Foundation raises $7M to return ‘sovereignty’ to a chaotic crypto world

Open source hardware devices and the push for self-custody

Hot on the heels of Ledger announcing it’s working with iPod creator Tony Fadell to create its newest hardware wallet, competing hardware wallet startup Foundation Devices announced it has raised a $7 million seed round to double down on its “sovereign computing platform,” which it says is empowering its users to “reclaim their digital sovereignty.”

The company’s main product, Passport, costs $260 and looks like a mid-2000s Vertu luxury phone, but is, in fact, a hardware crypto wallet built with security and a mobile-first approach in mind.

“The entire cryptocurrency space is built on a foundation of open source. It only works because it’s open. Our strong belief is that open source software must run on open source hardware.” Zach Herbert, CEO, Foundation Devices

The company is taking a novel approach to hardware wallets in that it open sources both the hardware and software for every device it releases. Yes, that means that, should you be so inclined, you can go on GitHub and look at every line of code, every component, every mechanical design and the full bill of materials — every aspect of the design of every one of its products. The company says open source is a core part of its mission and vision.

Foundation’s $7 million seed round was led by Polychain Capital (which appears to be flying the banner of crypto winter at the moment, in that, despite reportedly having more than $600 million under management, the fund seems to have spent approximately $9 on its website design).

Others participating in the round include new investors Greenfield Capital and Lightning Ventures, and a number of follow-on investments from existing investors, including Third Prime, Warburg Serres, Unpopular Ventures and Bolt. The investment was made on a SAFE note with a $35 million valuation cap. (Disclosure: Haje worked in a non-investment role as the director of portfolio at Bolt, an early investor in Foundation Devices. Bolt’s investment into Foundation was made after Haje left the VC firm.)

The company claims it has sold “thousands” of the original Passport, and in March this year launched the second version of its flagship product. TechCrunch caught up with the company’s founder and CEO, Zach Herbert, at the Baukunst Creative Technologist conference earlier this year, where he detailed a refreshing take on the future of crypto. (A recording of the talk “Not Your Computer, Not Your Keys,” is available on YouTube.)

“[The implosion of FTX] is a wake-up call around the importance of self-custody. It’s now beyond clear that storing your coins on an exchange is extremely risky. I also think it’s a wake-up call in terms of corruption and the fact that regulators are not actually protecting you. And then, it’s a wake-up call regarding the media. The mainstream media coverage of FTX has been horrible,” Herbert said in an interview with Baukunst’s Tyler Mincey, who is also a board member at Foundation. “There are accounts on Twitter giving excellent coverage of the clear, premeditated fraud that took place, but The New York Times, The Washington Post, these very respected media outlets, I don’t know how you can read their coverage. On Twitter, you can find drastically better, much less biased coverage. And people are waking up to that. But the unfortunate thing is a lot of people have lost their life savings.”

Foundation was founded in April 2020, focusing on building open source hardware and software products that provide users with a “seamless, end-to-end sovereignty experience.” The company’s focus is security-above-all, which has included some crucial choices, including manufacturing its products in the U.S. The company’s founder has very little patience or trust in overseas manufacturing.

“There’s a geopolitical imperative, and a security imperative, to manufacture in the United States. I think we’re moving toward a multipolar world and it’s only going to get crazier. I personally would never trust a device to store my bitcoin that was made in China,” Herbert said. “And I want to be on the ground at the factory myself. We manufacture in New England, and I live in the Boston area. I’m at the factory at least every couple of weeks.”

One thing is for sure: The company’s devices certainly look very different than many hardware crypto wallets out there. That was not by accident.

“We call what we’re aiming for digital deco, inspired by the visual language of art deco. We’re embracing color and ornate design. The cryptocurrency industry has focused on dark colors for some reason,” Herbert explained. “I think that’s completely wrong for our industry. I think it should be about futuristic optimism. Bitcoin is supposed to be a counter to the dystopian future, and our design should reflect that.”

And the company is picking an aggressive fight with crypto exchanges: “We strive to play a large part in empowering users to pull their bitcoin off of exchanges and achieve digital sovereignty,” Herbert told TechCrunch.

TechCrunch interviewed Herbert to get a deeper look at the company and its hopes, dreams and ambitions. We talk about the funding round, the need for open source, why self-custody is hard but necessary for crypto and much more. The interview has been edited for length and clarity.

Zach Herbert, CEO at Foundation

Zach Herbert, CEO at Foundation. Image Credits: Foundation

What makes you the perfect person to run this company?

I’m a mechanical engineer by training and I’ve been obsessed with computers since I was little. I learned about bitcoin in 2013, and it quickly grew into an all-consuming passion. At first, I was interested in the investment potential, under the thesis that bitcoin represents an ideal form of money — that its limited supply means that, as demand increases, so will bitcoin’s price. Bitcoin’s culture morphed my views. As I consumed unending amounts of bitcoin-related content, I began to understand the importance of sound money, of sovereignty, of privacy, of the need to separate money and state.

In 2017, I dropped out of Harvard Business School’s MBA program to join a Boston-based crypto company, first as head of operations and ultimately as COO. We built hardware and software, including cryptocurrency ASIC mining hardware. I couldn’t stop thinking about the stagnation in self-custody tools, especially hardware wallets. So I and some fellow teammates launched Foundation Devices in April 2020.

[gallery ids="2459627,2459628,2459629,2459635,2459636"]

Personally, I feel like I have two conflicting identities. The first is as a technology executive, startup founder, engineering alum and almost-MBA. That’s my legacy professional identity. But more and more, my real identity is as a Bitcoiner, a sovereign individual. These conflicting identities are probably why Foundation has been able to achieve its success thus far, why we’ve been able to raise venture money for ideas that have historically been considered fringe and why I’m confident we’ll continue to grow and bring amazing sovereign computing products to market.

How does this fundraise unlock the next steps for the company? 

Self-custody today is simply too hard for most people; it’s why so many people were hurt this year with the collapse of FTX, BlockFi, Celsius and more. Notably, we think self-custody alone is insufficient — true sovereignty requires privacy. So we’re differentiating ourselves by building expert-level privacy features into our products and making them accessible to everyday users. For example, Envoy connects to the Tor network by default, ensuring that we can’t see users’ IP addresses or know anything about their balances or identities.

Our next-generation Passport device will go beyond a hardware wallet; we’re striving to build what I refer to as a “portable sovereignty platform” complete with an entirely new operating system. To accomplish this, we’ve assembled a talented multidisciplinary team. We create everything in-house and we don’t rely on outside design firms.

Our goal is to make self-custody as easy as opening a bank account. With this fundraise, we are able to expand the team to build out our Envoy app as a standalone mobile wallet with privacy services and bring our next-generation Passport hardware wallet to market.

Tell me about the specifics of the funding round, why you’re raising the money and the investors involved. 

We raised a $7 million seed round, through SAFEs, at a $35 million post-money valuation. Polychain Capital led the round, and we’ve been working with their partner Will Wolf, who is a believer in the importance of sovereignty and self-custody. Will is deeply technical with a computer engineering background. Will shares our desire to build a new sovereign computing paradigm, on a foundation of open source hardware and software, with a focus on better design and user experience.

Tell us about your short-term future.

I’m most excited about two things. The first is building out our Envoy app into a standalone wallet and making hardcore bitcoin privacy features accessible to a wide audience. The state of bitcoin privacy is quite bad — for example, if you go buy a cup of coffee with bitcoin, the coffee shop can see all your past transactions — and maybe even figure out how much bitcoin you hold. We believe it’s imperative to provide users with better privacy and therefore improve bitcoin’s fungibility.

The second is our next-generation Passport device. After a long period of stagnation in the hardware wallet space, it’s encouraging to see Ledger working with Tony Fadell to bring a new form factor to market next year. We’re working on a new category of device I call a “portable sovereignty platform” that goes beyond a hardware wallet. I can’t wait to unveil late next year what we’ve been working on.

What about the long-term future and the ultimate goal for your company?

We hope to offer a compelling alternative to the Apple-Google duopoly that plagues our society today: a brand-new sovereign computing ecosystem. And our devices and user interfaces will look nothing like the ultra-minimalistic, soulless design that defines today’s tech products.

Foundation’s ultimate goal is to usher in a new paradigm of “sovereign computing.” We believe computing today is fundamentally broken. Individuals should be in control of their own money and data, but instead, they trust numerous third parties.

Everything is cloud-based, data isn’t portable — even making a simple payment requires a credit card that connects to a bank account. If we are ultimately successful, we will offer a comprehensive suite of hardware, software and services that enable users to store their own money, run their own infrastructure and do so with a strong level of privacy — all built on an open source foundation. We strive to play a large part in empowering users to pull their bitcoin off of exchanges and achieve digital sovereignty.

What are the biggest challenges you are facing right now? 

I think the biggest short-term challenges are regulatory. Bitcoin and decentralized technologies represent a risk to traditional political power structures. Senators [Elizabeth] Warren and [Roger] Marshall, for example, just introduced a bipartisan bill called “The Digital Asset Anti-Money Laundering Act.” If it passed in its current form, it would effectively outlaw sovereign use of bitcoin and cryptocurrencies. It would be illegal to run your own node, to develop cryptocurrency software, to use privacy tools. It would kill our industry.

When I think about longer-term challenges, I think about scaling up our American supply chain. Since we’re making security devices that store the keys to your money, we think local manufacturing is a requirement. That’s straightforward when we are producing thousands of units, but as we achieve success in the coming years, we’ll need to find ways to continue producing Passport cost-efficiently in America. We’re even discussing vertical integration.

Why are all of your products open source? Doesn’t that put you at a disadvantage to competitors with strong IP protection?

It might seem crazy that when we release a new product, we open source all the code and electromechanical designs. But open source is a core part of our mission and vision.

Bitcoin is only successful because it is an open source technology. This means that anyone is able to inspect the code, fork the code, modify the code, contribute to the code and run the code in a permissionless way. Tens of thousands of bitcoin nodes are currently running the exact same open source software, creating the consensus layer that governs the decentralized bitcoin network. Likewise, the entire cryptocurrency space is built on a foundation of open source protocols and open source software. It only works because it’s open. Our strong belief is that open source software must run on open source hardware.

If I’m looking to purchase a hardware wallet to store my keys, I’m only interested in open source hardware. If a device is closed source, then there’s no way to know what’s happening in the lowest levels of the electronics and the firmware. Is the device properly generating entropy and therefore generating a truly random seed phrase? How is the private key being secured? Even the big players, like Apple and Intel, struggle with hardware security vulnerabilities.

So that’s the transparency point of view. But I have another belief — that open source software has contributed to the rise of Silicon Valley and the software, but that closed source proprietary hardware has caused stagnation in the physical world. Where are the flying cars?

When you build software, there are plentiful open source building blocks. You’re building on top of the work of tens of thousands of humans that came before you. But when you build physical things, you’re too often starting from scratch or dealing with proprietary and expensive IP and licensing. It’s a huge barrier to entry, a huge barrier to innovation.

What about the competition? Isn’t it scary to show your hand?

I’m not too concerned because our product pace is relentless and because trust is so important in the cryptocurrency space. If a Chinese company clones Passport and brings it to market, who will trust them? And by the time they ship, we’ll already have the next-generation Passport on the market.