How a Houston fintech CEO’s new startup got snapped up less than a year after its seed round

To Houston-based financial technology entrepreneur Youngro Lee, his latest startup’s rapid exit is a sign that the tides are turning for digital finance companies.

Palo Alto, California-based BitGo acquired Lee’s Brassica Technologies only 10 months after the local company closed an $8 million seed round led by Houston-based Mercury Fund. Lee, who will both continue to lead Brassica as an independent division of BitGo and will assist with BitGo’s Asian business interests, admitted the approach for the acquisition was unexpected.

Lee said he knew BitGo’s CEO Mike Belshe personally, but the deal emerged when Brassica was looking into BitGo’s blockchain offerings for its own back-end needs. After discovering the potentials of the two companies’ clients, an acquisition was in the cards.

“In mergers and acquisitions, you either do it or you don’t; there’s never a good or bad time,” Lee said. “Our vision was to become the leader in alternative asset management, and we were aiming more broadly than the traditional definition.”

Financial terms of the deal were not disclosed, but Mercury Fund Managing Director Blair Garrou said the deal was not a complete buyout, indicating there was room for Brassica to continue to grow.

“When startups sell out too early, we call it early-exit disease,” Garrou said. “Everyone makes a little bit of money, but then that office of the new entity is not allowed to grow. You see this in a lot of secondary and tertiary cities in the tech sector in the U.S. The fact that BitGo did this deal with stock is a big plus for the city because we’ll keep growing and things will spin out of [that growth].”

Mercury had previously invested in Brassica out of its $160 million Fund V, its largest fund to date, which closed in September. After the seed round closed, Brassica had raised $12 million in total capital.

Lee defined Brassica’s offerings as tokenization of physical assets, such as securities, through digital tokens using blockchain technology. He said the company’s goal was to become the leader in alternative asset investment infrastructure. While companies like BitGo are major players in digital-only spaces involving blockchain and cryptocurrency, tokenization of physical assets is relatively untapped.

"We currently have a dichotomy in financial services — one side deals with traditional securities and the other deals with up-and-coming blockchain-based assets and cryptocurrencies,” Belshe said in a press release. “With this acquisition, BitGo becomes the first major financial services firm to be able to provide comprehensive infrastructure support for both traditional private securities and blockchain-based assets, while significantly expanding our global presence."

Institutions such as J.P. Morgan & Co., a subsidiary of JPMorgan Chase & Co., have begun pilots of their own blockchain systems with a view on adopting tokenization.

Lee founded Brassica after his previous company, NextSeed, was acquired by New York-based Republic in 2020. As part of that deal, Lee joined Republic as its COO before transitioning to become an executive vice president and head of Republic Asia.

How the deal can attract entrepreneurs to Houston's fintech scene

Garrou said that despite Brassica’s success, it's unlikely that companies similar to BitGo will trawl Houston for the next potential fintech success story. He instead said the deal would be a magnet for more founders to come to Houston, collaborate and launch companies of their own, potentially leading to more activity in the city’s fintech sector.

“We’ve been getting calls and texts from other [venture capital firms] since this announcement, asking us or Youngro where they can find another company like this or what else [is Mercury] investing in,” Garrou said. "If you look at technology innovation, whenever there's a major innovation curve, two or three companies lead it, and we think BitGo is going to be a leader for innovation in digital currency and a company you want to acquire your business."

The deal also benefits entities like Mercury, with Garrou highlighting the work of the fund’s recently promoted partner Samantha Lewis on deals such as Brassica’s seed round and a 2022 Series A round for Houston-based blockchain company Topl. Her promotion was intended to expand Mercury's investments into data platforms, fintech and Web3, a new stage of the internet driven by blockchain.

Lee said that he wanted to see Houston emphasize the role of the entrepreneur in its growing startup ecosystem, which would lead to more venture capital firms establishing a presence in the Bayou City.

“[Entrepreneurs don’t think], 'We did this because we’re in Houston,'” Lee said. “I made a choice to be in Houston because it was cheaper to build a business there, which you can leverage into an advantage through cost of living. But you really have to attract entrepreneurs and talent who can work from anywhere, give them a chance to interact with the tech and VC community here.”

Mercury focuses on early-stage companies and entrepreneurs based in the Midwest. According to HBJ research, the firm was No. 8 on the 2023 Largest Houston-area Venture Capital and Private Equity Firms List, with $600 million in assets managed last year.