CRYPTO: $400 Million Acquisition of Crypto Exchange

  Source: Circle

Source: Circle

Fintech startup Circle bought crypto exchange Poloniex, allegedly in a $400 million transaction. What's Circle? It's a mobile wallet / neobank that let's users text money to each other, with technology rooted in Bitcoin payments. Think about it as a combination of Venmo and WePay. According to Crunchbase, Circle has 50-100 employees and raised $136 million from Goldman Sachs, IDG China, Breyer Capital, Accel and General Catalyst. There is no way these guys have $400 million cash on hand, so we would expect this to be in large part an equity deal. And the latest Circle post-money valuation is about $500 million, so this was a big gulp if the reported numbers are correct.

What's Poloniex? Poloniex was an early exchange in the space that was quick to list new alternative tokens. It provided access to Ethereum before Coinbase did. In the process of getting popular, it acquired more users than it could handle. It was well known in the ecosystem that the company’s customer support took a very long time, and that conflict resolution processes were overwhelmed. This transaction should benefit Poloniex customers with new features and support services, while giving Circle a larger revenue base in the crypto economy.

One angle that gets lost in all the ICO talk is equity checks into blockchain and crypto companies by venture investors. About $1 billion was invested into the ecosystem from the venture side in 2017, of which $400 million was from Corporates; and over $300 million was invested in the first 2 months of 2018. In terms of the $400 million acquisition price, this would put the Poloniex below Coinbase’s $1.6 billion valuation, but well above that of enterprise blockchain unicorns like Chain ($130 million) or R3 ($250 million). So it is certainly motivational to see a transaction that bridges that public and private crypto worlds, and values tokens as an asset class rather than a mere operating improvement.

Some are also focusing on the fact that Goldman has a stake in Circle. As security tokens gather steam, with projects like Polymath raising $60 million and air-dropping their tokens to a large community base, traditional investment banks need to think about the future of their business. This is an existential question for the securities industry, and building correct exposure will be key over the next 5 years. Or the investment banks will end up like the music labels.

  Source: Circle, Autonomous NEXT (Pitchbook data)

Source: Circle, Autonomous NEXT (Pitchbook data)