We didn’t believe in crypto when we funded Coinbase, Y Combinator's crypto lead admits

Back in 2012, when Y Combinator (YC) partner Harj Taggar coached a nascent Coinbase through the startup accelerator's summer cohort, he wasn’t exactly a crypto aficionado. 

“To be completely blunt with you, we did not believe in crypto when we funded Coinbase in 2012,”  Taggar says over a video call.

He recalls how he associated bitcoin with “a bunch of shady stuff” such as Silk Road, a now-defunct dark web marketplace. 

Bitcoin “seemed to attract people who wanted to buy drugs and order assassinations online or something,” he says. “And then at the same time, I knew hardcore computer science people who were really excited about setting up a mining rig and solving hard math problems to get bitcoin.” 

He’s changed his tune to such a degree that he's taken over running the crypto group in YC’s current winter cohort, alongside his colleague Dalton Caldwell.

The accelerator — famed for launching the likes of OpenSea, Stripe and Coinbase — counts a record 27 crypto startups in its latest winter cohort, meaning 32% of its total crypto portfolio resides in the current batch. 

The Coinbase effect

Taggar credits Coinbase founder Brian Armstrong with convincing him that crypto was a serious business. He says it was the first time he saw someone talk about crypto as a mass consumer product. 

“Our thought process [at the time] was crypto certainly isn’t a huge market today,” he explains. “But if you do really end up creating a new system for storing value or moving money around, that sounds gigantic.” 

He also reveals that Coinbase had some growing pains during its time at YC, showing how far the crypto sector has come. 

“To be honest, Coinbase struggled to get any attention during the batch,” reflects Taggar. ”Brian was going out pitching every day. That’s why if you look at the seed investors in Coinbase, it’s not like the top investors – it’s a collection of lesser-known investors at the time.” 

It’s a stark contrast to the prevailing attitude among investors assessing web3 startups today.

Accessibility is the aim of the game 

Clones of the crypto decacorns that YC has fostered, such as OpenSea or Coinbase, are absent in the current winter cohort. There is not a single NFT marketplace or cryptocurrency exchange to be found in the W22 batch — and that excites Taggar.

“I think the fact that we don't have tons of exchanges is potentially bullish for the space,” he says. “If you're building a product for consumers to access the technology, then you're less at the whim of the price of bitcoin today versus tomorrow and you're more likely to just continue focusing on traditional metrics such as the number of users, engagement and retention.” 

What, then, is Taggar looking for? He says he has a penchant for funding companies that simplify complicated crypto ideas. 

He offers Chaingrep as an example. The startup, which bills itself as a "search engine for blockchains," aims to make blockchain explorers such as Etherscan more accessible to the everyday user.

Another startup in the batch that Taggar noted is Finnt, which is trying to give families simpler access to high-yielding DeFi products.

“Before, you’d have a lot of teams working on DeFi at the protocol level which was technically interesting but not clear what problem they were solving,” he says.

Doubting DAOs 

While there are services catering to Decentralized Autonomous Organizations (DAOs) in the current YC cohort — such as LiquiFi, a startup that helps them automate token vesting — DAOs themselves are noticeably absent. 

“For this last cycle, the strongest companies we saw were traditional Delaware C Corps,” he says. 

But not all executives at big accelerator programs feel the same. Previous cohorts of the crypto-focused startup accelerator DeFi Alliance, for example, have featured Olympus DAO and SushiSwap, a decentralized trading platform that holds $3.6 billion in total value locked, according to The Block Research.

In an interview with The Block in January, DeFi Alliance itself said it had transitioned to a DAO structure, raising $50 million to build out infrastructure for fledgling web3 founders. 

Taggar believes, however, that ultimately there isn’t much difference between web3 and web2 startups. 

“Honestly, there are more similarities than not,” he says. “The way I personally help the companies is to help them track KPIs and identify existential risks during the batch. And I don't think that's any different for web3 companies, actually.”  

He also admits he’s still figuring out for himself how DAOs operate, especially in terms of how to give users a stake in the product. “I think the entire venture community is trying to work it out, it’s a little unprecedented how quickly it’s evolving,” he adds.

There are some signs, however, that the accelerator famed for the rise of web2 startups may adapt to the idiosyncrasies of web3. 

For instance, Taggar didn’t rule out DAOs featuring in future cohorts, or indeed current participants transitioning to a DAO structure as they mature. 

While there are no plans set in stone currently, he also says that YC would be open to investing via tokens rather than through traditional equity. 

After changing his mind so dramatically about crypto in the wake of Coinbase’s success, he would be foolish to rule anything out.