Blythe Masters’ Startup Blues

In early March, the bitcoin community got a major shot in the arm when former JPMC Commodities Unit Head Blythe Masters traded in her Wall Street ties to join Digital Asset Holdings. Digital Asset Holdings has created a distributed ledger technology to move financial assets between parties quickly and securely without an intermediary.

And at the time, Masters appeared to be quite bullish about the potential of the digital currency, calling it the “Internet of money.” She spoke to the power of distributed ledger technology as having the “potential to be disruptive of certain business models.” She also noted that it “has at least as much potential to be enormously empowering of existing business models in terms of making them lower cost, more efficient and less risky.”

What a difference a few months — as in nine of them — makes.

Blythe and the blockchain startup that she is running is said to be singing the bitcoin/blockchain blues.

A New York Times article reports that her efforts to raise money to scale her firm have hit the skids.

Masters’ plan is to raise between $35 million and $45 million, which would give Digital Asset Holdings a $100 million valuation. JPMorgan jumped in early and pumped $7.5 million into the business, leading the capital raise. But it’s been tough sledding ever since to get other investors to open their checkbooks. Goldman and Citigroup, it was reported, have stepped back, owing to claims that their deal terms are not as favorable as those given to her former employer.

But that’s not the whole story.

Reportedly, there’s also been doubts that the startup can actually deliver on its claims. At least one unnamed financial firm executive has said (reportedly): “The deal would need to improve materially for us to get involved,” further noting that the deal wasn’t “super compelling” yet.

While Digital Asset Holdings has admitted to a tough time raising money, CMO Beth Shah hasn’t explained exactly how tough it’s been. Investors have also clammed up.

While there has been some potential interest in what Digital Asset Holdings is after — moving assets between parties on permissioned networks (more or less) without relying on cryptocurrency — there hasn’t been enough to convince investors that the technology is good enough to actually transform the industry from what is offered today in any sort of relevant timeframe.

And then there’s the competition. One of its top competitors, R3 has already started working with big banks to develop software centered on how the banks would actually want to use distributed ledger technology. That approach has given R3 an upper hand in the industry and has even allowed it to secure relationships with banks that Masters was after.

Then, there’s the whole issue of scale. For the distributed ledger to really supplant existing rails in any use case — moving money or any sort of financial asset — it needs to operate fast and at scale. That makes it tough, now, that there is more reality and competitors staring investors in the eye to persuade investors to spend money.

While the initial plan was to transform financial services using a bitcoin-like system, that vision was short-lived. When Masters joined the team, Digital Asset Holdings switched its mindset to discussing how to develop distributed ledgers without having to rely on anything connected to bitcoin. Smart. According to the NYT report, Masters was even able to recruit talent from startups with likeminded visions.

Still, JPMorgan has remained loyal to Masters and Digital Asset Holdings and stands firm in its position of leading its Series A round, according to sources who spoke with NYT. Without any other takers, JPMorgan could get a bigger piece of the startup’s pie, reports indicate.

But for now, it’s all just interesting gossip. We’ll wait to see what 2016 brings.