Bitcoin Merchant Processor Gets $2M from PayPal Vets, Others

BitPay, which processes payments for merchants in the virtual currency Bitcoin, has attracted some investors with a pedigree in pioneering alternative ways to send and receive money.

The Atlanta-based startup said Thursday it has secured $2 million in seed capital from a group led by Founders Fund, a San Francisco-based venture capital firm started by Peter Thiel, Ken Howery and Luke Nosek, who co-founded PayPal.

News of the investment follows a move by the U.S. government to rein in unregulated use of the cryptocurrency. The Department of Homeland Security charged recently that Mt. Gox, the world's largest exchange for trading the virtual currency, has operated as an unlicensed money transmitting business in violation of federal law designed to deter money laundering.

The decentralized Bitcoin network appeals to some retailers, mostly online merchants, as a way to avoid interchange fees and the risk of chargebacks (like cash transactions, Bitcoin payments are irreversible). The currency's exchange rate against the dollar is volatile, however. BitPay and other processors take the currency risk for their clients, immediately converting bitcoins received from shoppers into dollars at a guaranteed exchange rate, for a fee of about 1%.

The seed round brings to $2.7 million the total that BitPay has raised from outside investors since the company's founding in 2011.

Other investors in the round include Heisenberg Capital, a London-based fund that is led by the television personality Max Keiser and invests in Bitcoin businesses.

Anthony Gallippi, BitPay's co-founder and chief executive, says the company will use proceeds from the round to assemble systems and to hire engineers and financial personnel.

"Our plan for this year is to build the platform, add new features and improve the [application programming interface] so businesses can automatically route orders through our system," Gallippi says.

The firm anticipates few sales and marketing efforts this year, Gallippi says, although BitPay is a sponsor of Bitcoin 2013, a conference for Bitcoin businesses and people who invest in them that is slated to take place this weekend in San Jose, Calif.

The latest investors join a group of funders that includes A-Grade Investments, a venture capital firm that includes partner the actor Ashton Kutcher; Ben Davenport, a software engineer at Facebook; and Shakil Khan, who helped launch Spotify.

BitPay, which processes about $5 million in payments per month on behalf of merchants worldwide, also is taking steps to spur acceptance of the digital tender by retailers. The company said recently it has become a payments processor for Gyft, a service backed by Google Ventures that allows people to store gift cards on mobile devices. The arrangement allows users of Gyft to use Bitcoin to buy gift cards on their smart phone for such retailers as Gap, Lowes, Sephora and Fandango.

The crackdown on Mt. Gox need not slow Bitcoin's momentum, according to Gallippi, who says the government's stance affects a U.S. unit of the Tokyo-based Mt. Gox and that people in the U.S. can still trade on Mt. Gox's exchange.

"You can still get money, you just have to wire it to and from them directly," Gallippi said.