “movement” is afoot. Excerpts from that chat follow, edited lightly for length and clarity.

TC: You were an early designer on Facebook’s user growth team, working with Chamath Palihapitiya, among others. It’s interesting that you stayed for just four years, leaving in 2012 when the company went public. 

BG: I had given some thought to staying longer, and obviously many of my friends are still there and have risen the ranks and done extremely well. I was just very eager to get started as an investor . . . and at the time, Facebook was saying, ‘Well, you can’t stay here and do angel investing.’ Little did I know that some people skirted the rules a bit and ended up angel investing [without leaving]. But I was very excited to dig in and quite glad that I got started when I did [because] my second-ever angel investment was in Coinbase and had I stayed longer, maybe I would have missed that one.

TC: You’ve mentioned in the past that you’d been a Bitcoin nerd and followed some of the discussion threads that others might have missed. What sparked that early interest?

BG: There’s that famous William Gibson quote: “The future is already here — it’s just not evenly distributed.” I think about that in quite literal terms in the sense that there are sort of pockets of the future, these bubble hiding all around. In 2012, think the Bitcoin subreddit was this bubble where, within it, people were talking very excitedly about Bitcoin and if you weren’t in it, you would kind of scratch your head about it.  . . . I felt a similar feeling about Facebook back in the day. I was a college student when Facebook launched, and everyone who was in college at the time was kind of privy to this future that was quite obvious amongst college students. But if you weren’t in college, people would kind of scratch their heads and say, ‘I don’t really understand what’s going on.’

TC: Can you comment on your return from Coinbase? You were an investor in the A, C and E rounds. Is there anything you can say about the cash on cash return?

BG: A lot of this is fairly public knowledge at this point, but the Series A cost basis was 20 cents, so folks can kind of do math based on that.

I think so much of startup investing is [that] you can kind of have a prepared mind about things, but there’s also an element of luck about it. I don’t think I had complete foresight when I made the investment that Coinbase was going to be an $80 billion-plus company. I thought it was going to be successful. But it has clearly eclipsed even my greatest expectations, and I feel very lucky and fortunate to have to realized that.

TC: There are various on-ramps to VC these days, including AngelList syndicates and rolling funds. Did you ever take advantage of these or did you keep writing checks from your own pocket before founding Form Capital?

BG: I don’t know if I should should be embarrassed to say this or not, but when I first got my start as an angel, I got advice from financial advisors and who said, ‘When it comes to angel investing, only invest a tiny percentage of your of your overall net worth into this.’ And to be honest, I maybe foolishly ignored that advice. Obviously, it has netted out in the long term, [but] it was large risk I took. I did 40 deals out of my own pocket. I was sort of getting closer to the end of running out of tape.

[At that point] I wound up investing through a small scout like fund for a few deals and hit some hit some incredible deals through that [and] I was able to play around, investing at a larger check size. It also helped me sort of step-stone up to doing [Form Capital].  But yeah, I  kind of ignored a lot of the advice and put a lot of my own personal net worth into into seed-stage investing and thankfully, it all worked out. Otherwise, I could have been in trouble. I think the advice is well-considered.

TC: How might you advise someone just spinning out of, say, Coinbase and thinking about jumping into angel investing? Go it alone? Use one of these other products?

BG: I think it depends on their risk profile and their own appetite and whether they truly enjoy this type of work, because it can become a lot of work. If you want to develop a real portfolio, you have to take a lot of meetings, you have to make yourself available and put yourself out there in a way that I think a lot of folks who wind up getting a very meaningful personal exit may not want.  For those folks who are trying to break into venture who haven’t had this sort of exit, I say go for it. I say welcome. Let’s go invest together. Honestly, there’s a lot of space for small check investors. I think the folks writing small collaborative checks have an incredible opportunity to post some insane multiples.

TC: You stress collaboration. Are people more or less collaborative when you started in 2012? Seed-size checks are getting bigger, which suggests things have grown more competitive.

BG: There was a period where it was extremely competitive, and for some folks who are deploying out of a certain fund size, it might feel extremely competitive right now To me, it feels at its most collaborative, including because I am personally an LP in a number of tiny funds [headed by] tremendously talented managers who are just getting their start . . .

I do think there are a number of funds that raised more than they should have; I think there’s a danger zone somewhere around $80 million where you’re forced to be a lead investor and you can’t be a collaborative investor and so it becomes this slug-it-out, duke-it-out [situation] with other other funds as to who’s going to be the lead writer on a given deal . . .

If you’re aiming to write a large check, let’s say $1.5 million, and the founder comes back to you and says, ‘We can’t do that, but we can give you a $150,000 allocation,’ that’s just absolutely fatal to somebody trying to deploy a very large seed fund, versus if my target check size is something like $250,000. If I get squeezed down to $150,000, I can actually make that work economically within the fund math.

TC: So you’ll write a check as small as $150,000. What’s the upper boundary, and how much ownership are you targeting when you fund a startup?

BG: It’s upwards of $500,000, give or take, and our target is 3%. But, again, part of the joy of being a small fund manager is more flexibility in terms of of constructing a portfolio. In the cases where we may get squeezed down a little bit, or we want to invest at a slightly higher valuation than is typical, we can paint outside the lines a tiny bit more.

TC: Meaning bigger checks? Do you typically raise special purpose vehicles, or SPVS, in order to take a bigger bite of certain companies?

BG: One pattern for that was my personal investment in Coinbase. By being close to the company, by helping on a few very minor things over the years in terms of design, in terms of making connections to design firms and helping recruit some designers, they gave me follow-on allocations. And then in the Series E, I was able to raise an SPV into the deal based on the idea of building a deep relationship with the company.

That’s essentially the model going forward. We may or may not continue to pursue SPVs. We may pick a different vehicle in the future for how to deploy that follow-on capital. But the idea is: wedge in early with a small check, put a lot of skin in the game on that check [with a bigger general partner commitment in the fund than is typical], and build a relationship and try to be disproportionately helpful relative to our check size.

TC: You tweeted that for that SPV,  you pitched 50 different parties, and only three said yes.

BG: Yeah, it was amazing in late 2018 how in the dumps the crypto market was, and people thought that the overall stock market was going to be heading that way, so this was a very, very difficult SPV to raise. I wasn’t the only person who had one, and so there was some amount of market competition. Then just the nature of SPVs is such that you get your allocation, and bang goes the starting gun, and you need to very quickly talk to a lot of people.

[Still] it is remarkable how quickly the perception of that company has changed over just two short years, give or take. I give a lot of credit to the investors who backed us on that SPV because they they took the risk with us. I’ve had a number of people [since] say, ‘Oh, you should have called me, I would have invested.’ And maybe they would, maybe they wouldn’t have.

TC: You talked at the outset about communities and bubbles and I can’t help but wonder if you think you are hearing about more interesting deals, having moved recently to Miami three months ago, than you would in the Bay Area. 

BG: It does really feel like that’s the case, and I started seeing this maybe in late November, and then very quickly said, ‘Okay, why not? This feels fun, this feels exciting.’ And I’m glad I made the jump, because while I love San Francisco — I think San Francisco is a tremendous place [that] will always be one of the great tech epicenters of the world  — I think a lot of folks moved here because they were looking to change things up. And the energy that comes from that, where everyone’s trying to make this work, is really quite exciting.

A lot of people said, ‘Oh, you’re going to miss out on things by moving to Miami, you’re going to take a step back in your career.’ And really, it’s been the opposite of that. It’s been a total accelerant of my career and investing.

We’re an interesting fit for Miami because Miami is known as being a design capital, and we’re a really design-driven fund, and there’s a lot of parallels there. [But I also realized that] I can be one of many thousands of new funds based in the Bay Area, or I can be one of a tiny handful based here in Miami and get all these tailwinds and have the mayor hype us up, and that sounds like a good deal to me.

Pictured above, left to right: Goodlatte with Coinbase co-founder Fred Ehrsam, who more recently co-founded the cryptocurrency investment firm Paradigm.

Oath Care just raised $2 million to develop a social, health-focused app that groups expectant and new parents

Being an expectant mom can be frightening, as can mothering an infant or toddler. The answers don’t come automatically, and while there’s no shortage of books and websites (and advice from grandparents) about how to parent at every stage, finding satisfying information often proves a lot harder than imagined.

There are online social groups that deliver some of the social and emotional support that new parents need, no matter where they live. There are many dozens of mom communities on Facebook, for example. However, it’s because there’s room for improvement on this theme — big groups can feel isolating, bad information abounds —that Oath Care, a young, four-person San Francisco-based startup, just raised $2 million in seed funding from XYZ Ventures, General Catalyst, and Eros Resmini, former CMO of Discord and managing partner of the Mini Fund.

What is it building? Founder Camilla Hermann describes it as a subscription-based mobile app that’s focused on improving the lives of new mothers by combining parents with a whole lot in common with healthcare specialists and moderators who can guide them in group chats, as well as one-on-one video calls.

More specifically, she says, for $20 per month, Oath matches pregnant and postpartum moms in circles of up to 10  based on factors like stage of pregnancy, age of child, location, and career so they can ask questions of each other, with the help of a trained moderator (who is sometimes a mother with older children).

Oath also pushes curriculum that Oath’s team is developing in-house to members based on each group’s specific needs. Not last, every group is given collective access to medical specialists who can answer general questions as part of the members’ subscription and who are also available for consultations when individualized help is needed.

Hermann says the pricing of these 15-minute-long consultations is still being developed, but that the medical experts with whom it’s already working see the app as a form of lead generation.

It’s an interesting concept, one that could be taken in a host of directions, acknowledges Hermann who says she was inspired to cofound the company based on earlier work developing a contact tracing technology created to track outbreaks like Ebola in real time.

As she said yesterday during a Zoom call with TechCrunch and her cofounder, Michelle Stephens, a pediatric clinician and research scientist: “We’ve fundamentally misunderstand something really important about health in the West; we think that [changes] happen to one person at a time or one part of the body at a time, but it always happens in interconnected systems both inside and outside the body, which fundamentally means that it is always happening in community.”

For her part, Stephens — who was introduced to Hermann at a dinner years ago — says her motivation in cofounding Oath was born out of research into childhood stress, and that by “better equipping parents to be those positive consistent caregivers in their child’s life,” Oath aims to help enable stronger, more intimate child-parent bonds.

It might sound grand for a mobile app, but it also sounds like a smart starting point. Though the idea is to match mothers in similar situations at the outset to help bolster theirs and their children’s health, it’s easy to imagine the platform evolving in a way that brings together parents in numerous groups based on interests, from preschool applications to autism to same-sex parenting. It’s easy to see the platform helping to sell products that parents need. It’s easy to imagine the company amassing a lot of valuable information.

Indeed, says Hermann, the longer-term vision for Oath is to create rich datasets that it hopes can be used to improve health outcomes, including by identifying health issues earlier. Relatedly, it also hopes to build relationships with health systems and payers in order to increase access to its products.

For now, Oath is mostly just trying to keep up with demand. Hermann says the “small and scrappy” company found its first 50 users through Facebook ads, and that this base quickly tripled organically before Oath was forced to create a growing waitlist for what has been a closed beta until now. (Oath is “anticipating a full launch in late summer,” says Stephens.)

That’s not to say the company isn’t thinking at all about next steps.

While right now it is “laser focused on building out the most exceptional experience for this specific cohort of users in this specific period of time of their lives,” says Hermann, once it builds out many more communities of small trusted groups with “high engagement and high trust,” there is “a lot you can layer on top of that. It’s virtually limitless.”

Early Coinbase backer Garry Tan is keeping the “vast majority” of his shares because of this deal

A week after the cryptocurrency exchange Coinbase staged a direct listing, much of the focus remains on the wealth that the listing generated for executives at the company, its board members, and its private investors. Citing data from Capital Market Laboratories, Cointelegraph on Monday noted, for example, that 12,965,079 shares worth close to $5 billion at the time had been sold by insiders by the close of stock market on Friday.

One early investor who sold some of those shares is Garry Tan of the venture firm Initialized Capital. Tan worked previously as a partner with Y Combinator, where he helped ensure that Coinbase was accepted into the program and he remained the primary contact for founder and CEO Brian Armstrong, backing Armstrong three more times with seed checks after launching Initialized Capital with two other YC alums: Alexis Ohanian and Harjeet Taggar. Before the listing, Initialized still owned .08% of Coinbase, which currently boasts a market cap of $64 billion.

We talked with Tan late last week, who spoke candidly about the event and its impact on him personally. Tan also gave a fairly specific reason why he’s holding on to the “vast majority” of his stake for the foreseeable future. You can hear our longer conversation here; we’re also featuring excerpts from that discussion below.

TC: What year was that when you wrote that first check to Coinbase [on behalf of Y Combinator]?

GT: It was 2012. I believe it would have been in April or May and then the batch started in June and I had just raised $7 million from Alex Bangash, who’s a great fund of funds operator. He does direct [investing] now, too. But he’d been trying to invest with Y Combinator for many years., and Jessica [Livingston] and Paul [Graham] said, ‘There’s probably not a way for you to do that. But here, you should meet Garry and Harj and Alexis, who are raising a very small $7 million fund.’ And he ended up giving us $5 million of the $7 million and Coinbase was one of our very first checks; we wrote a $50,000 check [with a] $9 million pre-money cap.

TC: Did that create any complications with Y Combinator as Coinbase started to take off? Did Initialized end up with a bigger stake in the company than Y Combinator?

GT: I think YC still ended up getting more. The other thing that was true back then was it was commonplace for YC partners to invest in YC companies. And it is true that we were quite successful. And we were asked to stop doing that, and we did. And that’s when I helped raise YC Continuity. And once that got up and running in 2015, that’s when I decided to spin out.

I love YC. It was in super great shape. And it’s more fun to be a pirate than to join the Navy. So I jumped ship and worked on our third $125 million seed fund back in 2016. But [we’re] still close friends with all of our friends back at YC and I think super fondly of my time back there.

TC: A lot of numbers have been published about who owns much and how much it’s worth. If you detangle Initialized’s stake from YC’s, your stake [would be valued around] $800 million. Were you restricted in any way from selling?

GT: No.

TC: Nobody was?

GT: The company didn’t need to raise money. It’s a profitable company. That’s a super powerful thing to really know. This is not a speculative, cash-burning entity. This is a kind company with a durable moat and hyper profitability.

TC: Would you share what percentage of your stake you sold?

GT: I sold basically a fraction of my shares. As [with] many early employees, to be frank, this exit to me and my family is actually quite meaningful, just like it is for a lot of the other people who started off as engineers, I myself and an engineer [who] had credit card debt as recently as 2011 before I became an investor at Y Combinator and Initialized. We have to remember that Silicon Valley is where a lot of skilled builders are creating their own first wealth.

And all that being said, like a lot of other people who are also long with the company, I’m holding the majority and vast majority [of my shares] because I’m super long on both crypto and Coinbase.

TC: How do you think about its valuation and whether it’s sustainable? So much of the company’s revenue derives from transaction fees and invariably, competition is going to drive those down to potentially zero. Robinhood already offers commission-free trades on crypto [and is also expected to go pubic soon]. 

GT:  In the short term, you think about it as an exchange. In the long term, you need to think about it as what is: a trusted on-ramp and user experience, and then [there’s] also the infrastructure.

We were actually the first seed investors and largest institutional holder of stock in Bison Trails [a firm that specializes in building blockchain infrastructure for banks and other companies] and was bought by Coinbase late last year [though the deal was announced in January for undisclosed terms]. This is a company that I think a lot of people should pay attention to even now, because all of crypto is switching from proof of work — [an energy intensive process] that is how Bitcoin and Ethereum currently get to consensus — to [a new way of mining called] proof of stake, which is far more efficient and pretty much all of the newer blockchains are shifting to [and that rewards miners with transaction fees].

So this was a huge strategic buy for Coinbase and sets them up to be like a cloud infra company the way AWS is. And if you spend time with Amazon’s annual report, you realize that [infrastructure] is a massively profitable space. So that is the way to think about Coinbase.

TC: And Coinbase has customers of this cloud infrastructure service already.

GT: It’s already the preferred infra company for a great number of the top 100 new crypto blockchains.

Long term, Microsoft is not one revenue stream, it’s not a one trick pony. They started with an OS. They used their advantage in operating systems to build applications, and then OS and applications together allowed them to also build server software.

[The best] companies stack durable advantages in multiple industries, and they do it on the back of hiring the best software engineers, the best designers, and the best product people, and that is enabled by a being extremely profitable, and then being a great place to work. And that’s the same for Coinbase as it is for Google, Facebook, for Amazon — any of the big tech giants.

(Again, you can check it out this chat in its entirety here. We’re also talking soon with Bison Trails CEO Joe Lallouz, so stay tuned for more on this front.)

Katie Haun on saying yes to Coinbase and where a16z’s crypto fund is largely placing its bets now

Coinbase, the newly public cryptocurrency exchange, has had it share of ups and downs. Still, the nearly nine-year-old, San Francisco-based outfit got a lot right ahead of its highly successful direct listing this week, and among those things, seemingly, was inviting in former federal prosecutor Katie Haun to join its board in 2017.

At the time, Haun had already spent 11 years working for the Justice Department, handling cases relating to violent murders and organized crime and, later, the fast-growing world of cryptocurrencies. In fact, Haun had gotten to know Coinbase and other up-and-coming startups as part of her job to learn about and better understand digital currencies and decentralized systems. Because Haun, who won every case she argued, was ready a change, when Armstrong reached out about a formal role, she said yes. (A year later, Andreessen Horowitz, which wrote its first check to Coinbase in 2013, separately brought her aboard as the venture firm’s first woman general partner.)

The combination has proved powerful and lucrative. As an independent board member at the outset, Haun was given shares for her service that are reportedly now worth roughly $150 million. (a16z’s stake is valued at more than $11 billion.) Meanwhile, Haun — who recently renewed her board term — says the company’s most impactful days are still ahead.

We talked yesterday with Haun about Coinbase’s valuation, its evolution from here, and her work with a16z’s crypto fund, which she co-leads with longtime general partner and fellow Coinbase board member Chris Dixon and where the team has likely “seen and done more deals in the last couple months than in the last couple years,” she said. She also noted that a16z has been pouring the majority of its money into tokens. Our chat has been edited lightly for length and clarity.

TC: You were working on these intense cases, including murder trials and at some point, your superiors at the Justice Department offer you the chance to figure out what Bitcoin is all about. How did that lead you to Coinbase?

KH: I actually came to know Coinbase through some of the work I was doing on crypto cases in the government in the early days, I founded the U.S. government’s first cryptocurrency task force out of the Justice Department and part of our job was to go meet with companies or entrepreneurs in the space and get to know what they were up to and how we could work with them. Of course, as with any industry, the government’s objectives didn’t always align with the crypto industry’s. But sometimes there were synergies [and] sometimes they might need to reach someone in the government at one of these companies. Coinbase was not the only crypto company that I was interfacing with in those government days. There were many others. But that’s how I first came to know it.

TC: Because not everyone is going to know the specifics of your career, you played a role in prosecuting Silk Road founder Ross Ulbricht and also discovering two corrupt federal agents involved in that case. Is that right?

KH: I actually did not prosecute Ross Brecht, I did not prosecute the Silk Road case. What I did prosecute is what we’ll call the twist to the Silk Road case, and that was that a couple of the agents on one of the task forces that was investigating Ross Ulbricht and the Silk Road actually turned out to be double agents working both against the government while being federal agents. When I [first received] a tip that we had a rogue federal agent, I thought it was a conspiracy theory. So I thought I would go look into that, mostly to just clear this individual’s name.

TC: Was this a career federal employee?

KH: Yes, this was a federal agent for well over a decade, and it turned out there were two, and they weren’t working together–

TC: Which is even weirder!

KH: Right? The other one was also a career federal agent, which is extremely rare. It happens on TV, where you have corrupt police or law enforcement. But I can tell you that in reality, having been a federal prosecutor for over a decade, this was certainly a first for me. And so I looked into the high level, and what we found was that, let’s just say hundreds of thousands of dollars at the time — now it would be tens of millions or even hundreds of millions of dollars at today’s prices of cryptocurrency — moving around. When we looked into it initially, we thought it must just be some poorly backstopped undercover operation. But the more we looked at it, that transfer patterns were not making sense, and they turned out to be going to personal accounts, which then really piqued our interest.

[In fact] companies like Coinbase [and] other exchanges that kept compliant records were instrumental to our ability to solve that case because of the information that we were getting from those exchanges, but also, the blockchain itself. Without the blockchain, I can definitively say we never would have solved that case. Those agents would still be federal agents today. Had they just been using wires or fiat, we would never have been able to solve the case because they were going to financial institutions across the globe and flashing the badge and saying ‘delete these records.’ They could not do that on the blockchain.

TC: In terms of traceability, a16z has investments in some NFT companies, including Dapper Labs, a blockchain company working with the NBA and others to create NFTs, and, more recently, OpenSea, which is itself an NFT marketplace. Can I ask what you think of the potential for people to use NFTs to move money illegally from point A to B? It’s something I wrote about recently. 

KH: Money laundering is something I prosecuted at the Justice Department, I prosecuted one of the largest ever, if not the largest ever, online money laundering case: the case against BTC-E. We also led an investigation into the Mount Gox hack and we harnessed blockchain technology to help solve those cases, ironically.

I did read your article, Connie, and I found it really interesting, because at first I thought, ‘Oh, yeah, NFTs’ and ‘let’s see how could criminals exploit this,’ because the thing about criminal actors is they are often early adopters of new technologies. I’ve said before, they’re beta testers.

I think when you think about money laundering, the thing you have to step back and realize is that 99.9% of money laundering crimes with fiat today succeed, which is staggering. I think there’s this perception out there that ‘Oh, when wires or fiat money or physical goods are used, money launderers can’t do their thing,’ and that’s just completely contrary to reality.

What I would say is that crypto is a step-level function improvement. The reason I say that is because it leaves these what I call digital breadcrumbs in a way that the physical world or you cash, even wires, by the way, though wires are somewhat digital, cash, physical goods don’t quite leave. With NFT’s, I think that ultimately actually it makes it easier for investigators to trace because of those digital breadcrumbs.

TC: Speaking of NFTs and some of your firm’s deals, how would you describe your pacing right now?

KH: We’re deploying currently out of our second crypto fund. And I think it’s really exciting to start seeing a lot of these things work and capture mainstream attention. And just frankly, there’s been a lot of launches also in the last six months. So that’s also been really exciting. So although the pace is definitely frenetic, it’s an incredibly exciting time in the space. Obviously, yesterday was a milestone for Coinbase but also just for the entire crypto ecosystem.

In terms of pace and how many deals we’re seeing, I would say that we’ve seen and done more deals in the last couple months than in the last couple years, and stay tuned for some of our announcements there, because we’ve done a lot in this last quarter and they haven’t all yet been announced. There’s really an explosion of activity in the space.

We’re also doubling down on investments we’ve made years ago. You mentioned Dapper Labs. The Andreessen Horowitz Crypto Funds have invested in Dapper Labs several times over the years, including out of our first crypto fund, so it’s just really exciting to see now all of the progress that team has made.

TC: How does the process of evaluating these crypto deals differ in comparison with traditional startups?

KH: Some categories are the same and some are completely different. One thing we always look for is a founding team  that has a real vision and that can execute; Coinbase is a tremendous case study in that. We also consider the total addressable market. And we look at not just the product and tech but also its defensibility. Could others come along and quickly take over this idea? Those are some of the characteristics that are the same.

What’s different in crypto is first, regulatory and compliance. Have code audits been done, [have] vulnerabilities [been] found? What’s your plan for security, particularly if you’re talking about areas like decentralized finance.

We’re also [focused on] token economics. What we’re investing in at Andreessen Horowitz Crypto now largely is tokens. Because we’re a [registered investment advisor], we have that flexibility. We still think there are plenty of [opportunities] that merit equity investment; Coinbase is a prime example of an equity investment, not a token investment, but we’re increasingly doing a lot in the token space. I would say, the majority of our funds are deployed in tokens. And when you’re talking about tokens, you want to have really thought through token economics at the outset. Has the team set aside enough tokens for the community? Once the protocol is live, what does that look like? Are they going to Airdrop tokens? What’s their go-to-market strategy? Are they incentivizing early employees with tokens? So I would say the token economic model is something that we look at very heavily.

TC: Are you saying that the firm is looking at buying tokens, meaning buying slugs of currency, versus investing in foundational technology?

KH: We see tokens as foundational technology because we see these protocols, in many cases, as foundational technology.

I think what you might be asking me is, are we investing in the tokens versus the equity of a particular company, and the answer is very much yes. I could say the vast majority of our crypto funds are deployed into the tokens themselves, the assets themselves now [including] Bitcoin or Ethereum, for example. Then apart from that, we hold tokens in a number of different protocols that we acquired just through acquiring tokens — not because we owned equity in a company that distributed the tokens.

In some instances, we have owned equity, where a team has then created a token, and we get token rights as part of our original equity investment. But increasingly, what we’re seeing is the ability to just go buy tokens. We can buy them over the counter and we are definitely doing that.

TC: What percentage of the crypto fund’s assets are invested directly in Bitcoin and Ethereum? Is it a sizable percentage?

KH: We’ve never disclosed an actual percentage, but we definitely have a sizable position in both Bitcoin and Ethereum, which I can say because we’ve disclosed that before. So that’s really all I’m comfortable saying.

TC: That Bitcoin is now so valuable has been a boon for Coinbase, which makes most of its revenue off transaction volume. Can you help readers understand how this company is worth what it is today? Presumably it won’t be as reliant on those fees going forward (owing to pressure from rival companies).

Sure, it’s definitely true that the company has plans to diversify from just purely transactional revenue, although make no mistake, transactional revenue continues to be an important segment of the business now but also in the future.

However, I think we see diversification away from that in terms of recurring subscriptions or services. The best way to think about Coinbase is that it’s at the ground floor in some ways, because right now you have 56 million people on the Coinbase platform but well over 100 million people around the globe doing things right now with crypto: buying it, selling, even holding crypto assets. And we really see that as the ground floor because we’re seeing projects that are enabling entirely new industries.

Within crypto, we’ve talked about one already: NFTs. There’s [decentralized finance]. But there’s just so much more out there, like digital identity.

One of the things we’ve seen with crypto is that we can’t always predict where those new behaviors or products and services will lead. I mean, when the iPhone came out, did we think that would lead to behaviors like ride hailing, the gig economy, TikTok streaming? One of the things that we see for Coinbase is that it’s very well-positioned — because it’s a crypto first company — to capitalize on all kinds of different behaviors in the crypto economy that we don’t even yet know about.

TC: A lot of wealth was generated inside of Coinbase this week, with presumably a major divide between the haves and have nots. How does a company in this position deal with that issue?

KH: People who are attracted to Coinbase are attracted for a number of reasons. Economics is certainly one of them. But the candidates I see coming through Coinbase, there’s something about the vision that attracts them to the vision of the company and to crypto as a movement and as a technology.

I can also tell you that management team is very much here for the long haul and is very much invested in building the future. At 7:22 a.m. the morning after the offering, [Armstrong sent out an email] saying: “Okay, on to the next thing, let’s keep the focus.” And by the way, the same thing was true when the price of Bitcoin hit $10,000. I just happened to be in the Coinbase offices and the mood was, let’s keep building.

TC: Can you comment on whether Andreessen Horowitz sold part of its shares in this week’s offering and if so, what percentage? I’m assuming that the firm took some money off the table.

KH: Unfortunately, I can’t comment on any of that.