Investor Terrence Yang Gives a Much-Needed Reality Check to Bitcoin Startups

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Investor Terrence Yang Gives a Much-Needed Reality Check to Bitcoin Startups
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Bitcoin startups have raised more than $1 billion over the past few years, but it’s obvious that not all of these new companies are going to succeed. Up to this point, most of the investment money has gone to exchanges, wallet providers, and payment processors, and it’s becoming clear that more investment needs to go into novel use cases that illustrate why this technology was created in the first place. At a recent BitPanel Meetup in San Mateo, California, Yang Ventures Founder Terrence Yang let it be known that Bitcoin startups need to provide real use cases for the blockchain-based technology if they want to stand the test of time.

Bitcoin Companies Need Customers

One of the main criticisms of Bitcoin startups in general is that it’s hard to find one that is turning a profit. While there are definitely a number of different Bitcoin-related companies that have become profitable over the past few years, they don’t tend to be the traditional types of businesses that investors seek out. For example, Silk Road was extremely profitable for the site’s creator, Ross Ulbricht, during its few years of existence. SatoshiDice, a bitcoin-based gambling website originally founded by Bitcoin Entrepreneur Erik Voorhees, was also quite profitable when it sold for more than $11 million in 2013.

A common theme among the few Bitcoin companies that have been successful is that they solve an actual need for their users. Many have referred to Silk Road as Bitcoin’s first killer app because it enabled something that was not possible before the creation of a censorship-resistant digital payment system. During the recent BitPanel Meetup, Terrence Yang discussed the lack of revenue and customer acquisition in the Bitcoin industry as a whole:

“I want Bitcoin startups to start talking to freaking customers and getting some revenue because you guys are not doing that, and if you don’t do that, you will fail. A lot of VC’s — they might keep track and they might be watching, but if you don’t start getting revenue and proving that your hype is matched by actual substance, you’re going to be just like Theranos or just like these other companies that are getting their ass kicked in the press and getting destroyed by benign neglect from investors. We don’t care unless there’s a reason to care, so you have to convince us that you’re a better investment than whatever it is: shorting the Russell 2000 or investing in another startup in another space that might be more promising and has less competition, less overflow of many, many developers and not enough practical ideas or whatever.”

Although there have been some successful companies within the Bitcoin ecosystem, no one has been able to find that killer application that could bring the peer-to-peer digital cash system to the mainstream. Blockchain Capital Managing Partner Brock Pierce discussed how Bitcoin companies may be able to bring the general public to the blockchain during the same BitPanel Meetup.

[Read More: Where are Bitcoin’s Killer Apps?]

Could Bitcoin Get Blown Out by a Correction?

Another point brought up by Yang during his comments had to do with the likelihood of Bitcoin — or at least Bitcoin-related startups — surviving a potential correction in the stock market:

“I think Bitcoin startups need to be extremely practical . . . You [have] to get the customers. Otherwise, it’s going to be just like virtual reality — possibly. Virtual reality, fifteen years ago, was really hot. Then, it disappeared after the dotcom crash, and we all know, if we’re honest, that valuations are quite high right now — not as bad as during the dotcom era, but they’re very high. And so, if there is a correction, Bitcoin will get blown out — unless you start making something people want — and then it might be another fifteen years before Bitcoin comes back, just like virtual reality.”

What Should Bitcoin Startups Do?

Yang’s advice to all Bitcoin startups is to find a way to create a blockchain-based product that people actually want. He explained:

“I would get revenue. If you can get happy users and prove that they’re actually happy, I’m going to come back; that’s fine too. You have to make something people want. Paul Graham talks and writes about this over and over and over, and the [Y Combinator] partners themselves talk about how it’s frustrating to talk to their accelerator startups that are mostly not in Bitcoin — especially now — that they have to repeat this over and over, but you have to have something people want. You have to make product/market fit.”

Terrence Yang was wearing a Purse t-shirt during the BitPanel Meetup, so it’s safe to say that’s one company he thinks is doing it right. He’s also a seed investor in the San Francisco-based startup.

Purse CEO Andrew Lee recently shared views similar to those expressed by Yang during this panel discussion. Lee believes that consumers are willing to use their service because of the large Amazon discounts made available to their users. This is an example of a compelling use case that gives the average person a reason to use Bitcoin today.

Correction: A previous version of this article claimed Bitcoin startups have raised over $1 billion in funding in 2015. This statement has been updated to reflect that the $1 billion statistic is the total capital raised by Bitcoin companies in the technology’s entire history. Thanks to Scott for pointing out this error in the comments.

Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, RT’s Keiser Report, and many other media outlets. You can follow @kyletorpey on Twitter.

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