Vancouver-based FinTech startup Mogo has agreed to purchase a 20 percent equity stake in cryptocurrency startup Coinsquare. Under the terms of agreement, Mogo will make an initial investment of $56.4 million CAD in exchange for 19.99 percent equity in Coinsquare.
“We believe strongly in the growing importance of cryptocurrency in the financial wallets of consumers.”
The agreement also includes the ability for Mogo to acquire an additional 20 percent ownership interest in Coinsquare. This will be done through the acquisition of shares from current shareholders and the exercise of warrants under certain conditions for consideration, and is based on Coinsquare having a pre-money valuation between $250 million and $350 million.
If those additional shares are purchased, Mogo could own up to 40 percent of Coinsquare. The companies have signed a definitive agreement, but the deal is still subject to regulatory approval.
“By leveraging Mogo’s digital wallet capabilities and base of more than one million members, combined with our deep crypto trading capabilities, we see significant opportunities to accelerate the growth of both businesses,” said Jason Theofilos, who is a partner at investment firm Can Ventures and board member of Coinsquare. A 2020 filing from the Ontario Securities Commission (OSC) also listed Theofilos as a director of Coinsquare.
News of the investment comes only days after Coinsquare launched its crypto platform Quick Trade, which allows Canadians to buy, sell, and trade digital assets through an app with no commissions. The product followed significant changes at the Toronto-based company, which last year reached a settlement with the OSC over allegations of wash trading.
After an executive overhaul, which saw key executives step down, Coinsquare’s new leadership expressed a desire to relaunch Coinsquare’s trading platform and leverage new technology and protocols, as well as expand beyond digital currency into institutional trading.
Mogo’s investment in Coinsquare also comes at a significant time for the broader cryptocurrency space. In Canada, a number of FinTech companies are launching new cryptocurrency offerings. Wealthsimple Digital Assets’ crypto platform was first announced over the summer, allowing users to buy and sell crypto assets through its Trade app.
On an even larger scale, on Thursday payments giant Mastercard announced it has begun preparations to support select cryptocurrencies later this year, following the footsteps of another FinTech behemoth PayPal. Tesla also recently purchased $1.5 billion in Bitcoin and said it would soon start accepting it as a payment.
All this activity was succeeded by a spike in cryptocurrency prices. Bank of Canada’s Deputy Governor Tim Lane this week called the spike “speculative mania,” adding that these cryptocurrencies don’t have the qualities to become the money of the future.
David Feller, CEO of Mogo, struck a different tune. “We believe strongly in the growing importance of cryptocurrency in the financial wallets of consumers, and deepening our relationship with Coinsquare will enable us to bring enhanced functionality and value into the MogoCrypto product,” he said.
“We’ve had a relationship with Coinsquare for nearly three years and built strong familiarity with their team and platform, which we view as the most robust trading platform in Canada for digital assets,” Feller added.
Coinsquare acts as the trading platform for MogoCrypto, a service Mogo launched in 2018 to allow its members to buy and sell bitcoin. On its website, Mogo claims it is the only FINTRAC regulated and publicly traded company on the TSX and NASDAQ that offers Canadians a “simple and low-cost way to buy and sell bitcoin.”
Following the closing of the initial investment, Mogo can appoint one nominee to the Coinsquare board of directors, which may be increased to two nominees under specific conditions. Coinsquare will have a right to appoint one person to Mogo’s board of directors.
In a statement sent to BetaKit, a spokesperson for Coinsquare said through this latest investment, the company is looking to partner with Mogo on new offerings, such as one related to lending and cryptocurrency.
Image source Unsplash. Photo by André François McKenzie.