Tag Archives: #disruptive

My Four Years in Crypto

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It’s four years since I began my career in Blockchain, crypto and digital assets. (I can’t claim to be an early adopter, although this blog first mentioned Bitcoin in 2013.) My knowledge on the topic was quite rudimentary at the time, and it was like jumping in at the deep end when I joined the small team at Brave New Coin. Apart from the 3 co-founders, there were 3 other core team members already on-board, so I was lucky 7.

My professional career has mainly been in law, publishing and financial services, plus a range of consulting, contract and freelance roles across various sectors. My point of entry into crypto was my experience with Standard & Poor’s and Thomson Reuters in market data, indices, analytics, content, research and portfolio tools – the basis of Brave New Coin’s business, and therefore an appropriate fit with my experience and skills set.

In the past four years, I have been privileged to witness at close hand the market exuberance of 2017 (fuelled by the ICO phenomenon and the incredible bull market), the regulatory backlash of 2018, the crypto winter of 2018-19, and the stop-start messages coming from regulators, markets, institutional investors, central banks and major corporations.

Getting to grips with some of the technical and other idiosyncrasies has been a steep learning curve – but I have tried to adopt a dual approach to expanding my own understanding. First, focus on the major components before getting to far into the weeds on any particular area of technical detail; second, create a personal framework of analogous concepts, and identify practical metaphors that you can also easily explain to others – self-education is critical to personal survival, but sharing knowledge is the path to wider adoption.

It’s also important to maintain an anchor based on your original point of entry – not only does that become a constant point of reference, it also enables you to build areas of personal expertise and domain knowledge. So, while many early proponents and adopters were drawn to crypto because of their underlying belief in Libertarianism, or their fascination with cryptography, or their distrust of centralised banking systems, my own points of reference continue to be around financial services (asset origination, tokenisation, digital wealth management), market data (indices, industry standards, benchmarks), regulations and analytics. While I am an advocate for Blockchain technology, I am not a hardcore technologist, but I realise that it will take time for issues such as scaling, interoperability and mass adoption to be fully resolved.

At the very least, a great deal of that market experience (especially driven by the decentralized, project-intensive and ICO-related activity of 2016-18) has demonstrated the following truths about Blockchain technolgy:

1. This is a new model of capital formation – just as companies no longer have a monopoly on human capital, banks and traditional intermediaries no longer have a monopoly on raising financial capital

2. This is a new means of asset creation, wealth distribution and market access – backed by Blockchain solutions, crypto is the first asset class that was retail first, in a distributed/decentralized bottom-up approach to issuance

3.This is a new platform for commerce – whether via tokenomics, network incentives, value transfer, smart contracts or programmed scarcity

4. This represents a paradigm shift in governance models – via the use of decentralized, autonomous, trustless, consensus and incentive-based operating structures and decision-making systems

5. This introduces new principles of distribution – assets are consumed closer to the source of value creation (fewer intermediaries and rent seekers)

6. But, it is not (and should never be) the solution for everything

Given what is happening at the moment around the COVID 19 pandemic, Blockchain, crypto and digital assets will prove to be perfect solutions to a number of problems such as: establishing the provenance of medicines; identity verification; managing supply chain logistics; enabling the distribution of assets; computing power for scientific modelling and testing; and providing alternatives to cash.

Next week: Social Distancing in Victorian Melbourne…

 

FinTech Fund Raising

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In the wake of the Banking Royal Commission, will FinTech startups capture market share from the brands that are on the nose with customers? And will these upstarts manage to attract the necessary funding to challenge the deep pockets and huge balance sheets of the incumbents? This was the underlying theme of a recent panel discussion hosted by Next Money Melbourne.

The panel comprised:

Nick Baker from NAB Ventures, typically investing $1m-$5m in Seed to Series C rounds, self-styled strategic investor with a particular focus on RegTech, Data and Data Security, and AI/Deep Learning

Ben Hensman from Square Peg Capital, writing cheques of $1.5m-$15m into Series A onwards, more of a financial investor, mainly in businesses starting to scale. Sees that the industry is ripe for disruption because of the mismatch between profit pools and capital pools, compared to the size of the economy.

Alan Tsen an Angel investor, making personal investments of $10k-$25k, mostly into teams/founders that he knows personally and has had an opportunity to see the business evolve fairly close up.

Key topics included:

Open banking – Will this be the game-changer that many people think it will? Are the banks being dragged kicking and screaming to open up their customer databases? What will be the main opportunities for FinTech startups? While customers often express an intention to switch banks, the reality is that few actually do. In part because current processes make it relatively difficult (hence the current Open banking initiative, which will later be extended to utilities); in part because there is little to no differentiation between the major banks (in products, costs and service). Also, it seems that banks are quietly getting on with the task in hand, given that resistance is futile. My personal view is that banks may have a significant role to play as custodians or guardians of our financial and personal data (“data fiduciaries”) rather than directly managing our financial assets. For example, when it comes to managing the personal private keys to our digital wallets, who would we most trust to hold a “back up of last resort” – probably our banks, because even though we may love to hate them, we still place an enormous amount of trust in them.

Full stack financial solutions – Within FinTech, the panel identified different options between full stack startups, compared to those that focus on either the funding layer (sourcing and origination), tech layer, and the CX layer.

Neo-banks – Welcome source of potential competition, but face huge challenges in customer acquisition, brand awareness and maintaining regulatory capital requirements.

Unbundling the banks – Seen as a likely outcome from the Royal Commission, given that we have already seen the major banks largely exit the wealth management and advice business. But the challenge for FinTech startups will be in developing specific products that match and exceed current offerings, without adding transactional friction etc.

Identifying Strong FinTech Teams – There needs to be evidence of deep domain expertise, plus experience of business scaling. Sometimes it’s a fine balance between naivety and experience, and outsiders versus insiders – bringing transferable external experience (especially with a view to disrupting and challenging the status quo) can easily trump incumbent complacency.

Funding Models – While most VC funding is in the form of equity, some VCs offer “venture debt” (based on achieving milestones) which can be converted to equity, but while it can lead to founder’s equity dilution, it may represent a lower cost of initial capital for startups. The panel mentioned the so-called “Dutch model” (because it has been used by Dutch pension funds) that local mortgage company Athena has brought to the market. Rather than seeking wholesale funding or warehouse financing to back their home loan business, Athena allows institutional investors such as superannuation funds, to lend direct to homeowners. This means that the funds receive more of the mortgage interest margin than if they were investing in RMBS issued by the banks and mortgage originators. Athena is mainly geared towards refinancing existing mortgages, rather than new loans, but also offers a new approach to mortgage servicing and administration.

Generally, VCs prefer simpler structures rather than, say, funding milestones, because of the risk of misaligned goals, and the impact this may have on subsequent price rounds. There are some models that create a level of optionality for founders, and others which are royalty-based, or which use a form of securitisation against future cash flows.

Meanwhile, the panel were generally not in favour of IPOs, mainly due to the additional regulatory, compliance and reporting obligations of being a public company. So it would seem their favoured exit strategy is either a trade sale or a merger, or acquisition by a private equity fund or institutional investor.

Next week: Crypto House Auction

The fate of the over 50s….

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In recent months, a number of my friends and former colleagues in their 40s and 50s have found themselves being retrenched. Nothing surprising in that, you might say – it’s a common fate of many middle and senior managers to be “delayered” by their organisations. And of course, redundancy is now something that everyone in the workforce must expect to face at least 3-4 times in their career.

What is surprising is that in most cases, these friends and associates have been taking deliberate steps to remain relevant, by retraining and upskilling, by keeping up to date on business trends, or by engaging with new opportunities via meetups and networking events. Nevertheless, their employers have found reason to cut their positions – and despite a bar on age discrimination, the likelihood of some of these older workers finding comparable roles is greatly reduced.

This scenario is not helped by the challenges younger workers are experiencing in finding their ideal job, at least during the first few years of their careers. I would probably dispute this assertion, for the simple fact that many younger workers do not really know what career they intend to pursue, or are not aware of what options are open to them. Plus, apart from areas like medicine, science and engineering, secondary and tertiary education should be less about getting formal qualifications and more about learning how to learn, how to engage with new ideas, how to explore different concepts, how to acquire different experiences, and above all about being prepared for life….. (In my own case, I probably didn’t find my “true” career path until about 5 years after joining the workforce – a process helped by undertaking some further training when the time and circumstances were right for me. But this “delay” did not prevent me from gaining valuable experience in a series of jobs – especially as employers did not expect younger new hires to stay more than 2 years in the same role.)

Some of the corporate job-cutting is no doubt driven by economic and financial necessity, in the face of automation – and this is a trend which probably puts older workers at a disadvantage, if they are deemed less able to learn or adapt to the new technology. But as I have argued before, being older should not mean being obsolete.

One friend noted that in transitioning to a new role, there was a higher expectation that they would adapt and learn the ropes more quickly than a younger new hire. Again, this puts older workers at a disadvantage as they will be cut less slack than a rookie in a similar role.

So it seems that older workers are seen as less able (or less willing?) to learn new technology; but at the same time, they are expected to deal with change and disruption more easily then some new entrants to the workforce. There is also a growing expectation that the older you are, or the longer you have been in your previous role, the longer and harder it will be to find a suitable new position. (Again, in my own case, after I left my last corporate gig, I spent 5 years doing a range of consulting projects and contract roles, before finding myself working in a totally new industry – one that is at the cutting edge of disruptive technology, and didn’t really exist at the time I left the corporate world.)

Finally, I was struck by the comment of a former colleague who is being tempted back into the workplace, having made a conscious decision to take earlier retirement:

“I like being retired. I also know that one day you’re the hero and the next day you’re considered part of the problem.”

Next week: Beyond Blocks, Tokyo

 

 

 

Tech Talk on Crypto

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There’s an adage about not investing in something you don’t understand. There’s another about not betting more than you can afford to lose. And then there’s crypto, which in the words of TV commentator, John Oliver represents “Everything you don’t understand about money combined with everything you don’t understand about computers.” So it was with great interest that I attended last week’s General Assembly’s Tech Talk on Crypto, presented by a team from Bitcoin.com.au.

This intro to crypto was actually very illuminating, as much for the audience questions as the presentation itself.

To begin with, there was an attempt to explain the underlying technology of Blockchain; which, thanks to a certain YouTube video, seemingly reduced Blockchain to a trading platform or networked database. There was also an analogy to the internet itself: first, we just had protocols like TCP/IP; then we had web browsers; next we had e-mail clients; now we have Netflix.

Next was a reference to Bitcoin‘s mining infrastructure, its associated monetary policy, and the specifics of Bitcoin’s tokenomics. And then we jumped straight to Ethereum and the development of smart contracts – with particular reference to their potential to disrupt/transform the legal profession and the insurance industry.

There was brief mention Venezuela’s “petro”, a government-issued, oil-backed cryptocurrency, as evidence of further disruption in financial markets (although the petro has raised a number of concerns in some quarters). And, in a week when revelations about Facebook and Cambridge Analytica dominated the news, the speakers talked about Blockchain applications displacing even core social media, offering more privacy and control over our personal data and content.

The first of the audience questions were about crypto valuations. “The market decides”, which prompted some comments about market volatility and speculation. There were also some comments about regulation, tax, privacy and security.

Next question: “What about hacking?” “That’s more of a problem with exchanges, than user wallets.” That lead to a brief discussion of different types of wallet, which I’m not sure everyone in the audience fully understood.

We then moved on to look at other types of coins, and specific Blockchain use cases (such as remittance services, patient healthcare records, identity, P2P solar energy trading, voting, education etc.). In particular, Golem (crypto-powered network computing), Brave (crypto-enabled web browser), Steemit (earn crypto from your content) and TenX (an everyday crypto payment solution) were projects that the presenters liked.

Finally, to underscore how little some people understand about fiat currency and traditional financial markets, one attendee, struggling to fathom how the price of Bitcoin was determined, insisted that with equity markets, “the Stock Exchange sets the price…”

Next week: Startup VIC’s Retail & E-Commerce Pitch Night