Popular car-sharing startup Lyft has raised $60 million in a major new round of funding led by Andreessen Horowitz, the influential Silicon Valley venture capital firm started by Netscape co-founder Marc Andreessen. The new funding comes as the ride-sharing market is exploding, with upstart firms like Lyft, Uber, and Sidecar leveraging smart phone technology to provide alternatives to traditional transportation options like taxi-cabs and rental cars. These services are examples of the emerging “peer-to-peer” economy — including Airbnb for lodging and TaskRabbit for everyday chores — in which people connect online to exchange services and get things done. Andreessen Horowitz’s investment in Lyft is a major boost for the fast-growing, San Francisco-based startup. “Andreessen Horowitz is ideal for us because they’ve built big businesses,” Lyft co-founder John Zimmer told TIME in an interview. “They’re very accomplished operators and they understand how to scale a business.” Founded in 2007, Andreessen Horowitz has quickly become a Silicon Valley powerhouse with $2.7 billion under management. The firm has invested in Facebook, Twitter, Groupon, and Instagram, among dozens of other startups. (MORE: Lyft: Ride Sharing Startup Zimride Hits the Gas Pedal in San Francisco) Since its launch last summer, Lyft has exploded in popularity. The company now facilitates over 30,000 rides per week in the four cities where it operates, San Francisco, Los Angeles, Seattle, and Chicago. The company has hundreds of drivers, and in San Francisco alone, the company has doubled the number of drivers over the last few months to keep up with demand. Lyft says that in each new city, the service has grown faster than the previous launch. In other words, Lyft is poised for lift-off. Lyft is a mobile phone application — available on Apple’s iPhone and Google’s Android devices — that allows riders to “order” a driver to their location in minutes. Lyft makes money by taking a cut of the “fare.” Lyft’s drivers are regular people with cars who want to make a few bucks by giving someone a ride. All drivers are subjected to DMV and criminal background checks, and are required to
Tag Archives: Venture Capital
OUYA Closes $15 Million In Funding Led By Kleiner Perkins, Boasts 12,000 Game Developer Sign-Ups
Today, gaming console and software company OUYA announced that they have closed a $15 million round led by Kleiner Perkins, and with participation from the Mayfield Fund, NVIDIA, Shasta Ventures and Ocean Partners. This marks one of the largest institutional investments to go to a project that had its humble beginnings on Kickstarter.
OUYA is a company that launched back in 2012 on Kickstarter under the guiding hands of Julie Uhrman, a video game industry veteran who believes that gaming should be affordable and enjoyable for everyone. She and the team developed a $99 Android gaming console, which hooks into the TV and comes with automatic access to free-to-try games. It launched on the crowdfunding site to much fanfare, scoring $8.6 million in funding, which ends up being around 9x more than OUYA asked.
Along with the $15 million round, which brings OUYA’s total amount of funding to $23.5 million, the company will also be bringing KPCB General Partner Bing Gordon on to the board of directors. Gordon brings with him years of experience from Electronic Arts.
Here’s what he had to say about the funding:
OUYA’s open source platform creates a new world of opportunity for established and emerging independent game creators and gamers alike. There are some types of games that can only be experienced on a TV, and OUYA is squarely focused on bringing back the living room gaming experience. OUYA will allow game developers to unleash their most creative ideas and satisfy gamers craving a new kind of experience.
The OUYA hardware has proven its spot in the market with the successful Kickstarter project, followed by an institutional investment led by a firm such as KPCB. “The message is clear: people want OUYA,” said Uhrman.
But the same story rings true for software, as the company has seen over 12,000 developers sign up for the platform to build games and monetize them in any way they’d like. This is up from 8,000 developer signups in March.
And if that weren’t enough, OUYA has been picked up by major retailers like GameStop, Best Buy and Amazon, with availability beginning June 4.
Clearly, the affordable gaming console speaks to people. But is it enough to make OUYA profitable? In an interview with TechCrunch, Uhrman explained that OUYA essentially breaks even on the hardware from the $99 gaming console, and that all games will be free-to-try. Curious if that was sustainable, we asked Uhrman if free-to-try would always be the case with OUYA games.
“Free to try is a core tenant of OUYA,” said Uhrman. “We wanted a gaming experience for the television that’s inexpensive to get into. Developers monetize however they’d like to, which is why we have games with unlockable demoes inside a fully paid version, or micro-transactions, and even a donation based game. I’m looking forward to the first episodic, subscription-based game,” she said.
According to Uhrman, the latest round from KPCB and friends will go toward further supporting game developers and development, bringing in exclusive and unique OUYA content, and meeting the demand seen from all parts of the world, including Japan, Brazil, Germany, Spain, and Italy.
“In The Studio,” Sutter Hill’s Sam Pullara Carves His Own Path From Technologist To Venture Capitalist
Editor’s Note: Semil Shah is a contributor to TechCrunch. You can follow him on Twitter at @semil.
Those who know in the Valley know the name Sam Pullara. Whether it was his time as a repeat entrepreneur and technical founder, or stints as an EIR at some of the Valley’s most premier venture capital firms, or his time as a lead technologist at two of the largest tech companies in the Valley (most recently at Twitter), Pullara has occupied nearly every seat at the table throughout his career. Now, after leaving Twitter and after years of being an angel investor, Pullara has moved himself and his blog, Java Rants, over to the venture capital side as a Managing Director of Sutter Hill Ventures in Palo Alto, a firm which started back in the early 1960s and has focused on investing in SaaS, infrastructure, and other fundamental technologies.
I invited Pullara into the Studio because he isn’t the type to seek out attention, and I let the cameras run longer to capture the full arc of his career. He has started two companies, both of which were acquired, has been an EIR and consultant with Accel Partners and Benchmark Capital, was the Chief Scientist at Yahoo!, and most recently was part of a small, senior team that helped rebuild Twitter’s codebase. In this discussion, Pullara details his career moves, what he learned being a technical operator, a technical founder, and now a venture capitalist (including angel investments), with the hopes of providing an example for many engineers out there today starting out in their careers. Specifically, Pullara touches on how his technical ability gave him C-level access to company leaders to pitch solutions directly to them. On a different track, he also (honestly) explains his lessons as an angel investor and shares details into the unique capital and LP structure of Sutter Hill Ventures, where he is now investing into the next wave of technology startups.
Chris Dixon: 3D Printing Will Transform Manufacturing, Social Media Startups Are Facing “General Fatigue”
Chris Dixon, the entrepreneur-turned angel investor-turned general partner at VC firm Andreessen Horowitz, today said that he believes the 3D printing movement has the potential to revolutionize manufacturing and that it is an area where he would like to make multiple investments in the future. In contrast, he described startups in areas like social networking facing “general fatigue”. Earlier this month, Chris Dixon and Andreessen Horowitz led a $30 million Series C round in Shapeways, a 3D printing company, where he has now joined the board.
Shapeways is indicative of an untapped opportunity in hardware, he said. “3D has been talked up a lot, but it’s received very little investment from traditional VC firms,” Dixon said today on stage in an interview TC Disrupt.
“For us, we think it’s a major, incredibly significant innovation. It will transform manufacturing and I can see us making multiple investments.” Indeed, a lot of the smaller hardware players have turned to platforms like Kickstarter instead not just to raise money but also to drum up consumer interest and profile for their projects. This has almost become like a testing ground, with the most successful then eventually converting that growth into more traditional investment routes for startups.
New York, he said, has become a kind of “hub” for hardware, and it has opened up the opportunity for new startups and new investing in the city. New York, he said, is at the center of what he calls a “hardware renaissance”, with the clever engineers who had in the past put all their efforts into working on social networks “now working on hardware devices.”
He said this is because social networks are in the middle of a “general fatigue” and so people have turned to wanting to do “something tangible.”
The huge rush of smartphone devices hitting the market has also had an impact on the larger market for hardware and wearable computing products, he said. “The smartphone explosion has lowered the cost for a lot of components and that has dramatically lowered the costs of producing devices,” he noted.
He points out that the kind of disruption that a company like Shapeways provides is “innovation at the high end.”
He also compared hardware developments to “the same forces that when you think about what the internet did for written work.”
“Before the Internet you had to go to a publisher and get an investment. Now you can publish you ebook or blog and it dramatically lowered the cost and enabled the long tail, democratized writing. We can see 3D printing doing that to manufacturing. You can cut a deal with manufacturing now and have a Shapeways printer and the batch size is one.”
Dixon also compared the general climate for startups in New York in general to life in San Francisco.
“There are plenty of great investors here and that attracts a lot of entrepreneurs. The one thing that is missing is a whole mid-level layer. If a company has a hit product and want to scale and hire employees 50 to 100. If you want to go international, or scale a sales force. If I want to figure out a monetization thing in San Francisco I can go to Google to get that.” That acceleration is still developing here in New York, he says.
San Francisco is similar to New York with a lot of consumer stuff. Down the peninsula you have infrastructure and hardware but San Francisco is pretty similar to the New York scene, taking technology and applying it to the real world.
Watch the full video of Chris Dixon’s interview here:
Meet Genesis Angels, A New $100M Fund For AI And Robotics, Co-Founded By Investor Kenges Rakishev And Chaired By Israel’s Ex-PM
For those startups in newer areas like robotics, artificial intelligence and augmented reality who complain that VCs are too focused on consumer internet companies, help is at hand: Genesis Angels is a new VC that has raised a fund of around $100 million, with a large chunk coming from co-founder and serial investor and Kazakh petrochemical mogul Kenges Rakishev, which it plans to use for early stage investments in emerging areas like these and others. Based in Israel, but looking for startups worldwide, Genesis launched just this week, naming ex-Israeli prime minister Ehud Olmert as its chairman.
Moshe Hogeg, the other co-founder behind Genesis Angels (and founder and CEO of mobile video/photo startup Mobli, pictured here with Rakishev, left, and Olmert, center), says that the idea for Genesis came out of his and Rakishev’s observation that while the market for consumer internet services is saturated with a lot of me-too companies, there is a flourishing world of R&D in areas like robots and artificial intelligence that is not getting enough attention. It’s mostly giant tech companies like Google and Microsoft and academic institutions that are putting money into the very cutting edge of technology.
(Indeed, it was just yesterday, during Google’s earnings call, that CEO Larry Page talked about the “big bets” that Google wants to make on new technology. Google is not afraid to make big investments, he said, because the fear is that if it doesn’t it may miss out on the next big thing.)
The problem with this is that it leaves little room for startups. And although more recent developments like Kickstarter and Indigogo are creating a new groundswell of interest and financial support for some of these projets, there are yet others that will not want that kind of public profile for what they’re working on.
Hogeg describes Genesis’ role as something between the concept stage and when a VC may typically become interested in a company working on cutting-edge technology. “You can send the most brilliant scientist to a VC, but often it might take that scientist and his startup five years to create their products,” he explained in an interview. “VCs will say, ‘No problem, come back in four years.’ Genesis will invest in those companies in the meantime.” Typical investments will be in the range of $200,000 and $2 million.
If you visit Genesis Angels’ site, you will see that it already lists a number of companies in its portfolio, including Hogeg’s. These are listed, he says, because they are some of the investments Rakishev himself has made. Genesis, he notes, is still raising money for its first fund, with the total in play currently close to $100 million. Among those contributing to the fund are merchant bank Forbes & Manhattan, as well as private individuals who are well-known in the space of angel investments specifically around areas like hardware and new technology. The first three investments that are being made out of the new fund, Hogeg says, will be coming out shortly.
Ehud Olmert’s appointment as chairman is about laying the groundwork for the kind of assistance that Genesis Angels will be able to offer its portfolio companies, Hogeg says.
“He is a big believer in technology. Irasel invested the most in this area when he was still prime minister,” he notes. The relatively small country currently has some 3,000 tech companies, according to this report from the AP on the launch of the new VC.
Olmert took office in 2006 but left in 2009 under a corruption scandal cloud that he is still fighting. But that, apparently, has not affected his wider influence. “Mr Olmert is a very powerful man and he can use his contacts to help us and our companies, for example in partnering and joint ventures. He can open any door in the world.”
There have been other VC funds focused on these emerging areas. Dmitry Grishin, for example, the CEO of Mail.ru and founder of Grishin Robotics, last year started a $25 million fund dedicated to investing in other robotics companies (examples of his investments here, here and here).
It may be that Genesis teams up with people like this to cooperate on investments. “He shares a vision with us about this space,” says Hogeg.
“In The Studio,” Greylock’s David Sze Shares Detailed Lessons From His Career
“In The Studio” this week hosts a special guest who doesn’t typically go on camera that often. As a result, I decided to make this particular episode of the show longer to capture my entire discussion with Greylock’s David Sze. For anyone who follows the ins and outs of venture capital, Sze’s name looms large. By now, most everyone knows of Greylock’s impressive run over the last decade, a firm which originated decades ago in the Boston area and has, thanks in large part to Sze, successfully transformed to one of the premier Silicon Valley shops. Over the last decade, he has helped lead the firm to write early checks into consumer-focused companies such as LinkedIn, Facebook, and Pandora, as well as startups attacking the enterprise, such as Workday and Palo Alto Networks. More recently, he made his largest investment ever (in terms of dollar size) in NextDoor, a company which fits into larger societal trends he’s observed.
Songza Raised $3.8M According To SEC Filing, Amazon Still In The Frame As An Investor
Songza, a free streaming music service that has expert-made playlists and runs on the web and various touch screen platforms, raised $3.8 million according to a SEC filing. While Amazon has long been an “unconfirmed” investor listed on AngelList, it parlayed its investment in the earlier Aime St vehicle into Songza. In late 2011 the startup closed what was reportedly a ‘seven-figure’ round of financing led by investors including Deep Fork Capital as well as an “undisclosed strategic investor”. Also participating in the round was Geoff Judge, co-founder of 24/7 Real Media.
Falling between Spotify and Pandora, Songza has garnered much praise for allowing users to set up playlists based on day and time (so, work days and weekends), with filters for whatever mood you might be in, such as going to a party etc. and lets you impress you friends with your music choices in a way that having to curate your Spotify or Pandora choices just can’t.
Headquartered in Long Island City, NY, Songza was built by the team that founded crowd-priced MP3 download store AmieStreet.com in 2006 while at university.
Unfazed By Bitcoin’s Wild Swings And Mysterious Origins, Silicon Valley VCs Place Their Bets
Bitcoin’s record highs and the ensuring surge in hacking attempts and thefts may be grabbing headlines. However, beneath the chaos, Silicon Valley’s best-known venture firms are finally starting to make real bets around the crypto-currency.
The price of a single bitcoin had more than quintupled to $265 amid a banking crisis in Cyprus and new signs from the U.S. Treasury’s Financial Crimes Enforcement Network that regulators will tolerate the currency. It then settled back down to $120 as increased volumes and DDOS attacks hit the biggest Bitcoin exchanges today and yesterday. While anyone who has ever worked in trading knows that a chart like this often ends in a world of pain, there is a growing sense that Bitcoin, or another math-based currency like it, is here to stay.
“It’s far from certain that Bitcoin is going to be a big deal,” said Lightspeed Venture Partners’ Jeremy Liew, who has made two investments in the space. ”But the potential for disruption is enormous. If Bitcoin realizes its full potential, you’re talking about disrupting Visa, First Data, MasterCard, a lot of the banks, Western Union. These are huge multibillion dollars companies. It’s far from certain. But if it happens, a lot of value will be destroyed and a lot of value will be created. That’s when venture capitalists should be looking.”
While there have been attacks on independently-run Bitcoin wallets and exchanges, the core 31,000 lines of Bitcoin haven’t been compromised despite being available to the world’s best hackers and cryptographers for the last four years. On top of that, the currency is starting to become a speculative asset for well-heeled investors that want a gold-like hedge against U.S. dollar inflation or instability in the European Union.
“My feeling is that Bitcoin has moved away from nerdy tech types and is now attracting more of the finance and Wall Street types,” said Jered Kenna, who just re-launched TradeHill, a Bitcoin exchange targeted at accredited investors and high-net worth individuals. After launching a few weeks ago, he says he’s had investors open accounts and individually send in more than $1 million to buy Bitcoin. Even the Winklevii, the twins who famously sued Mark Zuckerberg over the creation of Facebook, have accumulated one of the world’s largest stakes in the crypto-currency. They say they own 1 percent of all Bitcoins in circulation.
With that growing acceptance, VCs are betting that Bitcoin will need a more reliable ecosystem of payments processors, exchanges, wallets and financial instruments.
The funding rounds are still small and exploratory, ranging from a few hundred thousand dollars in seed money to a few million. But they do underscore real VC interest in the space.
“Basically, payment is just a form of information and every other type of information — music, media and so on — is accessible across borders. But payments is one of these weird things that’s not,” said Kleiner Perkins’ Chi-Hua Chien, who has yet to make a bet but has spent the last two weeks immersed in everything Bitcoin.
It’s easy and frictionless, for example, to send a music track to a friend in Egypt, but sending money is much more complicated and there are transaction fees skimmed along the way.
Bitcoin was designed to be a pure peer-to-peer currency that wouldn’t need to rely on trusted third parties like banks for transactions. It is the work of a mysterious, pseudonymous hacker called Satoshi Nakamoto who was clearly frustrated with the fallout of the 2008 financial crisis when central banks cut interest rates to zero or near zero and the U.S. started expanding the money supply through quantitative easing.
In contrast, Bitcoin was designed to have a mathematically predictable, fixed supply that increases until sometime around the year 2140. In that sense, its behavior is somewhere in between that of a commodity and currency.
It is even “mined” like a precious metal; to generate new Bitcoin, a great deal of computational power has to be expended to add to the currency’s public record of transactions with some Bitcoin as the reward. Bitcoin’s fixed supply has made economists like Paul Krugman criticize its design for encouraging hoarding. With its recent surge, Bitcoin has behaved like a store of value, but its volatility and proneness to deflation undermine it as a medium of exchange.
Yet a fervent, core following has helped Bitcoin gain gradual, broader acceptance. “I’m a huge fan of taking monetary policy out of the government and putting it back into the hands of the people,” said 24-year-old Charlie Shrem, who co-founded BitInstant, a platform for instant Bitcoin transfers that processed a record $5.4 million in the last month.
An Unusual World
Few of the Bitcoin entrepreneurs fit the typical psychological profile of a Valley founder.
While building the version of his Bitcoin payments processor, Shrem absconded to a remote town in Southern Norway for months while crashing with a hacker friend named Polynomial he had never met in real-life.
“I wanted to be secluded,” he said. “He told me I could stay with him. I just took that risk, flew out of meet him and he was the nicest guy in the whole world.”
He’s never even had a face-to-face meeting with his co-founder, a reclusive Welsh hacker named Gareth Nelson.
“It’s nerve-wracking. I’m nervous to meet him,” said Shrem, who runs a team of 15 from New York’s Flatiron district. “We’ve built this relationship and this multi-million dollar business around the fact that I don’t see him. I guess I’ll go in a few months.”
TradeHill’s Kenna is an ex-Marine who built the first version of the exchange while living in Vina Del Mar on the Chilean coast. In his spare time, he converted a 41-room building in San Francisco’s Mission District into a “hacker hotel” where he collects rent in Bitcoin. “I collect dollars too,” he added.
“I have to be careful not to sound like a kid who wants to blow stuff up, but I’ve never been content with a normal life,” said Kenna, who backpacked through most of the “Stan” countries of the former Soviet Union after leaving the military. “I went from having no professional experience in finance to being in the industry leader in a new field and being one of the most knowledgeable people in the world on one of the oddest, most obscure assets.”
Some Bitcoin founders are driven less by ideological passion and more by personal experience — especially if they grew up in countries with unstable currencies. They are keenly aware of how fragile faith in a government’s ability to repay its debts can be. (We in the U.S., Europe and Japan are lucky to grow up in countries with the world’s major reserve currencies.)
Wences Casares, a Bitcoin enthusiast and miner who runs mobile wallet startup Lemon, is the son of Patagonian sheep ranchers who lost their life savings in the 1990s to hyper-inflation during the Carlos Menem years in Argentina.
“I remember my parents losing everything. I was 14,” said Casares, who founded the Argentina’s first Internet service provider before moving to the U.S. He got into Bitcoin two years ago and is looking for ways to bring it to smartphone platforms. “I remember the feeling I had when I saw the web for the first time in 1992. That’s how I feel about Bitcoin. It feels like the Internet before the browser.”
His company has attracted well-known firms like Lightspeed and Chamath Palihapitiya’s Social+Capital Partnership.
“The interesting part of diligencing Bitcoin deals won’t be the technical part. What’s unique about the Bitcoin world is that it’s spread all over the world,” Chien said. “It’s not based in Silicon Valley and that’s partially because of the very distributed nature of the system.”
Even the best-known Bitcoin exchange in the world, Mt. Gox, processes $121 million in transactions a month from Tokyo’s central Shibuya district.
Because of the global nature of Bitcoin, it will be interesting to see how Silicon Valley fares as the currency matures. While the Valley has been at the center of the last waves of innovation in social networking and in new smartphone platforms like Android and iOS, it is just one geographic node out of many in the Bitcoin universe.
Kenna chose to relocate from South America to Silicon Valley to be close to investors. TradeHill, which shut down two years ago amid a conflict with Dwolla over chargebacks, has been reborn as a new entity and just closed $300,000 in funding. He said he came to the Valley to do TradeHill the right way in recruiting a technical co-founder from Google named Miron Cuperman who had worked on PCI compliance and privacy.
“When I looked at reforming TradeHill, I wanted three things: operating capital to do it right, regulatory certainty and a good team,” he said. “It’s hard to run a tech company from Chile when investors want to meet with you on-demand.”
But others are staying where they are. Atlanta-based BitPay just processed $5.2 million in Bitcoin transactions last month and just closed a little over a half-million dollars in funding from angels like Path and Spotify’s Shakil Khan and SecondMarket’s Barry Silbert. They’re now hiring aggressively.
One of the most interesting startups to watch will be OpenCoin, which has one of the most pedigreed teams. CEO Chris Larsen was a founder of E-LOAN and peer-to-peer lending platform Prosper and co-founder Jed McCaleb, was behind eDonkey and Mt. Gox. They just closed an angel round of undisclosed size from Andreessen Horowitz, FF Angel, Lightspeed Venture Parnters, Vast Ventures and Bitcoin Opporunity Fund.
Along with operating an exchange for Bitcoin and national currencies like the dollar, OpenCoin supports an alternate math-based currency called the Ripple. The startup has a really unusual business model; the number of Ripples in the world is fixed at 100 billion but OpenCoin has bestowed upon itself a fraction of that. The company intends to give away as many Ripples as it can.
If the startup develops enough support and infrastructure for the currency that people starting putting trust in it, the currency will strengthen. That in turn will also make OpenCoin’s valuation rise as the value of its currency holdings appreciates. It feels analogous to the business models of other open-source companies.
“The Ripple network is like Bitcoin in certain ways. The currency exists as a public good,” Larsen said. “But we thought it was good to have a company to help nurture the development of the code.”
Ripple is designed to address a few of Bitcoin’s issues. For one, it doesn’t require mining and two, it is invulnerable to what’s known as the “51% attack.” Bitcoin is secure as long as at least half of the computing power in its network is controlled by nodes that are “honest” or are not attacking the network. Nakamoto designed it this way.
At this point though, the network supporting Bitcoin is so large that it would not only cost tens of millions dollars to bring Bitcoin down, the supply of hardware necessary to do Bitcoin mining is so limited and expensive that it would be logistically difficult to pull off. Even Casares had to plunk down $30,000 six months ago to buy specialized mining equipment, which now pays for itself.
“The challenge would be how to get your hands on enough computing equipment. There are only so many Bitcoin mining chips in the world,” said BitPay CEO Tony Gallippi. “The bottleneck is really just the supply of hardware. Even if you wanted to throw hundreds of millions of dollars at taking Bitcoin down, you’d have to create your own semi-conductor fab line.”
Regulatory And Security Risks
For investors who are still trying to figure out how to wrap their heads around Bitcoin, there are plenty of concerns: 1) regulatory risk if governments act against Bitcoin 2) security risks with so many third-party services being attacked and hacked constantly and 3) adoption risk, or whether the broader public will warm up to math-based currencies.
Regulatory risk was cleared up a bit last month when the U.S. Treasury’s Financial Crimes Enforcement Network issued a statement about virtual currencies. While the document itself is still a bit vague, it did make it clearer that individual Bitcoin users or miners wouldn’t be regulated. Exchanges, on the other hand, look like they will need to get a money transmitter license.
Security is a constant concern. Bitcoin transactions are irreversible and anonymous, which makes the currency an ideal target for hackers. Once Bitcoin is stolen, reclaiming it is pretty much impossible. There have been several wallets that have shut down after attacks over the past few years. In some cases, it’s not even clear whether those attacks were real like with MyBitcoin, an early wallet that controversially shut down in 2011. Claiming a hacking attack could have been an easy excuse for an unethical wallet provider to walk off with people’s Bitcoin savings.
Liew estimates that somewhere around 10 percent of all Bitcoins have been lost or stolen at some point. Even the biggest exchange, Mt. Gox, suffered lags last week as the company coped with a massive distributed denial of service attack. Today it said it was doing a 12-hour halt or “cooldown” to deal with increased trading volumes after the U.S. dollar value of Bitcoins fell by half.
“You can’t trust anyone,” Shrem said. “If you’re able to stay alive by this point, hopefully you’re making some money. Everyone else that’s failed has gotten hacked, become insolvent or had bad management.”
When Kenna launched the first version of TradeHill, he said he was constantly getting hit by hacking attempts out of Russia. One of the reasons he says he’s been able to relaunch and keep TradeHill’s brand name is because he returned whatever he could to the company’s customers back in 2011. TradeHill’s first incarnation shut down after their payments network Dwolla started doing chargebacks on their transactions. A suit between the two companies is still ongoing.
“Shutting down was painful but I knew it was the right thing to do,” Kenna said. “When we gave people their money back, it assured people that there were legitimate people with integrity in Bitcoin.”
But as I said above, the core Bitcoin protocol hasn’t been compromised, which is one reason why VCs are still interested in it.
“All of modern cryptography is based on certain assumptions that could go away tomorrow,” said Chris Dixon, a general partner at Andreessen Horowitz who has experience in security after selling SiteAdivsor to McAfee in 2006. “But Bitcoin’s been out there and has been battle-tested. Maybe there’s some core flaw in all of our security systems, but if that were the case, we’d have much bigger problems.”
While researching Bitcoin, Lemon’s Casares hired two separate teams of hackers to examine the Bitcoin source code for vulnerabilities for about a half-year.
“They are arguably the best in the world. I spent a lot of time and money on the best hackers I could find and came back from that convinced that Bitcoin’s security is robust,” he said. “What they found was very, very compelling for me.”
The last investor risk is around whether people will increasingly have faith in Bitcoin itself. For now, the currency spikes with every bit of media attention and companies like WordPress are starting to accept it. Bitcoin’s estimated daily trading volume of $31.1 million is infinitesimally small in the pool of $5 trillion in currency trades that happen every day. It isn’t even a drop in the bucket, but it continues to grow.
The irony is that if an ecosystem of trusted third-party Bitcoin wallets, banks and exchanges succeeds, it goes against the original peer-to-peer design of Bitcoin that Nakamoto envisioned. The point of Bitcoin was not to have to rely on a third-party financial institution.
But who knows what Nakamoto’s ultimate intent was? He mysteriously disappeared two years ago, saying that he had moved onto other projects. Nobody ever figured out who Nakamoto was.
“I wouldn’t say Satoshi was full of himself. But he was sure of himself,” said Shrem, who says he corresponded with Nakamoto a few times on IRC. “He seemed to know what Bitcoin was going to do every step of the way.”