Barry Silbert’s DCG Slows Down Bitcoin Deals


at the office of Mt. Gox, an exchange for Bitcoins, in Tokyo, Japan, on Thursday, April 25, 2013. Photographer: Tomohiro Ohsumi/Bloomberg
Bloomberg News

 

Digital Currency Group Inc., one of the most prolific investors in bitcoin-related startups, is slowing down its deal-making pace.

“Recently, we haven’t made as many investments in bitcoin,” said Ryan Selkis, director of investments, on stage at the Money20/20 conference running in Las Vegas this week.

Mr. Selkis cited several concerns about the sector, including increased compliance costs to launch a digital-currency-based startup, as well as the difficulty seeded startups will face in raising Series A rounds from venture capitalists. He also referred to “systemic risks” in the bitcoin market.

New York-based Digital Currency Group is itself a startup, launched by Barry Silbert, the former CEO of SecondMarket. DCG, which operates an investment arm, as well as a bitcoin over-the-counter trading firm, raised a round of funding that it announced this week from venture investors such as Bain Capital Ventures, FirstMark Capitaland RRE Venturesas well as industry investors including MasterCard, New York Lifeand Transamerica Ventures.

Still, even though DCG’s mission is to “help build the foundation” for the blockchain and bitcoin industry, Mr. Selkis didn’t shy away from commenting on the current challenges that startups face.

As states and the federal government start regulating bitcoin businesses, for example, costs are rising.

“The costs to start a company without going to jail have gotten significantly higher,” Mr. Selkis said.

Follow-on funding for early-stage startups may also prove a challenge, he said. “We are starting to see a slowdown in Series A investments,” Mr. Selkis said.

“We advise, cross out ‘bitcoin’ where you can and put in ‘blockchain.’ It’ll solve most of the problems,” Mr. Selkis said, with a smile.

He was referring to the new, trendy way of describing what used to be called bitcoin startups. They are now often called “blockchain.” Blockchain is a distributed database where bitcoin transactions are recorded. Some startups are trying to use the bitcoin database to record other information.

Mr. Selkis also noted that the bitcoin market still faces “systemic risks.”

 

Write to Yuliya Chernova at yuliya.chernova@wsj.com. Follow her on Twitter at @ychernova

 

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