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Three of North America's top early stage venture funds have committed to lead a US$10-million-plus financing of CryptoKitties, a blockchain-based collectibles game that allows users to buy, sell and "breed" digital cats.
New York-based Union Square Ventures, California-headquartered Andreessen Horowitz (A16z) and Vancouver's Version One Ventures have signed term sheets to lead the financing deal in a spin-out company of Vancouver-based startup Axiom Zen. Axiom Zen CEO Roham Gharegozlou declined to comment.
Financing deals have been hot in the burgeoning cryptocurrency space, and all three funds have been leading players. Version One's Boris Wertz is an adviser to Ethereum Capital, a new blockchain venture backed by pension giant OMERS that launched earlier this year.
Mr. Wertz declined to comment, but he stated in a blog post that crypto-collectibles are a "powerful up-and-coming use case" for blockchain technology.
"We are in the early innings when it comes to blockchain apps, but the earliest adoption of new technology platforms has often been driven by games and gaming companies," Mr. Wertz wrote. "We believe that CryptoKitties can play a leading role in the mass adoption of blockchain going forward."
Meanwhile, Andreessen's Chris Dixon has been one of the leading VCs and thinkers in the emerging cryptocurrency space and its potential to create value, and A16z and Union Square have co-invested on crypto deals, including Dfinity.
Version One and Union Square have co-invested on numerous deals in Canada including social network Figure 1 Inc., software firm Top Hat and and amateur fiction platform Wattpad.
Other investors included Coinbase Inc. founder Fred Ehrsam, AngelList Chief Executive Naval Ravikant and Zynga founder Mark Pincus, according to reports.
CryptoKitties was created with the aim of familiarizing users with blockchain technology by turning the experience of transacting in cryptocurrencies into a game using the Ethereum platform. But although it's intended to be a light-hearted introduction to the burgeoning crypto space, the app also demonstrates how blockchain technology can be used to record ownership of unique assets such as real estate, art and inventory, the game's founders have said.
While the concept might seem outlandish, the venture has also generated real revenues, and along with that, raised the interest of venture capitalists eager to find ways to capitalize on its potential.
The app became so wildly popular that for a while last year it caused a number of delays on the Ethereum platform that hosts it – an issue that has since been resolved. Ethereum is a blockchain-based software platform that allows developers to create decentralized applications.
The digital cats are priced in the digital currency ether, which is currently trading north of US$500. The so-called "crypto-collectibles" fetch an average of roughly US$91, although some of the rare varieties have sold for more than US$100,000 each. Transactions are recorded in an unalterable digital ledger.
As of last December, 160,000 users had spent an estimated US$15.5-million worth of cryptocurrency on the virtual kittens.
Each CryptoKitty has a unique digital genome that determines its appearance. When the cats are bred together, an algorithm determines the new kitten's genome and appearance.
Earlier this year, British Columbia's securities regulator said it doesn't consider the tokens underlying CryptoKitties to be securities, which means the sale of the digital cats is exempt from the province's securities laws. Regulators around the world have been grappling with how to classify various cryptocurrencies, as well as with the need to balance investor protection with technological innovation.
Alexandra Posadzki
Sean Silcoff