The
View from Initialized

Lessons from Coinbase, My $2 Billion Success

I funded Coinbase in 2012. Here’s how I returned 6000x on my best startup investment yet.

Eight years ago, I met a founder and invested $300,000 into his company. Those shares are now worth over $2.4 billion. That company was Coinbase, which investors have now valued at more than $100 billion. It’s the best investment I’ve ever made.

You might’ve heard of my $200 million mistake — I said no to being a co-founding engineer at a $40 billion company. Don’t feel too bad for me. I did say yes to being one of the first checks in a $100 billion dollar startup.

How I met Brian Armstrong

Coinbase is now reportedly worth $100 billion — or more on the secondary markets. By the time you’re watching this, who knows where the price will be. In March 2012, Brian Armstrong sent me .05 bitcoin using his new startup called BitBank. His idea was pretty simple: make a clean, well-lit place for people to buy and hold bitcoin. While a lot of startups pivot, the idea stayed the same this whole time for them. The only thing that really changed was BitBank ended up changing its name to Coinbase.

The email that started it all.

When I got that .05 bitcoin in 2012, Bitcoin’s total market cap was under $1 billion. Today, Bitcoin’s market cap is over $1 trillion. That fraction of a bitcoin was worth about 23 cents then. Today, it’s worth about $2,500.

A moment later, right after I got that .05 bitcoin, I got an email from Brian. He had built this prototype and got it online. He’d been coding like crazy the past few weeks. He asked, “Do you have any tips on finding co-founders, and do you know anyone from your community who might be interested?”

It’s funny to think back on that because anyone who would’ve joined back then would be a multibillionaire today. Here’s what I wrote back. “The hardest part about finding co-founders is you probably already know the right people, but they might be doing other things. You’ve got to show these people why this could be or already is much bigger than anything that they’re doing right now. It’s about transferring your belief in this market and this product to others. You already know your future co-founder, but you both just don’t know it yet.”

Right about that time, I was reading thousands of YC applications for the Summer 2012 batch. I remember Brian and I had voted infinity in the application review system Paul Graham built — that click of a mouse guaranteed an interview at Y Combinator for Coinbase. Honestly, I’m really thankful that I was a small part of something that was a pivotal moment for Coinbase and Y Combinator, even if Brian didn’t have a co-founder just yet.

Bitcoin was still a fringe idea

Remember — even in 2012 — Bitcoin was a very fringe idea still. Brian was a solo founder, building on something brand new. At the time, no one believed in Bitcoin. I found out about Bitcoin originally on Hacker News. Below is the very first mention of it on that website in 2009. If you read those comments, they sum up how most people thought of it. Everything from, “not likely,” “cool,” “maybe it’s useful,” or “I just don’t get it.”

This is what made Brian so impressive. Today, it feels like Bitcoin is much more well-known, but at that moment, very few people had any understanding of it, let alone believed that it could be useful to society.

Why I invested in Coinbase

As hard as it was for a founder to believe, it was even harder for investors to believe. Most people said no, but I didn’t. This investment is likely to be one of the best calls I’ve ever made and maybe ever will make.

Here are the reasons why I said yes when most people said no:

  • First, I was primed for the problem. I knew how hard and terrible the experience was to buy bitcoin already. After I read about it on Hacker News, I tried to buy it on the first website you probably could buy it on, which was Mt. Gox. It was a terrible experience, and while Bitcoin had captured my attention, it was that bad design and horrible user experience that felt so wrong. I knew that couldn’t be the thing that brought Bitcoin all the way.
  • Next, I was primed for the idea. I believed that fiat currencies might fail. In 2005, I had also been an engineer working on software for Peter Thiel’s hedge fund Clarium Capital Management. One of the books they made us all read to train up for the role was “The Dollar Crisis” by Richard Duncan. That book had primed me for the madness that happened in 1971. That was the year that Richard Nixon took the United States off the gold standard; you could no longer trade your dollars for gold at that time. Dollars, which were already the reserve currency of all other central banks, suddenly became a fiat currency, printable at will. Twenty-five percent of all dollars in circulation today were printed just in the last year, thus Bitcoin. As Louis Pasteur once said, “Chance favors only the prepared mind.” I feel very lucky to have been prepared for this idea when it came.
  • Finally, Brian was a builder. Personally, I love funding builders. It was very powerful for Brian to be able to build that first version of Coinbase and secure it himself. With physical banks, you protect physical money with physical bullets, but with internet money, you protect it with great software engineering and secure systems. We knew Brian was an engineer and head of anti-fraud at Airbnb, which itself had just reached billion-dollar startup status. And we knew anti-fraud at Airbnb was actually like being part of the special forces. I just knew that Brian had been put through the paces by hackers daily. It takes that kind of builder to walk away from that kind of opportunity to show you what the real future will be. That’s what Brian did for me.

Recap

Here are the key lessons from the Coinbase story.

  1. First, be contrarian and right. Can you find something that is fringe but ultimately right? Is there something from history or psychology or first principles, bottom-up thinking that can help you justify your crazy idea and why it’s going to take the world by storm? Sooner or later, every crazy idea will have its day but only if it has a truly compelling pitch.
  2. Second, be a builder. The more you can do, the less you leave to chance, and the more people will want to fund you, join you, or use your product or service. Do those things yourself to the extent you can. I made a whole video about this called “Roll Your Way to a Startup Unicorn.”
  3. Finally, it’s clear how powerful and useful it is for founders to be able to send a super compelling email. Remember when Brian sent me .05 bitcoin, it was worth only 23 cents, but he literally sent me free money. It got my attention and showed me Brian was serious about building something genuinely useful that I could use.

In the end, I was incredibly lucky that I got that email; I got to meet Brian; and I had the chance of funding this company. For that, I am so thankful. I’m also really thankful for all who tune in to watch my videos. There are so many businesses that need to be created and the reason why I’m putting my videos together is to help make that happen.