Coinbase President: Coinbase Ventures could be a trillion-dollar opportunity

Author: Alex Konrad, Forbes

Compiled by: Chain Catcher

Take a look at the busiest U.S. investors in cryptocurrency startups this year, and among investment firms like Digital Currency Group, Pantera Capital, Blockchain Capital, and Andreessen Horowitz, you'll find Coinbase Ventures. What is the huge difference between Coinbase Ventures and those firms? Coinbase Ventures is not a company at all: it has no fixed fund size and zero full-time employees.
According to Coinbase President and COO Emilie Choi, this is by design—and it demonstrates the decentralized financial future that Coinbase hopes to help realize.
In its three years of existence, Coinbase Ventures has supported over 150 companies, with well-known names in its portfolio from across the crypto ecosystem, such as the well-funded but regulatory-challenged BlockFi, the non-fungible token (NFT) marketplace OpenSea, digital collectibles maker Dapper Labs, blockchain startup StarkWare, and most recently raised funds for its crypto tax software TaxBit at a valuation of $1.3 billion.
Unlike some other corporate investors, Coinbase's venture capital does not come from a dedicated fund but from its balance sheet. The company writes checks ranging from $50,000 to $250,000 in seed rounds and, if necessary, will write larger checks later. Due to high transaction volumes and a lack of full-time staff, Coinbase Ventures prefers to join rounds led by other venture capital firms rather than take board seats.
"I have to imagine we are the only ones doing this. It’s almost like our little secret," Choi said.
Coinbase Ventures was established in 2018, shortly after Choi joined the company in March as head of corporate development, having spent eight years in that role at LinkedIn. When meeting with co-founder and CEO Brian Armstrong, Choi indicated that part of her reason for taking the job was Coinbase's willingness to actively consider acquisitions while still a private company. "I’m usually skeptical about corporate development for late-stage startups," Choi said. "Everyone says they want to do M&A, but they don’t actually do it; they just think they do."
By April 2018, Choi believed Coinbase should launch a program to invest in other crypto startups. Given that the exchange's co-founder Fred Ehrsam had left the previous year to co-found a crypto-focused venture capital firm, Paradigm, such a move was not necessarily surprising. Coinbase also maintains close relationships with its own investors, such as Union Square Ventures and Andreessen Horowitz. However, the company had no venture capital professionals. As a cryptocurrency exchange, it might also face concerns about favoritism towards the projects it supports.
When Choi approached Armstrong, his response was straightforward. Within 24 hours, Choi drafted a public-facing mission statement for Coinbase Ventures and published it.
But that didn’t mean Choi, who later became Coinbase's COO and President, began a massive hiring spree. Coinbase's employees, many of whom work in corporate development (more focused on acquisitions or large partnerships), but also include product and coverage teams, as well as other departments, communicate through dedicated Slack channels. "At that time, we thought we would just leverage the resources that existed today to grow it," Choi said, "It was a labor of love. We were just working on it in the evenings and on weekends."
While Coinbase often co-invests with venture capital experts it knows, many of its potential deals come from employees' activities in the broader crypto ecosystem. Many are Coinbase employees who are entrepreneurs themselves. "There are some amazing mechanisms behind the traditional VC ecosystem. What we use is Google Docs," Choi said.
Messari is a startup that provides data insights on crypto assets, eager to become a crypto company similar to Bloomberg. The company's CEO Ryan Selkis stated that Coinbase was already a key customer and partner before investing in his company. The insights were crucial to the design of its enterprise-level asset monitoring service, which is now a multi-million dollar subscription business with over 300 clients. Coinbase's CEO noted that having Coinbase's investment helps ensure that this startup always maintains a friendly relationship with the larger company.
Coinbase Ventures does not make any contractual commitments regarding strategic assistance, Choi said: "I’ve seen that kind of commitment fail time and again." But Selkis expressed confidence that such help would continue to come. "They are like the 800-pound gorilla in the U.S. crypto ecosystem; they have a lot of different moving parts," he said. "By betting on them early as partners, we know there could be many ways to collaborate with Coinbase in the future."
Coinbase has acquired several startups it invested in, particularly Bison Trails, which it swallowed up in January. At Coinbase, Choi described such actions as a "nice perk," but not the primary goal of investing.
Choi stated that Coinbase is willing to invest in startups that compete with its products. He noted, Coinbase views the expanding category more as a rising tide rather than a winner-takes-all scenario.
Last week, Coinbase released its financial report, and the company declined to provide financial return data on its venture investments so far. Choi indicated that the company does track performance as a factor, and early returns look "incredible."
Without data to support such claims, caution should be exercised. But Choi is willing to throw out a bigger number: "Coinbase Ventures could be a trillion-dollar market opportunity."