Ethereum app Crypto Kitties raises $12 million

Ethereum application CryptoKitties has raised $12 million in a funding round led by venture capital firms Andreessen Horowitz, Axiom Zen and Union Square Ventures (USV).

Marcus Zallman
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The team behind the viral ethereum app CryptoKitties is breaking away from its parent company, Canada-based Axiom Zen, and raising $12 million in venture funding to go it alone.

Announced on Tuesday, the series A funding round was led by venture capital firm Andreessen Horowitz.

Angel investors include Fred Ehrsam (former founder of Coinbase); Naval Ravikant (CEO and founder of AngelList); Mark Pincus (cofounder of Zynga); Bill Tai (board member of BitFury); William Mougayar (founder of Token Summit); Avichal Garg (partner at Y Combinator); Jeff Morris (head of revenue at Tinder); Balaji Srinavasian (founder of Earn.com) Josh Stech (vice president of business at Lending Home); Joshua Naussbaum (founder of Compound VC)j; and Tyler Gaffney (CEO of Entrepid). Seed funds investors also include CAA Ventures, Digital Currency Group, YesVC, and Version One.

CryptoKitties — which its website describes as “breedable Beanie Babies” — was one of the most visible beneficiaries of the December surge in cryptocurrency interest. The game uses Ethereum ERC-721 non-fungible tokens to create unique assets that people can trade. People use ether (the cryptocurrency that runs on the Ethereum network) to buy virtual cats and exchange with each other. A new cat will be released every 15 minutes until November 2018, after which point people will need to breed cats over an extended period. These conditions create scarcity, and one super-rare digital cat went on sale for a staggering $106,000.

Since its launch in December 2017, CryptoKitties has gained more than 1.5 million users. This doesn’t sound like a lot, but the studio says fans have conducted more than $40 million in transactions.

Roham Gharegozlou, CEO of both Axiom Zen and Cryptokitties, said he has about 20 employees focusing on the kitties and plans to use the funds to grow his team, including by adding roles for artists and content creators and aims to "make blockchain technology accessible and relevant to everyday consumers.”

USV co-founder Fred Wilson wrote when announcing the firm’s investment in CryptoKitties, At USV, we think digital collectibles is one of many amazing things that blockchains enable that literally could not be done before this technology emerged. We also think digital collectibles and all of the games they enable will be one of the first, if not the first, big consumer use cases for blockchain technologies.”

An executive at CryptoKitties also sees the game as a way to get new consumers into blockchain.

We really do believe that decentralization is going to have a dramatic and powerful impact on the human experience,” said CryptoKitties’ chief creative officer, also known as “Fat Cat” Mack Flavelle. The hope, he added, is to make “these wildly new concepts approachable. CryptoKitties was an attempt, and an arguable wildly successful attempt, to do that.”

While many cryptocurrency-based companies chose to raise money by selling tokens, Gharegozlou decided to go with a traditional Series A round, in which investors buy equity in a startup in exchange for cash and mentorship.