Crypto-anarchists may not like it, but money doesn’t buy everything. Sometimes, you just need the help of a traditional venture capitalist.
Binance is the fastest growing company in crypto — having risen to become the world’s largest crypto exchange based on trading volumes in under one year — but even it needs help from the old guard. Earlier today the exchange firm, which is officially headquartered in Malta, announced that it has landed an undisclosed investment from Vertex Ventures, a VC firm belonging to Singapore sovereign fund Temasek.
The deal is aimed at launching Binance’s fiat-to-crypto exchange in Singapore which is in beta right now but expected to launch fully, with regulatory compliance, before the end of this year.
VCs have long invested in crypto and crypto exchanges — $8 billion-valued Coinbase is the best example with phenomenal gains for backers — but Binance is not traditional. It is barely one year old, it operates in legal grey areas worldwide and it is seemingly not in need of money (even in this bear market) having made a $350 million profit in the last six months alone.
But this deal is about seeking legitimacy and the right partners.
Binance made its name offering fast crypto-to-crypto trades that make use of its BNB token to save on fees, but a big focus for this year is moving into fiat-based exchanges, as CEO Changpeng Zhao explained to TechCrunch in an interview last month. The company is aiming to open three crypto exchanges this year, with plans to raise the number to 10 next year. Aside from Singapore, it has announced a joint venture in Lichtenstein and gone public with plans to offer fiat in Malta, where it has been courted by the island nation’s pro-crypto administration.
The move in Singapore is particularly telling since it shows that, despite early rhetoric that crypto (and ICOs) would ‘rid’ the tech industry of venture capitals. Traditional money and networks are very much required if ambitious companies are to fulfill their promise, as I explained recently when I argued that professional investors now dominate ICOs. The writing has been on the wall with crypto companies using money to make startup investments and grow their own ecosystems — Binance is the most aggressive with a fund that’s said to be $1 billion and an ambitious accelerator program — and so these businesses themselves also need the connections that professional VCs can bring.
(The deal is also a blow to Vertex rival Sequoia, which ended up taking Binance to court over the breakdown of a proposed investment deal last year.)
Wei Zhou — the Binance executive leading the firm’s Singapore business — told TechCrunch that the deal is very much about opening doors.
“This partnership is not about capital but about finding a partner for Binance’s fiat exchange expansions. This partnership signifies the long-term commitment Binance has to build out the ecosystem in the [Southeast Asia] region,” Zhou said.
Vertex certainly brings a network and know-how. The firm was founded in 1988, it has five funds worldwide and offices in Southeast Asia, Silicon Valley, China, India, Israel, and Taiwan.
The firm’s current $210 million fund is the largest in Southeast Asia, and this deal is a joint one between Vertex China and its Southeast Asia/India sibling.
More importantly, as a fund under the Temasek banner — Singapore’s sovereign wealth fund — the deal gives Binance a very good seat at the table for working with authorities. The company has already shown its keenness in Singapore by taking slow steps and working with authorities to roll out its fiat exchange in Singapore slowly — small and slow rollouts are a departure from Binance’s usual ‘move fast and break things’ approach to business — so pairing up with Vertex mirrors that.
Zhao, the Binance CEO, has artfully dodged many questions about his company’s past — such as why it left Hong Kong, the reasons it declined to become regulated in Japan, why it runs to governments like Malta and Bermuda, and whether it has violated U.S. securities laws — but the newest, and perhaps best, response is to work with the establishment in recognized markets where it can be fully legally compliant.
Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life