Crypto-Corns? Unicorn Numbers Explode As Venture Investment Surges In Crypto

As venture capital firms continue to flood the crypto and digital asset space with more money, a stampede of unicorns is emerging unlike anything the space has ever witnessed.

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According to Crunchbase data, 18 unicorns—companies with a valuation of $1 billion or more—have been newly minted this calendar year. That’s about two-thirds of the total amount of unicorns in the crypto space in total.

Those valuations have been driven up by the more than $12.1 billion in venture dollars invested globally in the crypto sector — 3x what all of last year saw.

“For a long time there were a lot of investors looking,” said Spencer Bogart, a general partner at San Francisco-based Blockchain Capital — which has invested in crypto unicorns such as Coinbase, Paxos, Kraken, Blockstream and others. “Now you just have a lot of people who have come around.”

Why now?

There is no hot trend or complicated explanation for why crypto is having its moment right now, say those in the industry. Rather, it is the maturation of the industry and everything that goes along with that evolution that is making companies like Bitpanda, Ledger and BlockFi hit the magical unicorn mark.

One of the main aspects of that maturation is the buildup of the ecosystem around crypto, which is now starting to create its own $1 billion-plus companies. While exchanges like Coinbase and San Francisco-based Kraken may come to mind first when thinking about buying and selling crypto, multiple layers are being built out in the industry to help people manage, report and secure digital assets.

Just this year alone, companies that have raised large rounds in crypto offering various services include:

• France-based security and infrastructure solutions provider Ledger raised a $380 million Series C at a $1.5 billion valuation in June.
• New York-based Fireblocks, which helps with a variety of business issues around digital assets from security to compliance to governance, raised a $310 million Series D at a $2.2 billion valuation in July.
• New York-based Paxos, which builds infrastructure to enable movement between physical and digital assets, raised a $300 million Series D at a $2.4 billion valuation in April.

Bogart said there is a tremendous amount of investment interest around companies in the crypto sector that help with compliance, tax and accounting, and insurance, as well as digital wallets.

“There definitely is rising interest in ‘pick-and-shovel’ companies in the space,” said Austin Woodward, co-founder and CEO of Utah-based TaxBit, which provides tax and accounting software to help with tax calculations and reporting on cryptocurrency transactions.

Big checks

TaxBit recently became a unicorn in the crypto space when it closed a $130 million Series B earlier this month. The company has raised $230 million this year alone.

Woodward said the company raised its Series A and Series B within about seven months of each other due to its faster-than-expected growth, as well as significant investor interest in the company.

“We just had folks who couldn’t get into (the Series A) round,” he said. “Then we hit key milestones. We did it a lot quicker than was forecasted, so we decided to raise.”

TaxBit’s Series B serves as a good example of another trend the crypto industry is seeing: Big growth and institutional investors exploring the digital asset space and dedicating whole teams to look for investment opportunities.

Large firms such as Tiger Global, Insight Partners, Coatue, Sequoia Capital and others all have made significant investments in the space, pouring more money into funding rounds and helping raise valuations.

“Relative to past years, you are just seeing a lot more late-stage investors in the space,” Bogart said. “These firms need to deploy large checks and now they have people dedicated to this space.”

Legitimacy and regulation

The embracing of the crypto world by more traditional banks, investment institutions and companies likely has helped jumpstart many of the large growth firms and institutional investors into the space after years of shying away.

Financial services companies like Visa and PayPal have made clear bets in the sector, and even Facebook has plans for its own digital wallet and currency—now called Diem.

“I think people feel there is more legitimacy now,” said Bradley Tusk, CEO and co-founder of Tusk Venture Partners, which has invested in crypto companies such as Coinbase and Circle.

Companies going public in the space like Coinbase, Circle and Robinhood also have further justified the space—especially with investors now clearly able to see the volume handled by those companies.

“I think that is very validating,” Tusk said.

While crypto—like many sectors currently awash in venture capital money—may eventually see a slowdown, the investment and general economic interest in the space shows it is now an accepted financial tool, added Tusk.

Although crypto recently has made headlines for regulatory issues—including China cracking down on mining due to energy concerns and issues over unclear language concerning crypto in President Joe Biden’s $3.5 trillion infrastructure bill—Tusk does not see regulations as an obstacle for the industry, but rather an opportunity.

“I think what you are seeing with the number of unicorns and the amount of investment is that this isn’t going anywhere,” he said. “That should resonate with regulators. This is a big economic opportunity and you can’t bury your head in the sand.”

“This is real and it’s something you need to deal with,” he added.

Methodology

Crypto, as defined in this article, includes startups in the Crunchbase dataset that are working within the industries of cryptocurrency and blockchain.

Illustration: Li-Anne Dias