As we all know, Coinbase went public today. This prompted the thought: Would it have been better to invest in Coinbase as a VC or directly into Bitcoin? These are the questions that plague me, a totally normal adult…
So, as Coinbase went public, I figured why not try and figure that out. Keep in mind, it is hard to account for dilution without knowing pre and post-valuations, but I think what you will see is that the numbers are astounding and even with dilution the conclusion holds.
The Analysis
I grabbed the funding dates from Craft and got started. Here are the different rounds plotted alongside the Btc price.
Based on this chart, we can see the price of Btc has skyrocketed from $10 to $63k. A 6,377 bagger 🤯 if you bought and held. Now, let’s assume reasonable valuation for a seed company in 2012 was probably around $5M. So, lets compare the seed round versus Bitcoin.
Seed Round:
Date: 9/1/2012
Coinbase Valuation:
Start: $5M (Assumption)
Today: ~$87B (Based off $333 close price on 4/14)
Return: ~17,300x (Assumes no dilution)
BTC Price:
Start: $9.96
Today: $63,564
Return: 6,380x
Using a $5M assumption, investing directly into Coinbase outperforms Btc by ~2.88x – assuming no dilution, but even assuming 50% dilution, Coinbase is still the better investment. The next round, Series A, for Coinbase was at a $23M post-valuation on $6M raised – a number I was able to get my hands on thanks to a friend. Comparing this investment to investing in Btc and accounting for the round dilution of approx. 25% dilution; Coinbase outperforms by ~5 with dilution or ~7x without it. Tack on another 25% dilution for the following rounds, which is unrealistic, and Coinbase is still the better investment.
Below I show the breakeven amounts for whether it was better to invest directly into Coinbase or Btc. The way to interpret this chart is by considering the Coinbase valuation. For the seed round, if the investment was made below $14M valuation, it makes sense to invest in Coinbase; otherwise, the investor should have just bought and held Bitcoin. For series A, if the valuation was below $167M, you’re better off having invested in Coinbase.
Conclusion
For the seed round and Series A, it was clearly a no brainer to invest in Coinbase over Bitcoin, while some of the most recent rounds it is less clear which asset outperformed. Not only do the returns do better, but it was likely less risky. If another cryptocurrency took volume from Bitcoin, Coinbase could add that currency to their platform and still win. Because of this, I think Coinbase is up there as one of the best investments ever by VCs, assuming the price does not fall too much before lockups expire. However, an investment into crypto like this will be hard to replicate with another crypto exchange now that everyone is aware of the value of Coinbase, driving up valuations for other exchanges. The only way to have this big a win is likely to find the next great company in a different or new sector.
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All work was done using python. If anyone wants the notebook used, I am happy to send. Just shoot me an email: a.zakmay@gmail.com
Disclaimer: All opinions expressed by the author are his own opinions and do not reflect the opinion of Old Well Partners. This article is for informational purposes only and should not be relied upon as a basis for investment decisions nor constitute a general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Old Well Partners may maintain positions in the securities discussed in this article.