Crypto infrastructure provider Blockdaemon has acquired Danish startup Sepior, a digital asset security company providing key management services for institutional clients, for an undisclosed price. The deal marks the startup’s fourth acquisition in two years, the latest of which was Blockdaemon’s purchase of NFT aggregator Gem in March of this year.
The crypto markets have been trending downward since April, and web3 companies are cash-strapped as a result. So seeing Blockdaemon, a venture-backed crypto startup, dole out cash to continue its inorganic growth strategy is somewhat unexpected.
To be sure, it is a well-capitalized company scooping up what was likely a relatively cheap, smaller competitor, in part because valuations across the board are down. Blockdaemon last raised funding from its investors in January, bringing in $207 million at a $3.25 billion post-money valuation. Even if its own value today is significantly lower, Sepior’s may have been, too, meaning Blockdaemon might have picked it up at a significant discount.
Blockdaemon also appears to be growing rapidly, another sign it can afford to make bold moves in a perilous market. The first and second quarters of the year were “record” periods for the company’s sales growth, founder and CEO Konstantin Richter told TC in an exclusive interview.
“We follow the sort of standard VC [guidance], which ultimately means three months of runway, while we want to make acquisitions and invest in growth,” Richter said.
The company’s goal is to be a one-stop shop for institutions using crypto to manage their backend, including “on and off ramps, node APIs, high-availability clusters for transactions, staking, liquid staking — all in one seamless interface,” Richter said
Richter said Blockdaemon had been looking for a provider like Sepior to support its staking offering.
“In order to specifically do the staking part, if you want to be really quick and rebalance assets, and stake assets for institutions, you have to ultimately touch the keys, which is not something we want to do, because we want to remain noncustodial. So Sepior’s key management solution solves a couple of those problems for us because they provide institutional grade key management, which is actually very rare,” Richter said.
Many larger crypto companies have been integrating multi-party computation (MPC) capabilities by purchasing smaller players in the space, Richter said. Coinbase made a similar move when it bought Israeli firm Unbound Security in November 2021.
Richter added that Sepior was “the only [institutional-grade key management provider] of note left” when Blockdaemon went out to make an acquisition. Once the two parties had entered into an exclusive agreement to merge, Richter added, Blockdaemon found out that multiple other parties had also tried to buy Sepior.
Another reason Sepior looked so attractive to Blockdaemon is that it generates significant revenue in cash through its traditional SaaS-style business model, though Richter did not disclose specific numbers. Blockdaemon itself, meanwhile, makes 70% of its revenue in tokens and 30% in cash, Richter said. He noted that Blockdaemon was profitable in 2021 and that revenue has stayed “static” throughout the downturn, with the company’s rapid growth making up for the downward movement in token prices, although it did not make profit last quarter.
While buying a company in a different regional market was challenging and slightly lengthened the timeline of the deal, Richter said the acquisition was a strong fit with Blockdaemon’s focus on customer acquisition. After Blockdaemon brings on a customer, on average, that customer’s contract size triples in a year, he added — part of the reason why it is so focused on expanding its suite of products.
“I think one of the things that is often underestimated is, when you’re a young company, learning how to build a playbook and how to acquire companies and then integrate them really well is also an experience thing. I feel like we’ve worked our way up in terms of the complexity of acquisitions and the type of companies we’re acquiring, so Sepior is a really good play for us,” Richter said.
What’s more, the two companies share many customers, with overlap coming from Citibank and other financial institutions, Richter said. Sepior has 25 to 50 customers today, while Blockdaemon services about 250, he added. As for their own size, Sepior employed ~20 people in comparison to Blockdaemon’s ~270 at the time of the acquisition announcement.
“We view this as a massive opportunity for us to grab market share,” Richter said of cooling crypto prices. “We’re the most capitalized company in the space. We are already the market leader. We feel that we have a really unique product combination that really sets us apart, and so we’re going to invest a lot in customer acquisition, and obviously, we will do it carefully.”