- The night before IVP’s Tom Loverro submitted a $100 million term sheet, Coinbase’s CEO called him.
- “I remember feeling nauseous,” Loverro told Insider. A major cryptocurrency had crashed.
- Coinbase is expected to go public this week, and IVP’s stake could be worth up to $3.33 billion.
- See more stories on Insider’s business page.
On June 22, 2017, the night before he submitted an offer to buy $100 million worth of equity in a young crypto startup called Coinbase, the venture capitalist Tom Loverro received a troubling phone call from the startup’s CEO, Brian Armstrong.
It was about 8 p.m., and Loverro, a general partner at the venture firm IVP, had just finished dinner with his family, he said. The digital currency Ethereum had experienced a “flash crash” that day, and the price fell from about $296 to a low of $0.10 in a matter of minutes.
On the phone, Armstrong calmly explained the situation to his soon-to-be investor, Loverro said.
“I remember feeling nauseous,” Loverro told Insider.
In 2017, crypto was considered, at best, a risky bet and, at worst, a foolish one. The market for coins was full of volatility. IVP was just about to invest many millions into a company that was staking its claim on the success of cryptocurrency. Coinbase offered an exchange to help people buy, cash out, and transfer between currencies. Ethereum was considered second only to Bitcoin, and overnight it appeared to become worthless.
Loverro said he held a series of back-to-back emergency phone calls with his partners Todd Chaffee, Eric Liaw, and Jules Maltz.
“I remember that evening just being really concerned for the company,” he said. Together, they made a calculated decision to move forward with the investment.
The following day, at the close of business, Loverro walked into Coinbase’s headquarters in San Francisco’s financial district to hand-deliver the term sheet. It happened to be his birthday.
“I was joking when I gave them the term sheet that a great birthday present from them would be to just sign the term sheet on the spot,” he said.
Coinbase ended up taking its time, and a few weeks later, it announced a $100 million Series D funding round led by IVP with participation from Spark Capital, Greylock Partners, Battery Ventures, Section 32, and Draper Associates.
Despite the flash crash, the round was still oversubscribed, meaning more venture capitalists wanted to buy shares than the number the company had planned to sell. And the round quickly became contested, meaning a bidding war among interested investors ensued.
“There was a lot of interest, so we had to raise our offer,” Loverro said. Ultimately, IVP led the round by contributing $50 million of the $100 million round at a $1.5 billion valuation.
Looking back, Loverro said the flash crash probably helped him win the deal because it “probably spooked a lot of investors,” while after a single night of pondering, he and his partners at IVP were “unfazed by it. “
“I think that was probably one of the things that set us apart and helped us grow closer with Brian,” Loverro said. “When things go wrong, you need partners who are going to stand beside you and help you through the tough times, and not just be there when things are going well.”
This week, Coinbase is expected to go public at a staggering valuation of about $100 billion, worth more than some of the biggest banks, including Barclays and Credit Suisse. At that projected valuation, IVP’s stake is expected to be worth as much as $3.33 billion.
That evening phone call from Coinbase’s Armstrong also reinforced the investment for the IVP team.
“It was a moment where I really came to see Brian as an incredible executive because they decided to help their customers in that moment,” Loverro said. Coinbase ultimately refunded customers who were affected by the flash crash.
“It was a really high-integrity way of doing things, and so, I think, that was kind of the moment that sealed the deal for me,” he added.
