Executive Departures Roil Crypto Firm Blockchain

Blockchain’s experience highlights how excitement about cryptocurrencies and blockchain technology can obscure the difficulties of finding a sustainable business model in a young industry. Many crypto-linked companies that raised money and grew rapidly during bitcoin’s dizzying rise in 2017 ran into trouble once prices tumbled. In Blockchain’s case, the problems appear to have been exacerbated by CEO Peter Smith, who former employees said created a difficult workplace environment.

The expected departures of Guzmán and Lavery would follow the exits late last year and early this year of five senior executives, all of whom left the company within about 12 months of being hired. They include Breanne Madigan, head of institutional sales and strategy; Jamie Selway, global head of institutional markets; Katie Wells, general manager of Blockchain’s wallet product; George Sax, global head of security; and Michelle Bond, global head of policy. The departures of Wells and Sax haven’t been reported previously. Many junior employees also have left. 

After the initial string of exits late last year, Blockchain’s board looked into what triggered the departures, according to a person familiar with the matter. The board concluded that some of the new hires, several of whom had come from roles in traditional finance, didn’t fit the startup’s culture, and recommended changes to the hiring process that included soliciting input on new hires from a broader group of people, this person said.

Former employees who spoke with The Information cited a range of factors for their departures, including a lack of growth opportunities and doubts about the company’s business strategy. Seven noted, however, that Smith’s management style contributed to employee turnover. Former employees said that as CEO, Smith regularly belittled staff members for minor errors and also made unwelcome comments about his dating life to female employees.

Through a spokesperson, Blockchain said Smith was “among the highest rated managers at the firm” in a recent company-wide survey. Blockchain’s turnover rate was below industry-wide benchmarks for comparable companies, the spokesperson added.

This article is based on conversations with more than a dozen former employees and people familiar with the company. Many of the people spoke on condition of anonymity because they feared backlash from Blockchain.

Product Struggles

Despite Blockchain’s head start—it was founded in 2011, before rivals like Coinbase and Binance—the company for years lacked a clear business model. 

Blockchain’s flagship product is a free digital wallet that allows users to send, store and receive cryptocurrency. The company has 40 million wallets registered, of which 14 million have “recently” been active, Smith told Fortune in July. But the company hasn’t had an obvious way of generating revenue from those users, former employees said.

In particular, Blockchain wasn’t prepared to capitalize on a surge in interest in crypto in 2017, when speculation by retail investors sent the price of bitcoin skyrocketing, a person familiar with the matter said. In a year when Coinbase reportedly earned more than $1 billion in revenue, nearly all of which came from trading fees, Blockchain didn’t have a trading product of its own. It relied on less lucrative partnerships with other firms to allow its users to buy and sell crypto.

Blockchain has historically earned some revenue through advertising on its website. But more recent product initiatives failed to take off. Efforts to drive more users to the site, such as a partnership with the foundation overseeing the Stellar cryptocurrency network to give away tokens to Blockchain wallet users, and the launch of a new hardware product—similar to a USB stick—that people could use to store cryptocurrency, were viewed as failures internally, former employees said. A Blockchain spokesman said both initiatives are “a success.”

The two employees running another area, an over-the-counter trading desk that sells cryptocurrency directly to large investors, left within a year of being hired. (The two employees have been replaced, and a Blockchain spokesperson played down the impact of their departures.) And less than a year after Blockchain began a push to attract institutional customers to its platform, two of the senior executives in charge of that initiative, Selway and Madigan, left the company.

Asked this summer whether Blockchain’s board had any concerns about Smith’s leadership of the company, Jeremy Liew, a Blockchain board member, said: “From time to time, we make sure that we’re confident that the leadership is right for the company at this stage.” He added: “I can tell you that we have a board that has full confidence in Peter as a leader.” Liew, a partner at Lightspeed Venture Partners, led his firm’s investments in the company in 2014 and 2017.

Annual performance reviews of the CEO by the board have been “decisive in support of Peter,” the Blockchain spokesperson said.

Signs of Improvement

There have been some signs of improvement in the business’s financial picture, a person familiar with the matter said. Late last year, Blockchain launched a trading product, Swap, which allows users to trade cryptocurrency directly without having to transact in traditional currency. Swap has seen traction with customers and allowed Blockchain to meet its expenses so far this year, according to the same person. 

And in July, the company launched its own crypto exchange, which it had been developing for the last year and could lead to new revenue streams. The company is on track to be profitable in 2020, a Blockchain spokesperson said.

But with a crowded market and reduced demand for crypto trading, Blockchain’s efforts might have come too late, a person familiar with the matter said. Earlier this year, the company laid off around 15% of its staff, according to two others familiar with the matter. (The spokesperson didn’t dispute that the layoffs had occurred.) Meanwhile, Blockchain has tried to secure additional financing, two people familiar with the matter said.

Liew said the total number of people at the company hasn’t shrunk in spite of this year’s departures.

Asked if the company was currently seeking to raise funds, the spokesperson responded: “Any venture funded CEO that tells you they’re not always in soft fundraising mode—whether that means being aware of where investment is flowing or taking casual meetings with potential investors outside of a round—is lying.”

Questions About Behavior

Seven former employees cited Smith’s management style as a key factor in their decision to leave the company. All of them described situations where Smith was rude or condescending, and five said Smith was especially patronizing to female employees. They also said they were frustrated by instances where the CEO would lay out a strategy or agree to business plans, only to change his mind soon after.

Two women who have worked with Smith at Blockchain recalled instances in which he boasted to them about his dating life. 

One former employee, who said she quit her job at Blockchain because of Smith’s behavior, described being called into his office the morning after a company party that was attended by former U.K. Prime Minister David Cameron and being asked by Smith to identify which women at the party she believed he was dating.

The woman said she spoke to him for nearly an hour as he talked about his relationship with one of the women as well as his history with his ex-wife, fearing she would fall out of favor with the CEO if she didn’t stay. She said she eventually complained about Smith to a senior Blockchain executive. 

Another former employee said the woman told her about the incident at the time. She and one other female former employee said they separately brought concerns about Smith’s management style to senior executives. One of the women was offered a change in reporting line, to a manager who might be better able to serve as a buffer between her and Smith, but she decided to leave the company. The other woman was never informed of any steps taken to address her complaint before she left the company.

Liew said the board wasn’t aware of employee concerns associated with Smith’s behavior. The spokesperson called the claims “wildly inaccurate,” adding that no complaints have been filed against Smith or any other current member of the company’s leadership team.