Ribbit Capital

Wences Casares is among the most-trusted proponents of the digital currency bitcoin. Indeed, last year, Casares – a serial entrepreneur who previously ran the digital wallet service Lemon (acquired by LifeLock in late 2013) – raised $41 million for his now 40-person, Palo Alto, Ca.-based company, Xapo, including from Benchmark and Fortress Investment Group.

That amount has since been dwarfed by other bitcoin startups – the payments processor and wallet startup Coinbase announced a $75 million round in January, for example – but Casares says he doesn’t need more capital any time soon. Despite a price crash last year and some high-profile security breaches, bitcoin’s growth, and Xapo’s, continues apace, he says. We talked the other day in a conversation that has been edited here for length.

When you were raising money for Xapo last year, a single bitcoin equaled $650. Now, bitcoin are worth $225 a piece. How has that price fall impacted your business?

For people who’ve been looking at bitcoin for three or four years, that’s not really the story. Bitcoin has done the same thing several times: [jump from], nine cents to $10; $1 to $17; $17 to $30 — all the way to $100. So those who’ve been around along time have seen it go from nine cents to $200.

Also, when we raised that money, there were 3 million people using bitcoin. Today, there are 12 million. There were 20,000 transactions; today there are 100,000. Back then, bitcoin represented 50 percent of all cryptocurrency volume; today, it represents 96 percent.

But are your customers transacting more now that it’s worth less, or are they continuing to sit on it?

There are two very different markets. You have the California and New York market, [where people] own it as a speculative payment and who never do a payment, and [those 10 million people] account for most of the bitcoin. Then you have emerging markets where you see [2 million other] users with a lot less coins, and they’re using it because they don’t have credit cards and that hasn’t changed with the price.

Where are people most actively using bitcoin in emerging markets, and is it becoming any easier to use in those places?

People are using it in India, Turkey, Indonesia, Brazil. The barriers remain enormous. It’s very hard to use it. But if you have no other way of paying online, you’re willing to go through enormous hurdles.

You’ve said that establishing trust is the biggest hurdle that bitcoin faces. Isn’t simply understanding it an even bigger obstacle?

Bitcoin looks like the internet before there was a browser. A lot of us tried explaining PCP stack and how the protocol works [etc.] and nobody really started using it because of those explanations. It happened because someone wanted to keep in touch over email or Skype or Facebook.

[Similarly], the main use case for bitcoin is micro-transactions, and the internet will look different five years from now when you can move cents and hundreds of users who don’t have credit cards but $5 of bits can unlock certain things that you can’t unlock any other way.

Xapo’s business is centered on a bitcoin wallet whose users store the bitcoin in vaults – or physical servers — around the world. What are they like, how many does Xapo manage, and why are they located where they are?

These are large facilities where there are sections owned by other companies, with sections that are exclusive to us that we don’t share with anyone else. We have five – one in Switzerland and the others on other continents. They’re not very close because you have to be able to lose one due to a disaster like an earthquake, flooding or nuclear war.

Would you ever need more?

No. Even if we were 10,000 times our current size, it isn’t like bitcoin take up more space. We have five [servers] because each bitcoin has five keys. Imagine a door that has five keys and you need three to open it. Basically, if you lose one or two facilities owing to natural disaster or theft, you can use the other three to move the bitcoin to a safe location.

Many bitcoin companies are tackling numerous things, like Coinbase. It’s a wallet provider. It’s also an exchange. Why are you focused on the wallet alone?

Because it’s hard enough to win at one business and do it really well. At the beginning, AOL gave you connectivity and weather and email addresses and financial news, and it didn’t win at any of those things. Bitcoin is the same. A lot of companies do many things; we’d rather build the best wallet in the market.

In a crowded market, venture capitalists tend to talk up particular investment angles to differentiate themselves from their peers. When Ribbit Capital founder Micky Malka talks financial services, though, it isn’t for marketing purposes. Malka has been living and breathing finance since co-founding his first company in 1993, a broker dealer that evolved into an online financial services portal and sold in 2000, just before the bubble burst, to the Spanish bank Banco Santander.

LPs clearly like his credentials. Ribbit, in Palo Alto, closed its first fund with $100 million last year and officially closed on a second, $125 million fund last week. I chatted with Malka on Friday to learn more about what those investors — including Silicon Valley Bank, the Spain-based lender Banco Bilbao VIzcaya Argentaria, and individuals from the financial services world — find so compelling about what Malka is doing.

You’re Venezuelan and spent most of your life in South America. When did you come to the U.S. and why?

I came here seven years ago this month. I’d started all kinds of consumer financial services companies in Europe and Latin America and did very well for myself, but I felt like I was playing in the AAA leagues and that Silicon Valley was the majors.

You came to be an entrepreneur, though, not an investor.

Yes, I moved with my family to build another company, again around consumer financial services – around mobile payments. Bling Nation was right on the vision but so wrong on the strategy, wrong on the protocols. It took us a couple of years to figure it out, though. At that point, we went to our VCs and said, “It’s not working and we have two options. We can return your money and lose our own personal money that we’d put in. Or you can give us six months to figure it out.” To my surprise, the investors said, “We backed you guys, not the idea. Take six months to figure it out.” It was really big [of them]. We launched a company called Lemon, a financial app, and we sold it last year to a public company.

Had you had it with startups at that point? Why form Ribbit?

I’d listen to this guy say, “I’m doing this lending business in the U.K.,” and I’d say, “I’d love to be involved.” Then I’d learn of a new financial advisor in the U.S., and I’d think that was interesting. I realized there was an investment thesis going on that was broader than what people were thinking about. Also, I’ve started companies on four continents, and there aren’t many VCs who really know financial services in different jurisdictions. It’s a very particular DNA around which to start a firm.

So much is happening on the financial services front right now. Where in the cycle are we?

Financial services innovate when there’s a new channel and when users or clients are tired of existing brands. Well, people aren’t wearing their Goldman Sachs or Citibank hats anymore. Meanwhile, mobile has taken off dramatically, and banks and insurance companies don’t think in mobile terms. I’m not saying the brands we know will disappear, but who will be the Capital One or Charles Schwab of this generation? It’s early, and there are a lot of unique innovators in different subsets of the universe.

Where are you investing your capital geographically?

Our mandate is global. We look for opportunities in seven markets: The U.S. and Canada, Brazil, the U.K., Germany, South Africa, Turkey, and India, which are all markets where there are entrepreneurs and investment partners who I’ve known for 15 years.

Where have you made some of your biggest bets to date?

We’re the largest bitcoin VC in world. Let Marc [Andreessen] be Marc [in being so public about bitcoin]; we’ve been investing since 2012. Back then, there were no bitcoin entrepreneurs so we had to buy bitcoin directly. Later, we found our first entrepreneurs, including at [bitcoin exchange service] Coinbase [which Ribbit backed last year]. We’ve now made five investments in bitcoin [startups]: Two here in the U.S., one in Hong Kong, one in Brazil and one in Slovenia.

You made 10 investments out of your first fund, and you’ve made six from your second fund, only one of which, Wealthfront, has been announced. Are you still focused narrowly on consumer-facing financial startups?

Yes. We’ve done lending businesses, personal finance, wealth management, accounting and invoicing, and bitcoin, and now we’re going to add insurance, which we’ve spent the last year researching. We just see too many opportunities that we like.

What size checks are you writing?

We make very concentrated bets. Our checks are usually between $3 million to $4 million and $20 million. When we find what we like, we have a lot of conviction. I don’t believe in diversification.

Image courtesy of the upcoming Money 20/20 conference.

Ribbit Capital

Wences Casares on the Future of Xapo (and Bitcoin)

Micky Malka Doubles Down: “I Don’t Believe in Diversification”