BitCoinDesk

By Tom Sharkey (@tom_sharkey) : Published by Coin Desk : 17:20 BST Sept 6 2014

Read the full article at http://goo.gl/dwXydx

One of the most exciting things about a novel technology like bitcoin is watching its infrastructure be built right before our eyes.

The need for infrastructure creates boundless opportunities for innovators and entrepreneurs to focus their efforts on developing products that solve problems in many different sectors of the industry.

But which sectors in the bitcoin ecosystem are commanding the most attention?

To explore this, we analyzed CoinDesk’s venture capital investment data, which groups companies in the bitcoin industry into six broad sectors: exchanges, wallets, payment processors, financial services, mining, and ‘universal’, which includes companies working across multiple sectors.

Venture capital flow into the bitcoin space has been a key driver of the industry’s growth over the past two years. In addition to the obvious monetary benefits, multimillion-dollar investments from revered investors like Marc Andreessen and Tim Draper help bring legitimacy to the often misunderstood technology.

As such, VC investment data serves as a helpful tool to gauge which areas in the ecosystem are being built on the most – or in other words, which sectors in bitcoin are the ‘hottest’.

The data

To be considered for this analysis, a company must have raised a minimum of $250,000 from a venture capital firm, angel investor or a combination of the two. These criteria were chosen because a number of companies in our database are enrolled in accelerators like Boost VC and, while important to the industry, are still in beta.

The result was 46 different companies that, as of 1st September, have raised a total of $264m since our first recorded investment in mid-2012.

While the six sectors we classified aren’t always mutually exclusive – nor do they encompass every area in the industry – they’re representative of the different types of services in which businesses are specializing.

The data show that exchanges and financial services companies account for 56% of all companies with VC funding.

Popular names like Bitstamp and OKCoin (exchanges) and Chain (financial services) have raised substantial investment rounds, but when we look at how much money is going into each sector instead of just the number of companies in each sector, we see more diversity.

The hottest sectors in bitcoin

1. Universal companies

Total VC investments: $62.7m | Number of companies: 6

Coinbase and Circle dominate the universal company sector, which has seen more venture capital invested than any other area. Other universal companies like Korbitand Coinplug offer a wide range of services to customers, often acting as an exchange, wallet and payment processor all at once.

2. Financial services

Total VC investments: $43.4m | Number of companies: 12

BitGo, Chain and Ripple Labs lead the pack here, with younger companies likeVaurum and TradeBlock also posting multimillion dollar investments from investors. Companies in the financial services sector offer a variety of services, with some focused on block chain infrastructure and others on technical analysis of bitcoin’sprice.

3. Exchanges

Total VC investments: $43.1m | Number of companies: 14

Exchanges are the most populated sector in bitcoin, with 14 companies that have all raised $250,000 or more from investors. Despite the abundance of players in the field, VC investment in exchanges has been disproportionately low, with the average funding per company sitting at $3.1m.

4. Wallets

Total VC investments: $43.1m | Number of companies: 4

There are fewer companies in the wallet sector than any other, probably because most of the universal companies have wallets built into their business models too. As for companies keeping their focus primarily on wallets, Xapo reigns king with $40m raised so far – more than any other business in the industry.

5. Payment processors

Total VC investments: $37.7m | Number of companies: 5

BitPay has raised most of the VC money that has gone to the payment processor sector. The company’s recent $30m Series A funding round was the single largest investment into the bitcoin space, and included support from notable investors like Index Ventures and Virgin Group founder Richard Branson.

6. Mining

Total VC investments: $34m | Number of companies: 5

Arguably the bread and butter of the industry, it’s a bit ironic that the mining sector hasn’t received more support from venture capitalists. It’s worth noting that this data was compiled before KnCMiner announced its $14m Series A funding round on 4th September.

The investment, led by Swedish VC firm Creandum, certainly helps balance out the amount of money each sector has received in the ever-growing bitcoin industry.

By Yulia Chernovav : Published on WallStreetJournal : 8 AM ET, Sept 5 2014

http://goo.gl/2bpTbj – Read the real article at the Wall Street Journal

Money came easily to startup KnCMiner, which says it made $70 million in revenue in its first year of operations from selling bitcoin mining equipment.

But not everything was rosy in its business, as many customers were dissatisfied with the long waits for its equipment and are demanding refunds. Now, with $14 million in venture capital backing, the company is getting out of selling bitcoin mining machines entirely.

Back in June 2013, eons ago in the fast-changing sector of bitcoin, KnCMiner launched with an offer to sell semiconductor equipment that would allow buyers to generate bitcoin.

“We took in $6 million on the first four days that we were open last year,” said Sam Cole, KnCMiner’s chief executive and co-founder, of the pre-orders people placed.

Few startups can boast of a similar feat, but such is the world of bitcoin, a virtual currency that has created fortunes but also caused a lot of consternation because of its volatility and other problems.

Along with the fast money, KnCMiner found that it alienated some customers.

Some who pre-ordered the equipment for thousands of dollars per unit in December, when bitcoin traded at above $1,000, are still waiting for the delivery of KnCMiner’s semiconductor boxes, even as the price of bitcoin dropped to below $500. The lower the price, the harder it is to recoup the original investment on a bitcoin mining machine.

“We don’t like people sitting in these queues for five months. It’s terrible. We generate a lot of stress for people,” Mr. Cole said. He said that KnCMiner didn’t delay shipments, but still many people were unhappy because of the long wait.

“Everyone who requested a refund will be refunded,” he said, adding that hundreds of people had done so.

A petition appeared on Change.org in August requesting that KnCMiner issue refunds to everyone asking for them. It’s far from the only bitcoin mining unit manufacturer that has gotten grief from unhappy customers.

Staffan Helgesson, general partner at Creandum, the venture firm that led KnCMiner’s Series A round, wrote in an email to Venture Capital Dispatch that “the speed of [KnCMiner’s] execution in some areas of their operations have simply not been fully up to speed. However, I am confident [KnCMiner] will honor all its customer commitments as soon as practically possible.”

That trouble along with another change in the bitcoin equation has led the company to get out of equipment sales altogether.

The more people mine bitcoin, the harder it is to generate. That means that people need ever faster and more powerful machines. The machines that would be reasonable to sell to customers now would require more power than one can generate in a U.S. home, Mr. Cole said.

“You cannot keep it in a house. You have to keep it in an industrial facility,” Mr. Cole said.

KnCMiner has built a vast data center, which consumes 30 megawatts of power, in northern Sweden, in the Arctic Circle. “We produce a lot of heat. We need cold air,” Mr. Cole said.

There, it generates bitcoin for itself, as revenue, and also has started leasing power to customers. Customers can come to its website and pay a fee to get a certain amount of compute power for a duration of time.

Mr. Cole declined to say whether this activity is profitable for customers. “We don’t give indications of returns. That would be bad for business. We are not a financial adviser. We cannot guarantee the performance they will get. The customer will have to do this,” Mr. Cole said.

The difference now, he said, is that given that customers get access to the mining equipment immediately, it “makes the math easier to do.”

Now that it closed on its first venture capital round, which valued the company at “hundreds of millions” of dollars, according to Mr. Cole, it has already opened a Series B. This round would help the company open more data centers, he said. Other investors in the Series A round are investment bank GP Bullhound and several individuals.

Creandum, the lead investor, is investing out of a $175 million fund. It counts Spotify as one of its portfolio companies.

Write to Yuliya Chernova at yuliya.chernova@wsj.com. Follow her on Twitter at@ychernova