Market Extra: Bitcoin is like the early Internet, minus the VC money

By Saumya Vaishampayan, MarketWatch

NEW YORK (MarketWatch) Bitcoin is the hottest investing trend since the Internet, according to venture capitalists who have sung its praises. But the money hasnt exactly followed.

Venture capitalists invested $74.1 million in bitcoin startups across 39 deals in 2013, according to data provided by CB Insights. Thats less than a third of what Internet companies raised in first-round funding in 1995, when Internet leaders like Yahoo, Inc. /quotes/zigman/59898/delayed/quotes/nls/yhoo YHOO -1.42% and eBay Inc. /quotes/zigman/76117/delayed/quotes/nls/ebay EBAY -0.15% were just getting off the ground.

In fact, for all the predictions that bitcoin is on the cusp of blowing up the traditional financial system, investors have largely kept to the sidelines. The last round of funding raised by Oculus VR the maker of virtual-reality goggles that Facebook Inc. /quotes/zigman/9962609/delayed/quotes/nls/fb FB -2.72% agreed to acquire last month was more than all of bitcoins VC haul in 2013.

From an aggregate standpoint, a hundred million bucks in venture is a pittance. Its a rounding error, said Matthew Roszak, co-founder of the venture-capital firm SilkRoad Equity. He has a portfolio of 10 bitcoin investments.

Some industries are likely attracting more funding because they are bigger. Software companies attracted $11 billion in VC funding last year, the most of the industries surveyed, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, which uses data from Thomson Reuters. The software industry also attracted the most deals, and when that number is taken into account, the average software investment isnt among the highest.

Interest in bitcoin has started to pick up this year. VC investments in bitcoin-related firms rose to $64.9 million across 14 deals in the first quarter, nearly 90% of the money raised last year, according to CB Insights. If funding kept up that pace, it would top $200 million this year.

But its coming from the far back of the pack. The average bitcoin investment was $1.9 million last year. The average investment in biotech, on the other hand, was $9.6 million.

These small-potatoes investments have flown in the face of expectations that the digital currency will bulldoze the way the world uses money, leaving old intermediaries like banks and credit card companies in their wake.

Were still in the very early innings of the bitcoin industry as a whole. If you compare it to the Internet industry, were probably back in 1995 or 1996 and right now its all about infrastructure, said Pamir Gelenbe, a venture partner at Hummingbird Ventures. His firm in late March led a $5 million funding round for the virtual-currency exchange Kraken.

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Market Extra: Bitcoin is like the early Internet, minus the VC money