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Comment by LAMike | Hacker News Reader

21.co, now named Earn.com raised 100M dollars, but the rumor is A16Z used that money to directly buy BTC for their VC fund without making too much noise.

Coinbase didn't buy them for 100M, but the VC's at A16Z might be sitting on a billion dollars if they invested in BTC when 21.co was started.

Anyone else hear about this rumor?

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So you're saying that 21.co/Earn.com bought BTC with some of the invested capital, held it as BTC rose, and then distributed it to its shareholders? One of which is A16Z.

This seems possible, because, as we know, the price of BTC has fallen recently from ~$16k to ~$7k. So the gains could be large if they did indeed buy BTC with some of the capital they raised, but probably not $1 billion, or at least I would guess against that. The timing and distributions would have to have been quite right.

But, I will say that at 11-50 employees[0] there should have been quite a bit of capital left over from the ~$150 million they raised, even after a few years of burn.

[0] https://www.crunchbase.com/organization/21e6

I mean we can run through the math. In March of 2015, 21.co/Earn.com raised $115m from a16z.

In June of 2015, the price of BTC was about $240 each.

If we assume half the investment went into bitcoin, it means they acquired $115m/2/($240/BTC) = ~240,000 BTC

At today's price of $8000/BTC, assuming they never sold, those coins would be worth $1.9B. So it is plausible they hold more than $1B in bitcoin.

It seems like this would have leaked if Earn.com had earned this much, or if A16Z had earned a large distribution in one year (like last), it would have had to have been reported to their LPs in the net asset value update.

And perhaps it did leak, because we're talking about it. But then I would still guess there would be more discussion about this if an LP leaked it. There would be ample documentation of this.

also, why would a company that holds a billion dollars in capital sell for 100 mln ?

21.co / earn.com is a serial flop, pivoting markets and functionality multiple times. I wouldn't be surprised if the funding was simply a way to secretly do something. Nefarious or not.

I admire them for pivoting.

I didn't like their $400 CPU Bitcoin miner though.

The story behind this theory (which is quite plausible imho) would be much more interesting than the public remarks from earn and coinbase. The actual products released by the company have always seemed pretty trifling considering the massive amount of funding. Things never really added up.

Originally 21 produced hardware, which I imagine is a much more expensive industry to be in. That may have something to do with it.

Their hardware device was stupid though. A headless linux server combined with some shitty bitcoin mining hardware and software. It served no purpose.

It was 100% obvious that it was DOA. I can't even believe that the people at the company thought it was a good idea.

Okay. Doesn't mean it wasn't expensive to try

Compared to Theranos that is stellar performance for a fraction of the investment.

I can believe it. I think A16Z is also an investor in Coinbase.

Definitely seems like some insider dealing. Especially considering Earn.com seems like a very immature (bordering on useless) product.

Also another example of a startup having more money then they know what to do with and not returning it to shareholders.

Insider trading only applies to publicly traded companies.

I said insider dealing. I just meant that it's an indication of sketchiness.

And I'm not actually sure that's true (though I did before googling it just now):

https://www.lexology.com/library/detail.aspx?g=e24dc4ab-2a77...

https://www.sec.gov/fast-answers/answersinsiderhtm.html

It's not technically insider trading but the managers of the companies (by way of the Board of Directors) have a fiduciary duty to the shareholders. Undertaking a bad merger to bail out a different company from one of your investors could be construed as a breach of that duty. Of course, it would take a long court case to determine fault / damages, so it's unlikely to happen, but there are some safeguards to prevent stuff like this (if that is what happened.. which who knows... ).

It is called soft landing/ aqui-hire in the VC world... that’s why you need to be part of incubators, etc...

We don't know how much they're paying at all though. If they're paying $10 million is that too much?

The domain is worth a chunk itself.

That's a good point. I'm assuming it's "too much" since 21 raised 100M previously but they're likely having a "down round".

It sounds like they indirectly acquired BTC via mining:

> And to make matters worse, all the BTC returned to shareholders by the mining operation was in danger of being completely clawed back if the company entered a messy bankruptcy.

https://medium.com/@balajis/the-turnaround-2d145589d814

This explainantion doesn't make sense. You're alledging a16z funded 21.co with $100M, then took it all back to buy Bitcoin?

If that's the case earn.com would own the BTC, which would mean Coinbase acquired all the BTC held by earn.com

Unless there is something I'm missing, this almost certainly did NOT happen

"21.co had been started as 21E6, a bitcoin mining company with a sizable data center footprint and a monthly bill to match. The company was set up to return mined bitcoin to its shareholders"

https://medium.com/@balajis/the-turnaround-2d145589d814

Uhh... wow. He's former A16Z so he would likely have devised 21 while he was working there. Seems totally plausible to put the invested cash into BTC.

Mind you the founder of 21.co was/is a partner at a16z.

Remember these people don't play by the normal rules as everyone else - so while there may not hard evidence, it is entirely plausible.

right, and if earn.com is sitting on a billion worth of bitcoin, why would they sell for 100mln and why would the founder take a CTO job? Doesn't sound plausible

Even if this was true, if there enough liquidity in the market to sell 100 million dollars worth of bitcoin without tanking the price?

According to blockchain.info the current daily transaction volume is around 870 million dollars.

I guess as a private fund, that’s between them and their LPs...

Unrelated to this - I've heard that many VC funds were going through their legal paperwork with a fine-tooth comb to see if they were allowed to invest LP money directly into crypto or ICOs. Some were not permitted, and it definitely demonstrated how some of these funds lack the flexibility to pursue opportunities that do not pattern-match classic VC investments of the last few decades.

As per their LP agreement, the fund itself might only have been allowed to invest in equities / companies, such as this one. The company itself could then perhaps invest directly into cryptocurrencies without restrictions.

While that may or may not be lucrative, it wouldnt help them in future rounds when they are showing their track record bc the track record cant include non-fee paying accounts.

What do you think - how much of these 100M did they invest into BTC?

No. 21.co was a company that built custom chips for bitcoin mining. The founders and A16Z have been pretty transparent about that throughout, as well as in the blog post.

Well, Balaji Srinivasan who just became the Coinbase CTO, was previously a candidate to run the FDA for Trump: https://www.recode.net/2017/1/14/14276530/balaji-srinivasan-...

Isn't it amazing how one day you're an expert in Drug and Med Device manufacturing and approvals, the next day you're building cryptocurrency miners?

Only in SV, what a town.

Balaji is a true renaissance man

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