Bitcoin is the hottest investing trend since the Internet, according to venture capitalists who have sung its praises. But the money hasn’t exactly followed.
Venture capitalists invested $74.1 million in bitcoin startups across 39 deals in 2013, according to data provided by CB Insights. That’s less than a third of what Internet companies raised in first-round funding in 1995, when Internet leaders like Yahoo, Inc. and eBay Inc. were just getting off the ground.
In fact, for all the predictions that bitcoin is on the cusp of blowing up the traditional financial system, investors have largely kept to the sidelines. The last round of funding raised by Oculus VR — the maker of virtual-reality goggles Facebook Inc. agreed to acquire last month — was more than all of bitcoin’s VC haul in 2013.
“From an aggregate standpoint, a hundred million bucks in venture is a pittance. It’s a rounding error,” said Matthew Roszak, co-founder of the venture-capital firm SilkRoad Equity. He has a portfolio of 10 bitcoin investments.
Some industries are likely attracting more funding because they are bigger. Software companies, for instance, attracted $11 billion in VC funding last year, according data from Thomson Reuters and CB Insights.
And interest has started to pick up this year. VC investments in bitcoin-related firms rose to $64.9 million across 14 deals in the first quarter, nearly 90% of the money raised last year, according to CB Insights. If funding kept up that pace, it would top $200 million this year.
But it’s coming from the far back of the pack. The average bitcoin investment was $1.9 million last year. The average investment in biotech, on the other hand, was $9.6 million.
These small-potatoes investments have flown in the face of expectations that the digital currency will bulldoze the way the world uses money, leaving old intermediaries like banks and credit card companies in their wake.