Coinbase, the cryptocurrency trading startup that brought bitcoin to the masses, looks ready to rev up its M&A activity with the recent hiring of Emilie Choi, who joins the first unicorn in the crypto space after an eight-year stint at LinkedIn as vice president and head of corporate development—a period that included its $26.2 billion acquisition by Microsoft in 2016.
Coinbase has raised $225 million in equity funding to date and was valued at $1.6 billion following its $108 million Series D last August. Choi has herself said that, in addition to cash and equity in the company, Coinbase could also throw cryptocurrency assets into the acquisition financing mix. Indeed, 40% of its current employees already get a slice of their compensation package meted out in bitcoin.
Earlier this year, Coinbase picked up most of the Memo engineering squad that created a Slackbot used by product development teams to organize notes and directives. Little wonder, then, that Choi (pictured) has floated further acqui-hires as her primary mandate. So, who might she have her eye on?
Past is prologueThe first two options could well be a pair of companies—dYdX and Basecoin-creator Intangible Labs—backed by former Coinbase product manager and Runa Capital principal, Nick Tomaino. His fund, 1confirmation, launched last summer and secured buy-in from Mark Cuban to back cryptographic assets. The third possibility, Radar Relay, provides a decentralized trading platform for Ethereum tokens.
When it comes to M&A, the general rule of thumb is to buy what you know. In the rapidly evolving world of crypto, that makes it more a matter of buying who you know, with the assumption that acquiring the right experience can lead to unlocking the mysteries of what the industry's future might look like.
For Choi, Tomaino's pair of investments could make for enticing purchases on that front.
In December, 1confirmation joined the likes of Chris Dixon at Andreessen Horowitz, Olaf Carlson-Wee at Polychain Capital and Coinbase's own CEO Brian Armstrong to back a roughly $2 million seed round for dYdX, which is looking to create the first-of-its-kind decentralized derivatives exchange. Among their goals for the funding: hiring engineers, designers and business operators. Leaving it to dYdX to positively ID talent in those areas could complement Choi's acqui-hire mission.
Earlier last year, 1confirmation joined a16z along with Bain Capital Ventures, Digital Currency Group, MetaStable Capital, Pantera Capital and Polychain Capital to back the startup behind the Basecoin token. The aim: Bake in central bank-like policy supports to create a crypto free from the notorious volatility of bitcoin and others. Access to that asset, and the team behind it, is likely too good to pass up.
If that sounds like a bit of stretch, though, Coinbase could pick up Radar Relay, a company decidedly similar to dYdX. Headquartered in Colorado, Radar Relay boasts a distributed team across the US. The platform leverages blockchain technology to trade Ethereum tokens directly from a user's wallet, cutting out the middleman. The company leverages the 0x protocol, a project itself developed in part by a number of former Coinbase employees. Radar Relay also has several former Coinbase employees on staff, which would likely make integration quicker and easier for its potential new parent.
Coinbase announced on Monday that it plans to support ERC20, the industry standard for startups working on the Ethereum blockchain to develop tokens for use in their own products. Although Coinbase has yet to say if it will add any ERC20 tokens to its exchange, it does plan to build out the capacity to do so. Bringing in the teams from dYdX or Radar Relay could help to realize those plans.
But the bench here runs deep, per the PitchBook Platform, giving Choi plenty of comparable companies to choose from. And Coinbase's needs are pressing. The company is also confronting operational issues that stem from dealing with so much volume. Moreover, it has been hit with two class-action suits stemming from accusations of insider trading by employees and of stiffing people without Coinbase accounts by providing them with broken links via email to redeem bitcoin, funds that the pair of plaintiffs behind the latter suit have accused the company keeping instead.
Although the acqui-hire of a law firm wouldn't help much on either front, the purchase of a decentralized exchange like Radar Relay could genuinely help with the latter problem, improving Coinbase by facilitating crypto trading on a distributed ledger using the popular 0x protocol to support Ethereum tokens.
Since bitcoin's introduction as open-source software in 2009, M&A activity in the cryptocurrency and blockchain space has picked up the pace, especially since 2013:
To date, the nascent crypto industry has yielded 168 completed M&A transactions, per the PitchBook Platform, even as it has trailed the dizzying levels of VC activity of late. With 54 deals in the books, 2018 has already surpassed all others as the busiest year for M&A activity in the space.
For LinkedIn, Choi oversaw more than 40 transactions at the networking site, including the acquisitions of online education company Lynda and job-search startup Bright. That's an average of roughly five deals per year during her tenure. With no shortage of potential targets in the space, Coinbase could be looking at a busy few years to come.
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