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Law-enforcement agencies and government regulators may be skeptical of, if not outright hostile to, the Bitcoin virtual currency, but at least a few investors have a different attitude. Witness this week’s announcement by BitPay Inc., a processor that provides Bitcoin services to merchants. Atlanta-based BitPay said it had raised $30 million—the most ever by a Bitcoin-related startup—from venture-capital firms that include PayPal’s founders and others with extensive experience in payments, not to mention Virgin Group founder Sir Richard Branson.
BitPay currently provides 30,000 merchants with Bitcoin acceptance services. The merchants are generating about $1 million a day in payment volume. BitPay plans to use the new funding to grow its business, primarily by adding 70 employees to its current headcount of 40. Most of the new hires will be software developers, but others will be sales and marketing people, BitPay co-founder and new chief executive Stephen Pair tells Digital Transactions News. Pair is aiming for 100,000 merchants by year's end.
The Series A funding round was led by Index Ventures with participation from Horizons Ventures, Founders Fund, Felicis Ventures, RRE Ventures, TTV Capital, Branson, and AME Cloud Ventures. Individual amounts were not disclosed.
BitPay was founded in 2011 by Pair, who was chief technology officer, and Tony Gallippi, who is now executive chairman after having served as CEO. The company received $2.7 million last year in seed and angel-investor financing led by Founders Fund and which included Horizons Ventures, a manager of private investments for Hong Kong billionaire Li Ka-shing, according to the Atlanta Business Chronicle. Founders Fund is headed by PayPal Inc. co-founder and former chief executive Peter Thiel, and includes other PayPal veterans.
What’s the attraction for investors? Gardiner Garrard, co-founder and managing partner of Atlanta-based TTV Capital, separates BitPay from the Bitcoin currency itself, which he admits is volatile. “What’s the value of a Bitcoin going to be a year from now, five years from now, is anybody’s guess,” says Garrard. “I think Bitcoin is extremely complicated in where it works and won’t work, but BitPay is extremely simple.”
The folks at BitPay, says Garrard, “do one thing—they enable merchants to accept Bitcoin. It’s merchant acquiring for Bitcoin.” He also likes the fact that BitPay is in Atlanta, where it can tap the city’s deep pool of payments talent and he can easily keep an eye on his investment.
TTV has invested in a number of payments-industry firms, including Bluepoint Solutions, Cardlytics, ControlScan, eWise, Green Dot, and ShopKeep. TTV also manages funds provided by Georgia-based payment processors Total System Services Inc. (TSYS) and Global Payments Inc., says Garrard.
BitPay’s other investors have connections to payments and financial firms, according to independent payments researcher Beth Robertson, who is based in suburban Baltimore. For example, Felicis invested in online personal-financial-management program developer Mint.com, which is now owned by Intuit Inc. Along with Founders Fund, Felicis also invested in Credit Karma, a credit-management service for consumers. And Index, along with Founders, invested in Climate Corp., which monitors weather data to provide advantageous insurance coverage for farmers. Monsanto Co. bought Climate last year for $930 million.
BitPay’s funders are “companies that have an array of interesting financial-technology ventures that they’re investing in,” says Robertson. “My feeling is their focus today is on Bitcoin, [but] I think the idea is the broader capability of digital currency and the integration of the capability…into e-commerce platforms.”
Indeed, many of BitPay’s merchants are online businesses that encounter difficulties with the expense and fraud vulnerabilities of mainstream card payments, particularly cross-border payments, according to Pair.
“The ones that are ready for Bitcoin adoption now are e-commerce companies that run internationally,” he says. “The reason is they are particularly vulnerable to fraud. About one in 50 international credit card transactions is fraudulent, and the merchant pays for that.” In contrast, even though its acceptance and legal status is constricted in many places, Bitcoin offers merchants a highly secure, essentially borderless payment tool with very low costs.
Pair says about 45% of BitPay’s merchants are in the U.S. while about 25% are in Europe, with the rest scattered around the globe. Customers include WordPress, TigerDirect, and Shopify. He says BitPay, which in addition to Atlanta has offices in San Francisco, Amsterdam, and Buenos Aires, currently is seeing its strongest growth in Europe, but he expects South America to come on strong. “We actually think that Bitcoin will find quicker acceptance outside of the United States than in the United States,” Pair says. “In many parts of the world it’s difficult to perform an e-commerce transaction.”
Meanwhile, Branson has a commercial space travel company called Virgin Galactic, which uses BitPay to accept payments in Bitcoins. Three flights have been purchased using Bitcoin, according to the Atlanta Business Chronicle.
