Just a few months after the platform’s production launch, the first Ethereum startups are already receiving interest, and in some cases, undisclosed investments, from digital currency-focused VC firms.

Interviews with four of the leading blockchain and digital currency industry investors revealed that many are already performing due diligence on startups utilizing the decentralized application platform. Announced in 2014, Ethereum has gained significant traction of late following a successful hard fork and testing from major financial institutions.

Travis Scher, investment associate at Digital Currency Group (DCG), for instance, said the New York-based firm has so far evaluated 20 to 30 startups working on Ethereum, while Blockchain Capital managing partner Bart Stephens told CoinDesk that the firm has already made two as-yet-undisclosed investments in such startups.

Stephens said that Blockchain Capital, one of the technology’s most active early-stage investors, is “bullish” on Ethereum due to the positive feedback its technology has received from institutions.

The firm has even appointed a junior associate, Jeremy Gardner, to focus on the area for its portfolio, which already includes bitcoin-based startups such as Coinbase and Xapo.

Stephens told CoinDesk:

“We love bitcoin, we love the bitcoin blockchain, but we also see a multi-chain future. Some of the enterprise customers are interested in federated and private chains and Ethereum is pretty high on the list.”

When announced, such an investment would mark an early sign of confidence for Ethereum, which only recently launched with a limited set of features. In the months and years ahead, the platform plans a number of complex updates, including a switch from proof-of-work transaction verification to a proof-of-stake approach.

Other bitcoin and blockchain-focused venture firms including DCG, Boost VC and Pantera Capital indicated they are interested in investing in Ethereum startups, but have not yet provided funding to any entrepreneurs.

DCG said it expects to make its first investment in a digital currency company in Q2 or Q3 of 2016, and that “a few” Ethereum startups would likely join its portfolio by the year’s end.

By contrast, the first investment in a company working on the bitcoin protocol wasn’t made until April 2012, more than three years after its first block was mined in January 2009. At the time, Draper Associates made a seed investment in the now-defunct bitcoin-focused incubator CoinLab.

Investment challenges

As for why investors aren’t yet placing any public bets, most respondents suggested they felt it was too early to tell how strong Ethereum’s developer ecosystem will remain.

Such statements coincide with long-standing statements from industry investors that the health of bitcoin’s developer ecosystem is one of its most attractive attributes.

“One of the challenges in evaluating Ethereum startups is the community is still fairly small and some of the entrepreneurs are newer to the cryptocurrency ecosystem, making it difficult to navigate,” Meltem Demirors, director of community at DCG, told CoinDesk.

Demirors went on to describe the early bitcoin ecosystem as perhaps more connected and more technical than the Ethereum ecosystem of today.

Others, like Brayton Williams, co-founder of Silicon Valley-based incubator Boost VC, indicated that there is perhaps a lack of mature entrepreneurs building on the technology.

“For us we need to first find great people who are out to solve a problem and that are confident Ethereum could be the solution or provide tools for the solution,” he told CoinDesk. “We do our best to avoid those who are just very excited about Ethereum technology and then go try to find a problem.”

Paul Veradittakit, venture investor at Pantera Capital, noted that his firm is often pegged as a bitcoin-only investor, but that it has been eager to take a multi-blockchain approach, something he suggested Ethereum now allows. Yet, he said the firm has questions about how the technology will overcome upcoming challenges.

“You want to make sure that the security is well thought out, that the scalability is thought out and that you identify the use cases,” Veradittakit said, adding: “We’ve been monitoring it.”

Veradittakit said Pantera has no plans as of now to offer an ether fund to complement its bitcoin fund, introduced in 2014.

Bitcoin startup interest

A driver factor behind the interest, respondents said, is that digital currency industry firms are paying attention to, and implementing, Ethereum as part of their market approach.

Stephens noted that a number of Blockchain Capital’s portfolio firms, including Bitfinex, Kraken and BitGo, are now offering Ethereum services, and that GoCoin, a payment processing firm, would soon add support.

“We’re seeing a lot of companies add Ethereum. Instead of selling chocolate, now they have chocolate and vanilla,” he said.

Demirors said that some DCG portfolio companies are taking a similar path, building infrastructure for the ecosystem’s service providers.

“I think many of the early movers we’ll see in this ecosystem are existing bitcoin companies that can leverage their operational capabilities and strategic relationships with banks, regulators and other stakeholders to begin building a robust, global network for exchanging, holding, storing and managing ether,” she said.

Notably, such a logic has been historically used by the financial industry to suggest why it might be more able to help blockchain-based technologies reach the mass market.

Growth potential

As for the growth potential for Ethereum startups, respondents were mixed on projections.

DCG’s Scher said that a cornerstone of its investment thesis is that bitcoin is both a secure store of value and a financial rail, and that Ethereum is unlikely to compete against the bitcoin in these areas.

However, Scher sees Ethereum potentially competing against bitcoin in serving as a platform for smart contracts, identity management and provenance, other potentially large and impactful areas for the technology.

“Startups building these types of products and services may opt to use Ethereum in the future because of its ease of use and other features that it possesses, and that’s a terrific development for us and the blockchain ecosystem,” he said.

Demirors said she believes the Ethereum community could one day surpass bitcoin in terms of the number of developers it attracts due to an easier scripting language, but said that it’s not out of the question innovators won’t find solutions to these issues.

Overall, Stephens noted that he sees interest in Ethereum as positive, but that VC firms are just now beginning to analyze the industry for potential investments.

“It’s still early. We’ve met with over a dozen companies, and only a few of them in our opinion are investable,” Stephens said, concluding:

“I think that will change.”

Disclaimer: CoinDesk is a subsidiary of Digital Currency Group.

Homestead image via Ethereum