Coinbase’s Direct Listing To Drive ‘Wave Of Innovation’ In Cryptocurrency

Coinbase’s public debut next week will be a “watershed moment” for the cryptocurrency and blockchain world, according to Roger Lee, general partner at Battery Ventures and company investor since 2017.

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The company, which considers itself remote-first, was founded in 2012 by Brian Armstrong and Fred Ehrsam and enables traders to buy and sell bitcoin. It is slated to enter the public markets via direct listing on April 14, trading on the Nasdaq Global Select Market under the ticker symbol COIN.

Companies like Robinhood are hot on Coinbase’s trail. The stock-trading app, which filed confidentially for an IPO last month, recently reported via YouTube that 9.5 million customers traded cryptocurrency on its platform during the first quarter of 2021. That is above the 6.1 million Coinbase disclosed, The Block reported.

Meanwhile, Coinbase has raised $847.3 million in known venture-backed funding, according to Crunchbase data. However, the company hasn’t announced new VC investment since 2018, when it closed a $300 million Series E round of funding led by Tiger Global Management.

Cryptocurrency market capitalization hit $2 trillion last week and was holding there as of April 8, according to digital currency price platform CoinGecko.

Lee told me this financial event will also open the door to new, crypto-powered consumer applications that are expected to emerge in the next two years.

This is driven, too, by a few recent announcements: Coinbase released its first-quarter numbers last week, which included the expectation of reporting $1.8 billion in Q1 revenue for the period ended March 31, 2021, and net income of between $730 million to $800 million. Meanwhile, its number of verified users grew to 56 million in the first quarter.

The following interview with Lee was edited for clarity and length.

Why is now a good time for Coinbase to enter the public market?

Lee: What Coinbase is doing for crypto is what Netscape did for the internet in 1995. The internet was an opaque thing then, and Netscape released a browser and went public. It was a watershed moment. The same pattern is here. Coinbase is the door or pathway to experimenting with crypto and released a generation of innovation that was not possible before. We will start to see a wave of innovation and applications built to change lives.

Why do a direct listing versus other ways to go public?

Lee: The capital markets have had no innovation in 100 years. If you wanted to go public, you would go through the IPO process. Over the last few years, two things have become mainstream: direct listings and SPACs. Now it is more commonly accepted. Innovation is direct listing. Coinbase is a great path to public listing. Coinbase was already profitable, so they didn’t need to raise money. And if you are already profitable, and don’t need the money, why would you suffer unnecessary dilution? Also direct listing gives the company more control on who the shareholders are. Usually investment bankers are in control in an IPO. Here, the actual sellers have influence on who shareholders are and gives them the ability to control the outcome. It is also aligned to what blockchain is about: decentralized permissionless things with no middleman. Direct listing is the public market equivalent.

Once Coinbase is public, how will your relationship with the company change?

Lee: It will take some period of time, but we will sell our position or distribute shares to the limited partners who helped them as a private company. Our role is to hand position over to the LPs and other public investors. That is the last chapter of our connection, typically.

What are you most proud of as an investor?

Lee: Coinbase is an amazing company, and I’m most proud of how it has defined this category. The founders came in at the dawn of crypto and blockchain with an incredible vision and did a remarkable job.

Who is going to follow in Coinbase’s footsteps?

Lee: There are a lot of novel applications, and a ton of value will be created. One of those is Rally, which has a no-code app to launch your own cryptocurrency. It takes three minutes to do it, and the use case is for people, like journalists, artists, creators or anyone spending time creating something artistic. Today, the middleman captures 90 percent of the economics. It does not make sense to do the work and get 10 percent. You can create tokens and share with fans to incentivize them, and the best part is you own 100 percent of the tokens. You control the audience, and as value increases, you can sell it back as U.S. dollars. You can only do that on the blockchain. We have dozens of these now.

Illustration: Li-Anne Dias