This post is part of Accel’s Secrets to Scaling series, where leaders from across our portfolio share their learnings and advice with the next generation of European entrepreneurs building global winners.
Today, Chainalysis announced its $100 million Series E financing, following hot on the heels of the company’s Series D round in March 2021 and bringing its valuation to $4.2 billion. In the time between the Chainalysis’ Series C in November 2020 and its Series D, the company had increased ARR by more than 100% year-over-year, doubled its client base and now supports more than 100 digital assets across 10 native blockchains (around 90% of cryptocurrency economic activity). It’s been quite a journey getting here and there’s still a way to go as cryptocurrencies integrate with our global financial system.
I sat down (virtually) with Chainalysis co-founder and CEO Michael Gronager to discuss his learnings from almost seven years at the helm of a high-growth company. He shared his tips for building a global business, hiring, what he’d do differently and more…
The Chainalysis journey
PB: Let’s go back to the start. What was your career prior to founding first Kraken and then Chainalysis? What attracted you to entrepreneurship?
Before Kraken, I was planning and running public research infrastructure projects across Europe. Essentially, I was just doing politics and talking to research councils to get funding. I got to a point where I thought the purpose of the education and research systems we were creating was for people to build companies and that those who could do, should. After a conversation with a colleague, I decided to build something myself. I started coding iPhone apps and got one off the ground for a US company. This gave me some financial freedom, so I quit my job and was soon bitten by the crypto bug.
I started reading about Bitcoin when the price went crazy high - growing from $1 to $32! - and then crashed to $15 in 2011. I saw Bitcoin as a new paradigm in computing, creating digital scarcity where something digital couldn't be copied and you could only transfer its value or symbolic value. I looked for places to meet other people who thought Bitcoin was cool and found the first ever conference in New York. I met [Kraken co-founder] Jesse Powell here.
How did Kraken come about?
I’d been experimenting with distributed payments online and couldn't figure out whether to create a business around this or not when Jesse contacted me about a crypto exchange he was building. It sounded fun, so I went to San Francisco to join the team and Kraken launched in summer 2013. It was perfect timing - Bitcoin that year went from $10 to $1,000.
How did you get from there to Chainalysis?
Mt Gox, the biggest crypto exchange, went bankrupt in early 2014, losing about half a billion dollars following a hack. This caused a big downward spiral of everything crypto. It was associated with criminal activity, hacks, online drug sales, terrorism and more. No one wanted to talk about crypto, so running an exchange was tough. Talking to banks and regulators in Asia, Europe and the US, I kept hearing the same issues: they couldn't monitor transactions, no one understood the return of funds, and - most concerning - crime couldn’t be investigated. I thought about this, read the original Satoshi article and others on how it was possible to trace, execute and build a data layer crypto. I then decided to try and solve the obvious problem of understanding the flow of funds in the most transparent financial ecosystem ever created.
I left Kraken and created the Chainalysis prototype on my flight back to Europe. I had a lot of Bitcoin code and software so the proof of concept was basically 50 lines of code. I could build out clusters of transactions, enabling you to see different services and create the early map of crypto. It was then a case of finalising it, bringing Jonathan and Jan on board, selling it, and here we are!
Learnings for the next generation of entrepreneurs
Many European founders wonder where to start their company - move to the US or stay in Europe. Why did you decide on New York and then build Chainalysis’ organisation between there and Copenhagen?
In the best of all worlds, we’d have probably moved to San Francisco. There’s great talent, a lot of investment and programmes like Y Combinator. You can get capital and be up and running in the blink of an eye. But, when setting up, we wanted to maintain a European connection for developer resourcing and build some of the team out there. I also had family in Europe. Having a nine hour time difference between Copenhagen and San Francisco didn’t make sense. Proximity to Washington DC was going to be key for US government customers and the heart of finance was in New York so it made sense to set up shop there. There are two key reasons we didn’t just stay in Europe: there’s a sales momentum and energy in the US that we wanted to tap into to win the global market, and building trust with US government agencies would have been harder if we were seen as a European company. We had to be US-based.
How did you initially think about going global from a sales perspective? With the crypto ecosystem, you’ve got a big buyer in US government agencies, Chainalysis’ European roots, the UK’s GCHQ, and a lot of crypto activity in Asia. It's challenging for a young company to deal with three continents and time zones for sales. How did you do it?
We ran a lot of our sales calls over Skype, sitting in various places doing early or late calls every day with exchanges or law enforcement agencies worldwide. It worked pretty well. We were quite successful selling the product to both government agencies and exchanges purely online. But growing these accounts later typically required travel. Once the customer had bought the product, we had to get on a plane to drive adoption and upsells. I’d be jumping all over the world for these meetings. It was a lot of travel. One of the things I’ve enjoyed with the pandemic is not always sitting on a plane!
Now you’ve had five or six years of global expansion, is there anything you’d do differently?
I think that setting up and building a team in one office with a strong focus on product and design and so on would have been a slight advantage over hiring people via the internet all over the world, so I’d probably do that now.
I’d maybe even have moved to the West Coast at the beginning. When you’re trying to attract commercial talent at higher levels, it still has an advantage. It’s probably 10 times the talent pool of the East Coast and another 10 times that of Europe. This isn’t the case when hiring engineers - the quality across Europe is better than most of the US, in my opinion. But for leaders in sales and marketing, there’s a lot of high growth company history on the West Coast to draw talent from.
Let’s dig into this. Hiring execs is one of the most important things for high growth companies. How do you view the composition of your team and proportion of people who’ve done the job before versus those growing into roles?
I think it was Eric Vishria who said he’d split it so 75% of the team have done the job before and 25% are growing into roles. I think that's right, but the key question is: “what does it mean to have done the job before?”. There are probably only a couple of COOs who’ve successfully built a company from $5m to $5bn revenue over 10 years and they likely don’t need or want to work anymore. I’m looking for people who’ve experienced high growth. There are tons of companies that have built hundreds of millions of revenue over 20 to 30 years, companies growing at 20-30% year-over-year. These companies grow at a pace most people can handle. They don't experience the same issues as high growth companies and it’s the high growth experience I’m interested in.
It’s important to me that they've been part of the ride overall and seen a company fall apart constantly and need fixing. You're basically driving a car too fast. But high speed racing cars are meant to fall apart. They regularly need new engines and tires and that’s what happens to a company when it grows at 80-100% year-over-year: you need to have the mindset that Band-Aids are your best friend and the company needs duct tape all over. Getting the company into this mode of constantly fixing and changing every component is the hard part. I'm looking for two thirds to three quarters of the team to have experienced that.
I like the racing car analogy - it brings me nicely to the role of company culture and values in keeping things together. What values have you created for Chainalysis?
Early on, we got a lot of cultural input from Techstars. We inherited their value “Give first”, a way of interacting with others so everyone wins. The other value to highlight is “radical gradualism”, which means aiming big but understanding there are many subtle, smaller steps that need to be applied along the way. This is very relevant to the early crypto days where everyone would say, “we’re taking over the world this year, governments are gone, everything’s done and this is happening now”. But this isn’t how change happens. Even the internet took 20 years and that’s fast for global change. Understanding all the steps and winning over stakeholders in the right order is the important part. Radical gradualism can be applied to problem-solving all over the company. Have the mindset of getting to the moon, but recognise there are many steps to building the rocket and getting it into orbit and beyond.
Chainalysis has developed a very mission-driven attitude from working closely with law enforcement. Many things we’re doing are seriously important - people's lives are at stake - and they’ve become a core part of our company culture. More important than value creation, it’s the bigger goal of creating a better world.
This is an important point. Chainalysis has been involved in some high profile cases. What accomplishments are you most proud of?
One that stands out for me is our involvement in the shutdown of the largest ever child pornography site in October 2019. There were more than 300 arrests across 38 countries and at least 23 minors were identified and rescued from abusers as a result of this investigation. I felt that if this was the only thing I ever accomplished it would be good enough for me.
Last year also saw the largest seizure of cryptocurrency - more than $1 billion - in the Department of Justice’s history. We’ve got a lot of “biggest, fastest, most important” cases on our resume and they're all cases to be proud of.
Looking back to when you started Chainalysis, what do you wish you’d known then that you can share with the next generation of founders?
I wish I’d properly understood the nature of fast growth and getting it right from the beginning. Growth and scaling are the hardest things to get right. We all get excited when we see growth for the first time. But it’s important to understand that getting to the point where you have a product, some customers and a million or two in revenue is just the start. Many companies get there, but never figure out how to scale beyond this. Maybe there’s no product-market fit, for example. Or maybe they do scale, but headaches start because they do it too quickly. It’s tempting to grow fast, but it’s hard to reach a stable growth curve. Growing by more than 100% is tough - it’s a muscle that needs to be built over time.
Building a business is always tough especially when growing as fast as Chainalysis. Are there any tips or life hacks you’d share with other entrepreneurs?
Developing routines helps in various ways. I try to exercise every morning, getting up and running so I know it’s done ahead of a day packed with meetings. I try to find joy in the small things. Ensure you have some of that during the day - whether it’s your morning run or cooking, for example. I like to cook as you can mentally get into another zone.
Try to also take one day off a week. I can’t take two days off, but I try to have Saturday as a reset day. Get your mind in another place and don’t think about work for several hours. It’s important for mental health as the other days will be 100% occupied with work.
What’s been the hardest thing about building Chainalysis that you didn’t anticipate?
Probably the fact you become another person on this journey. And you want to, but there's stuff you sacrifice. Not spending much time with my kids is tough. But when you're building something and you get into this mindset, it’s like you’ve swallowed a pill. Change just happens. Some of the life changes are tough, but you get to experience things that very few people do. I'm deeply grateful for that and hope I can share some of this with my kids at some point - this is a journey I can bring them on in various ways too.
Read our Secrets to Scaling interviews with:
- BlaBlaCar's Nicolas Brusson here
- Supercell's Ilkka Paananen here
- Miro's Andrey Khusid here
- Trade Republic’s Christian Hecker here