Visa, Citi, Nasdaq Invest $30 Million In Blockchain Startup Chain.com
In another sign that Wall Street sees potential in Bitcoin technology, Visa, Nasdaq, Citi and other industry players invested $30 million in Chain.com, a blockchain developer platform that serves an enterprise market.
Additional investors include Capital One, Fiserv and French telecom Orange, the last of which hints at the potential for the blockchain to power mobile payments. The company also announced that former American Express CEO Jim Robinson III has joined Chain.com’s Board of Directors.
By Forbes estimates, this series B round of funding brings the San Francisco-based company’s valuation to nearly $150 million.
The group of strategic investors, none of which directly competes with another, also could push the company closer to realizing its goal of bringing the more transparent, more secure, lower-cost technology behind Bitcoin, often called distributed or shared ledger technology, to financial services.
“We believe in the company and we think it is important to be close to the technology being developed. We’re putting our money where our mouth is in following and backing the company’s continued success and development,” says Jean-Jacques Louis, Nasdaq senior vice president of strategic initiatives.
Last spring, Chain.com announced that it is working with Nasdaq to test the trading of shares in private companies using distributed ledger technology in a pilot set to launch this November.
Louis also added that Nasdaq liked that the other strategic investors each have their own areas of expertise, and that they can learn from each other to see how best to leverage the blockchain in their respective industries.
“Earlier today, I spoke with one of the partners, one of the strategics, and there is a genuine excitement to really help Adam continue on his mission,” says Louis.
As he spoke about in this Forbes magazine story, Chain.com CEO Adam Ludwin believes that distributed ledger technology will remake the industry not only via startups as previous disruptive technologies did, but also through existing financial institutions, partially because of issues of consumer and regulator trust.
“We’re a small technology company, and we are trying to [bring] this big network change to the world of financial services. How are we going to effect this change and bring this technology to market on our own?” Ludwin says, adding that venture capital money would bring them more cash and a new board member and advice from that firm, while not helping them achieve their goals.
Over the last few months, the company realized that its customers were interested in getting a stake in the company in order to be close to the technology as it develops, helping further it with their own internal resources, and connecting with other institutions around it in a neutral way.
“We realized that we could be that neutral ground, that we could help institutions partner and find other entities who could play critical roles in the network that they wanted to build,” says Ludwin.
For example, banks could issue assets, exchanges could facilitate the transfer of those assets, and custodians could hold assets on behalf of other institutions. He says that the company chose investors who could serve as natural partners, with, for instance, Visa being the world’s largest card network and Fiserv powering more than 50% of ACH transfers. Orange has a mobile money product called Orange Money in West Africa, and, Ludwin says, one of the largest telecom R&D groups which owns many patents in that area.
With $13.7 million in funding already in the bank, healthy revenues and projections of profitability next year, Ludwin rhetorically asked why the company would need $30 million in funding now.
“There will inevitably be a very uncertain and winding path between today’s world and a future world where all assets are digital,” he says. “And the reason it will be winding is because there will be legacy systems that will need to be migrated, there will be regulatory questions that need to be dealt with, there will be institutions who will fight against this because it will disrupt them and it will reduce their role in a future system. So we thought, this is not like we are going to build these networks and be done in six months. This is a long-term, uphill, difficult, some would say fairly crazy journey that we think are about to go on.”
He said that this would be enough money that would allow the company, “if things take longer or go wrong, we could fall down and get back up and still succeed in the end.”
Visa’s executive vice president of innovation and strategic partnerships Jim McCarthy said that this investment is an extension of the work that the company has done with other technology partners such as Apple, Google, Samsung, Stripe and Square. The company said that it was interested in exploring the technology particularly for payments outside of retail point-of-sale, an area that the company already covers well.
On the other hand, he says, “business-to-business spending or business-to-government spending is a much larger pie where we have very little penetration,” he says, and that might lend itself to an area where it can leverage the blockchain.
“One of the things we liked about Adam and the Chain folks is how they were thinking about using the banks and leveraging a network like the one Visa has to use blockchain as a new network protocol and to leverage what banks do well in managing risk,” says McCarthy. “When we looked at the other folks coming into the round, like Citi, Capital One, Fiserv, it showed that there was a common point of view.”
Ludwin says, “You can envision a system where NASDAQ, Citi and Fiserv are all part of a network, and a system were Capital One and Orange are part of a network.” He added that each company was also chosen because it could potentially bring others along with them.
Visa is also interested in the market that blockchain technology could open up in developing economies. Earlier this year, the company launched the test of a mobile payments system in Bangalore called mVisa, which is a smartphone app linked to a credit, debit or prepaid card. Although this will run along Visa’s rails, it is similar to a payment on the blockchain in the sense that it is a so-called push payment, as opposed to a pull payment in which a consumer hands their credit card over to a merchant who then pulls the money from that consumer’s account.
The companies will meet twice a year in what is being called the Blockchain Working Group, during which each company will hear the latest developments in distributed ledger technology, have the opportunity to present to each other and also get updates directly from Chain.com, since the companies will not be joining its board.
Angel investors in this round include David Coulter, former CEO of Bank of America and Peter Diamandis, the chairman and CEO of the X Prize Foundation.