At the Bitcoin 2013 conference in San Jose, Calif., last May, Michael Terpin noticed something missing. At the conference, digital wallet and Bitcoin exchange service Coinbase had announced a $6.1 million Series A round led by Union Square Ventures. But while venture capital firms such as Union Square had begun to make big investments in Bitcoin startups, no group of angel investors -- who are usually the first to give promising early-stage companies a financial boost -- had risen up to support this growing community.
"I've never seen a space where there are top-tier VCs putting money in, but no angels," Terpin said to David Johnston, the founder of a startup called Engine, whose Google Chrome extension tackles information overload problems.
Along with a young startup founder and polymath named Sam Yilmaz, Terpin and Johnston founded BitAngels to fill the void. By the end of the conference, there were 50 angels onboard, spread across Austin, San Francisco, and New York.
Almost immediately, BitAngels began having an impact in the world of digital currency businesses. Earlier this week, the group announced that its members collectively had invested $7 million in Bitcoin startups in 2013. These funds were spread across 12 companies, including Bitcoin payment platform GoCoin, Bitcoin instant exchange Cash Into Coins -- now renamed Express Coins -- and CoinTerra, which makes Bitcoin mining rigs.
The BitAngels group sees itself as not only making smart investments but also helping to shape the Bitcoin ecosystem in a positive direction. Terpin often compares the state of Bitcoin in 2014 to the state of the internet in the early 1990s. He wants to have a hand in building the iconic companies of what he sees as a revolutionary technology.
So far, BitAngels has just been laying the groundwork. "You couldn't have had a Google in the internet until you had a Netscape," Terpin says. "And you couldn't have had a Netscape without a Cisco."
By far the group's largest investment so far is the $5 million it put into Mastercoin last year, an open-source platform that is at the cutting edge of digital currency projects. The Mastercoin community is working on apps and protocols that will use Bitcoin as a jumping-off point, everything from digitized property rights to custom currencies issued by individuals.
Fifty of the angels participated in that investment, with Johnston being one of the largest investors. He now sits on Mastercoin's board of directors.
First and foremost, says Terpin, "We're looking for investments that can sort of act as insurance for the price of Bitcoin, because if you don't have companies growing the infrastructure, the price of Bitcoin is never going to get from $1,000 to $10,000 to $100,000."
"As well, we're looking for things that are going to make it sexy for average consumers and easy for merchants to use," he adds. "The single biggest thing that sustains long-term value is adoption. If there are 10 times the number of people using Bitcoin, or 10 times the trading volume, or some combination thereof, the price has historically gone up in correlation to that."
BitAngels has grown along with Bitcoin's value and the amount of entrepreneurial interest in cryptocurrencies. As of Jan. 23, BitAngels had 330 members across 23 countries. In total, its members have $50 million worth of bitcoins earmarked for future investments, making BitAngels one of the biggest financiers in the Bitcoin space.
A core group of six members sifts through applications and presents a few of the best to the full roster. This core group is comprised of Terpin and his two co-founders, along with Gyft chief executive Vinny Lingham, Jered Kenna of online exchange Tradehill and a man named Farzad Hashemi. A third of applications are "completely ridiculous crap," Terpin says, while another third are not quite fully baked. The remaining third are interesting enough for the BitAngels members to discuss.
One area of interest is online exchanges. BitAngels would like to help sophisticated regionalized exchanges crop up in the U.S. and abroad, platforms that could handle global currencies and that would be fluent in the regulations pertaining to their own part of the globe. As of now, the process of exchanging dollars or euros or rubles for bitcoins is still difficult for many people.
"We take more risks than the VCs do," Terpin says. "We put money into companies that are still in the concept stage, that have no revenue, that are maybe two guys in a garage. As an angel group should."