Earlier in the month, Bitfury, one of the world’s largest manufacturers and designers of ASIC Bitcoin chips raised eyebrows when it was announced that the firm had sourced $20 million in funding, at a valuation of $250 million. More surprising was its list of investors, which included the Georgian Co-Investment Fund (GCF), a Georgia dedicated private equity fund. While angel investors and venture funds have been rapidly surrounding the digital currency space due to its potential growth, by nature, private equity firms with their focus on existing and expected cash flows are viewed as less of a match to pour their funds in the sector. To learn more about the deal, Digital Currency Magnates spoke to GCF CEO George Bachiashvili to hear why his firm invested in Bitfury, his views on the potential of bitcoins, and the local Georgian bitcoin economy.
Private Equity
George Bachiashvili, CEO Georgian Co-Investment Fund
Beginning our conversation, Bachiashvili was quick to clarify that GCF isn’t a venture fund but a private equity shop. As such, investing $10 million in Bitfury for a potential 4% equity conversion in the future comes down to their belief in the chip producer’s revenue prospects. According to Bachiashvili, his view is that in this stage of bitcoin industry, “most profits are in mining and selling chips”. Falling into the sweet spot of the mining economy, GCF expects Bitfury to be on pace to hit $200 million in revenues due to mining, and sales of server space and chips. Along with the deal, Bitfury also announced that it is constructing in Georgia what is expected to be the largest bitcoin Data Center , providing for long term revenue potentials.
Future Investing
In terms of other investments in bitcoins, Bachiashvili explained to us that as they aren’t a VC, the firm wasn’t planning on allocating a percentage of their fund to digital currencies, with investments similar to those of other sectors and being case by case. However, he did state that with the Bitfury deal, the GCF has begun to do more due diligence in the sector. On this, while the bulk of profits are now in mining, Bachiashvili believed that the future would be in the consumer side, saying “we believe in the exceptional utility it provides and that adoption rate of bitcoins is growing”. He added that based on this premise they are currently evaluating bitcoin wallet firms and exchanges, with a possible return to investing in the sector at the end of Q3 of this year. Bachiashvili also mentioned that although they are a private equity firm, they could in the future partner with traditional VCs to become more involved with emerging technologies.
Bitcoins in Georgia
Asking Bachiashvili about what the investment meant to the local Georgian bitcoin community and what were the characteristics of users in the country. Bachiashvili explained there was surprise and excitement, saying “Georgia has a small community involved in bitcoins. They were excited and surprised that we did such a large deal”. He added that the deal led to local media providing more coverage on bitcoins. In terms of the local market, Bachiashvili stated the country has an established banking system, so there is limited need for bitcoins as a store of value, unlike under banked countries where he believed there is the potential “for bitcoins to leapfrog banks to become the financial system there”. In Georgia though, Bachiashvili mentioned that where he sees the potential for bitcoins is based on the country have massive adopter of online commerce; thereby leading to a natural fit with bitcoins in cases where the digital currency provided added benefits for buying online. Overall, Bachiashvili concluded our talk by stating that it is still early to see the full potential of bitcoins in Georgia and the rest of the world and “expect more clarity as to where the industry will be in a year’s time”.
