The billion dollar opportunity for fintechs who serve global citizens

Australia
is sometimes colloquially labelled as the world’s biggest island. While some
might view this from a geographical stand point, it can often be meant more in
the intellectual sense. It’s no secret Australia is generally more interested
in what’s going on in Australia, than what’s happening in the rest of the
world.

The big
news out of Australia, if you haven’t already heard, is that voters went to the
polls last weekend. In true Trumpian and Brexit fashion, Australia was
delivered its own ‘surprise’ political upset. The right leaning conservative
government, led by Scott Morrison, was re-elected, much to the surprise of the
pollsters and betting agencies.

I wasn’t
terribly surprised, having had enough nous to place a bet on the coalition
government as returning to power. The odds of 5 to 1 coalition to labour seemed
out of whack with the actual closeness of the polling in marginal seats, and
the impact of potential preference votes. They weren’t out of whack with the
media commentary however, which from left to right leaning publications, was
more or less backing, or accepting a labour win. Seems like the media these
days, gets it wrong with alarming consistency.

You’re
probably wondering what any of this has to do with fintech.

Well,
governments can play a crucial role in driving the fintech ecosystem forward.
Labour had already made murmurs it would deprioritise open banking, which is
already overdue in Australia.

On the flipside,
the coalition government hardly painted an exciting picture for fintech, with
innovation absolutely not on the agenda. It’s anyone’s guess what will fill the
policy void now, but for those interested in where it may land, Business
Insider
spoke to several leading voices on what they think will happen
next. A good read for those of you who have investments downunder, or who are
looking to invest.

As a Kiwi – who can’t vote in Australia, but who’s taxes are certainly welcomed by the powers that be – what I find is interesting, is how the voices of people like me, Australia’s immigrant community, can be impacted by government policy around money. While I am afforded many more protections and rights given the close nature of New Zealand and Australia countries, many others from the immigrant community are not. And this can result in a serious financial impact.

Working Holiday Super Tax

Australia
has long been a number 1 destination for working holiday makers. It’s estimated
that during their approximate 2 year stay, they contribute $1.3 billion to the
economy, with $770M being spent in rural communities alone.

While these
visa holders come from all over the world, one of the main working corridors is
the UK, which only looks set to grow post Brexit, should the trade
representatives get their way. Around 40K land each year as part of the working
holiday visa program, with many going on to sponsored employment.

Working
holiday makers are expected to abide by Australia’s laws, including
contributing 9.5% of their earnings into Australia’s compulsory pension system,
superannuation.

When they
leave Australia, while they can freely take their take-home pay earnings, they cannot transfer the thousands of dollars
of super they are likely to have accumulated to an equivalent pension plan in
their country.

Instead a shocking 65% of their wealth is taken off them, with the
remainder cashed out. Their Kiwi counterparts can take the full balance home,
thanks to a Trans-Tasman portability scheme.

This is a tax rort, front left and centre. It also disproportionately
affects young people, who need all the help they can get these days, building wealth.

But it is also an opportunity to reinvent what pensions mean, how we distribute
and manage them, and how a fintech that thinks globally but locally can make
all of this easier, simpler, and hassle free.

Look at Transferwise, which is now the most valuable European fintech. It
is part of a growing group of global first fintechs that are willing to tackle
cross border money frictions that have no reason to exist other than through
archaic government policy.

Fintech’s that tackle these problems have a unique opportunity to represent the new global citizen. Despite the noise around protectionism, I believe it is fairly inevitable that the movement of workers and migration will continue, if not escalate. Which is why we need more companies willing to tackle some of these policy inequities head on.

We are doing this at my pension startup fintech, Zuper. After all, why does
it matter where your pension is managed from, so long as you can easily
contribute into it? If you have multiple pots here and elsewhere, there is no
reason why this should be hard to manage.

We launched a petition today that calls
on the UK and Australian government to allow for cross-border, full super
payment transfers
. There is no reason someone should lose 65% of their
wealth in one hit. If you ever worked here and had to hand you cash over, this
petition is for you.

Whether we get somewhere or we don’t, the challenge and opportunity is clear. Solve the problems that matter, and be a champion for your customers. Fintech, when done right, should address inequities, not further them. If you can prosecute that case well, then you’ve earned the right to build a billion dollar business.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have a commercial relationship with the companies or people mentioned as CEO and co-founder of Zuper. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

7 Participatory Budgeting use cases: CivicTech is global

 

DemocracyIt was only last week that I took my first deep dive into CivicTech, thanks to the Costa Vayenas, the director of the Procivis Think Tank and author of the book Democracy in the Digital Age.

As usual, there is no clear definition of what CivicTech is and there is a lot of debate which actually gets very political. We can start thinking of CivicTech as any technology that upgrades governments and community governance. So, you are allowed to think of it also as including technologies that reshape democracy. People even include any technology use case that is for common good.

I am only here to share a primer on CivicTech. It became very clear to me (through this first dive into CivitTech) that Social media, Smart Cities in platform economies with ever increasing Digital participation is the era that we live in.

In such a world, CivicTech will increasingly become important. Like it or not, Social media, Smart Cities in platform economies are shaping our identities and values whether we realize it or not. We – the end customers sort of speak – the individuals are demanding more and more rights and the lines of who does what and who is responsible for what, are blurring.

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Excerpt from the presentation of Prof. Sofia H. Ranchordás, Chair of European and Comparative Public Law & Rosalind Franklin Fellow, University of Groning

“This is Water” is a metaphor for the conscious awareness of others by David Foster Wallace’s commencement speech at Kenyon College.

`This is Digital` and we better become conscious of the ocean that we are swimming in:

Social media, Smart Cities in platform economies with ever increasing Digital participation.

digital human.jpgI focus mostly on Fintech, WealthTech, Regtech,….

CivicTech ties into all of these and much more. Chris Skinner presents to us the `Digital Human` in his recent book with the homonymous title. His subtitle `The fourth revolution of humanity includes everyone` ties into CivicTech that has clearly a role to bringing us all together.

Just a few specifics on how CivicTech is being piloted and used globally right now. Digital humans in participatory budgeting are being included in 3,000 municipalities around the world, according to Dr. Tiago Carneiro Peixoto, Senior Public Sector Specialist, World Bank’s Governance Global Practice.

Examples are live all around the globe. The father of Civictech is the UK project FixMyStreet and in the US, Change.org. These are using crowdsourcing community feedback, ideas and project requests to improve budgeting decisions.

Various technologies are being used in CivicTech, from text messages, to app like dashboards and online voting systems of all sorts. These are powered by chatbots, AI and even blockchain technology.

In Brazil in Porto Alegre, one of the most populated cities in South Brazil, the World Bank introduced participatory budgeting as early as 1989. Citizens present their demands and priorities for civic improvement. This use case is one of the longest standing CivicTech implementations. Because of the increased investment in sanitation and health, the processes have reduced infant mortality. In addition, the tax collection rate has improved by more than 30%. One of the learnings of CivicTech implementation in underdeveloped areas (where it is most needed) is that quantifiable results become evident typically after a 5yr period. So, these are not quick wins.

In Argentina the city of Rosario, has been the test ground for a gender-mixed participatory budgeting approach, aiming to involve more women in the participatory budgeting process, and to raise awareness around gender issues and the positive impact of female participation.

New York City has an interactive map – the Idea Collection Map – that any community member can submit an idea. Community volunteers, called Budget Delegates review the ideas and turn them into real proposals for a ballot, with input from city agencies. These proposals will be up for a community-wide vote. This Participatory Budgeting process is being used to directly decide how to spend at least $1,000,000 of the public budget in participating Council Districts.

In Belgium mini-publics are already being used to improve democratic processes and make them more transparent. Mini-publics are an assembly of citizens who are demographically representative of the community. The topics handled by mini-publics range from controversial science and technology issues to social issues like health and justice. Mini publics are now institutionalized in Madrid and in the German-speaking part of Belgium.

Paris has decided to allocate 5% of its investment budget to be handled through participatory budgeting. This started in 2014 and is planned for a 6yr period (until 2020) and encompasses a total of 0.5billion euros. The issues that have brought up by the community are urban agriculture, greening the city, and caring for refugees and homeless people.

In China, a unique participatory budgeting project started in Chengdu in 2011. This is a city of close to 15million people. Since the start of this process, there have been 50,000 small projects approved. Most them are for basic local services in infrastructure, such as village roads and water supply. The unique design of the implementation is that the citizens have the choice to either spend the participatory budgeting resources on immediate actions, or to use them as a down payment on a collective loan for much larger projects. If the latter is chosen, then the loan is repaid by a part of the participatory budget in the following years.

In the US, Vallejo a city in California’s San Francisco Bay Area, has been using technology for participatory budgeting courtesy of the Stanford Crowdsourced Democracy Team since 2012. There have been 5 voting cycles to allocate over $8million to fund 27 projects. Vallejo reports that 20,000 residents of Vallejo have participated. Unfortunately, during a recent vote (Cycle 6) there was a loss of all votes due to human errors and people are asked to revote.

Conclusion

`This is Digital` and we better become conscious of the ocean that we are swimming in: Social media, Smart Cities in platform economies with ever increasing Digital participation.

This is a #TwitterDemocracy[1] kind of world. Social media alone, are a digital participation form 24/7. We are shifting from one-off events like voting to a very interconnected world. With smart cities, we will provide real-time feedback which swiftly makes the loop into all platforms and into our life. Technology can help us become more efficient and arrive at a consensus at local levels much faster and better than we are able today.

For this however to happen, we need to improve literacy at all levels. Digital literacy is paramount to include everyone in this new future world.

[1] I am using #TwitterDemocracy as a generic term.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

Telecom Fintech innovation is spreading

Africa-Mobile-Money-Market

MPesa`s early success in Kenya, will remain the mobile money business case study of payment innovation in Emerging markets[1]. It was 12 years ago; in 2007 when Vodafone launched the service.

Africa continues to be the continent where `Necessity is the mother of invention`.

Africa brings to market further efficiencies, improving the MPesa business model and pushing innovation in financial inclusion (be it remittances, micro-payments, or microinsurance). However, it is not as easy as it may seem. As Chris Skinner notes:

Not only was M-Pesa a roaring success, but its concept was copied in most countries across Africa, Asia and South America. I say concept because M-Pesa itself has failed to repeat its success in other countries.[2]

Today, EcoCash, is a success story in Zimbabwe. It is a rich mobile payment platform hosted by local telco, Econet. Despite recent tech glitches on the Ecocash platform[3], Econet the parent telco continues an expansive digital strategy. It spun off Cassava Smartech, an entity that offers more financial services than just mobile money. From remittances, digital banking and all kinds of insurance.

Orange Money, started in 2008 in Côte d’Ivoire and has currently 40million customers in Africa in 17 countries (francophone and anglophone). Late last year MTN Money[4] and Orange Money, teamed up to create a JV, called Mowali[5]. They are targeting the 300 million mobile money users in Africa. MTN and Orange alone operate in 22 African countries. Mowali is built on the open-source software payment platform Mojaloop, of the Bill & Melinda Gates Foundation. The aim is Interoperability at a pan-african level.

South African startup, Wala, has launched its own mobile money solution, with the Dala utility token, using blockchain technology. Wala provides no-fee banking services and is creating a decentralized financial platform (Defi) functioning with the Dala coin. Listen to my interview with founder Tricia Fernandez on the unique approach of the Wala foundation.

Dala is one example of the opportunity that Telecoms can grasp by using tokens, be it stablecoins or some such, in order to offer their existing customers ways to manage their digital lives. Alex Mifsud, Co-founder and CEO, Open Payments Cloud emphasizes this point[6] and uses the example of Dala in South Africa and another approach used in Mongolia. The Mongolian telecom company, Mobicom, has received approval to issue a stablecoin (pegged to the national currency), called “Candy”.  Every Mongolian citizen will be able with a mobile phone to pay bills, shop online, transfer funds, and take out microloans. The pilot will start in the capital, Ulaanbaatar[7].

Now back to the West – US and Europe. The recent T-Mobile announcement of a bank account offering did create some talk. For me, it is a move from a Telecom to extend services to non-T-Mobile customers. But the business innovation is lacking, as it is backed by a conventional bank  – Customer Bank is behind the Baas service of T-Mobile Money. This is actually very different to Orange Money, that has also a bank of its own that was launched in 2017. Orange bank is built from the start with a customer relationship model based on AI technology. It has signed up 200,000 customers as of the start of Q1 2019. It has set a target of reaching 4 million customers and €500 million of net income from banking within five years.

Telecoms and banking

`My conclusion was that banks would merge with telecommunications firms and become hybrid institutions. Twenty years later, it hasn’t happened.` excerpt from Chris Skinner`s vision Banks and Telcos? Two become one!  

Will this blurring become true soon?

Will Orange become the business case or some African entity?

Who will customers trust for their financial digital business?

Will blockchain be the enabler or will AI banking be enough?

[1] Why is M-Pesa the foster child for Financial inclusion? Faisal Khan

[2] Getting the Infrastructure Right for Financial Inclusion, Chris Skinner 2018

[3] A two-day crash in Zimbabwe’s mobile money system shows the vulnerabilities of going cashless

[4] MTN is Africa’s largest telecoms operator

[5] Unlocking mobile money interoperability and merchant payments across Africa through Mowali

[6] Telecoms need not sideline cryprocurrencies, by Arti Mehta, TMForum

[7] Mongolia Starts Off 2019 With Its Eyes On Crypto Payment Adoption

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Bitcoin going parabolic. ALT Season is Almost Here!

bitcoin-all-seeing-eye.png

Last week our theme was “Initial Exchange Offerings: 2019 is the year of the IEO.“ Our theme for this week is “Bitcoin going parabolic. ALT Season Here”

TLDR. Its been an extraordinary week. Binance was hacked for $40 million worth of cryptocurrency. Warren Buffett bashed Bitcoin and cryptocurrency. Bitcoin broke $7500. The negative news didn’t seem to affect the bull run. You can expected that this rally won’t be stopping any time soon. In the first quarter of the year, several altcoins doubled in value. While the performance of altcoins have been very positive, alt season is not here yet, its almost here.

The past couple of days have been exceptional. Bitcoin broke all expectations, with its price going vertical. It jumped from $5,700 to $7,500, rising by 30% since last week.

As Bitcoin continues to rise, the top 10 altcoins also turned green with Ethereum up 18%, Bitcoin Cash 22%, Litecoin 16%, EOS 10% and Stellar 3.7%.

Screen Shot 2019-05-12 at 4.32.21 PM.png

Bitcoin was the first cryptocurrency, and it’s still the leading cryptocurrency in every aspect. In the past, I’ve read and heard crypto enthusiasts say, that eventually an altcoin will overtake Bitcoin, as the leading digital currency. While different crypto assets have risen and then fallen, none have come ever close to overthrowing Bitcoin from the top spot.

But who cares… does it really matter to overtake Bitcoin?

Bitcoin had a rough time in 2018 and in early 2019, but there have been positive things taking place, both on a market and technical level. One is the influx of Bitcoin whales buying Bitcoin, the other is growing popularity of Initial Exchange Offerings (IEOs). Others think that it has nothing to do with the developments in the crypto market, instead Bitcoin’s sharp price rise is because of the trade war between US and China. Investors are moving their capital from falling stock markets into cryptocurrencies.

The price surge we’ve seen is great, but it’s only setting the stage for something bigger, much bigger. IEOs are the center piece piece of the puzzle for this year and next, until Bitcoin’s halving, next May.

IEOs hosted on Binance and others exchanges, show signs that a mania is coming, similar to what happened with ICOs. Already, Huobi, KuCoin, Bittrex, and Bitmax are hosting token sales similar to Binance.

Almost, two years after the 2017 ICO mania, most financial regulators around the world haven’t really addressed important issues, except for the US SEC hunting down and fining companies for hosting ICOs. In an effort to self regulate and adhere to compliance, exchanges have instituted KYC and AML procedures, Unfortunately, we are still far from universal framework for crypto startups.

Top exchanges have circumvented the regulatory rigmarole and IEOs have proven to be the new way for startups to fundraise. Potentially IEOs could be at least as successful, as the ICOs in the past.

IEOs could be just a re-branding ploy for ICOs. I think it was needed. Yet, I am more excited about IEOs than STOs, which have become vehicles for VCs. IEOs offer a fresh take on token sales.

With positive sentiment buildup for crypto, we’ll see more coverage from non crypto websites and media, driving more newcomers to the market, just like in 2017. Newcomers usually hunt for bigger profits and altcoins can offer huge potential profits. Prices can increase much more than BTC, with smaller investments..

When you look back at 2017, Bitcoin went up and a few months later the altcoins run started, yet altcoins outperformed BTC.

Usually, when Bitcoin rises, other coins fall because people are selling their altcoins to get  Bitcoin. When Bitcoin falls, altcoins also fall because people are selling everything. When Bitcoin rises, and then stabilizes, people diversify into altcoins. This is where the real potential lies.

Will history repeat itself?

Everyone is saying  that altcoins are dead. That’s not the case, especially when you look at the numbers. In fact Litecoin, is up +300% since December, Tezos +250%, Ethereum +100%, BNB +400% etc.

On the US dollar, the Eye of Providence shows the all seeing eye “that favors our endeavors”. After Bitcoin finishes it’s big run and somewhat stabilizes, the all seeing Bitcoin will favor crypto endeavors again, altcoin season will start and IEOs will explode.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

How the Venture Studio model, borrowed from Hollywood, may finance the Blockchain Economy, replacing the current Fund centric model that drives Silicon Valley.

Hollywood.001

TLDR Hollywood & Silicon Valley both have proven models for harnessing ideas & talent to big profits. As we move from rock stars to film stars to code stars, the model from down south in LA is moving north to Silicon Valley and all places where tech ventures are created. This paradigm shift reduces the primacy of Finance in the Silicon Valley model, a trend accentuated by tokenized early stage equity. Two leaders in this paradigm shift are Consensys and Andreessen Horowitz. The emerging name is Venture Studio, replacing the names Incubator, Accelerator and Skunkworks from earlier waves of innovation

This update to The Blockchain Economy digital book covers:

  • How the Hollywood Film Producer model could apply to Venture Production
  • Venture creation is both a creative and a repeatable process
  • How Venture Studios reduce the primacy of passive capital
  • The role of talent in both models
  • From Incubator to Accelerator and Skunkworks to Studio
  • How Consensys created an early version of the Venture Studio
  • How Andreessen Horowitz is creating their version of the Venture Studio
  • Other Famous Venture Producers
  • Tokenised early stage equity is the game-changer that enable the Venture Studio
  • Why The Blockchain Economy requires creative non-conformists
  • Context & References

How the Hollywood Film Producer model could apply to Venture Production

The Hollywood Producer works from start to finish (aka full lifecycle in tech speak):

  • develops an idea (aka script). The Producer often own the rights to a book or story idea. Translation to Venture = develops a concept for a new venture. This period is often lengthy, with many ideas/concepts dormant for a long time until conditions are right – timing is everything. The idea that there is a tradeoff between concept/idea and execution is silly. You must have both and a Producer oversees both. 

 

  • Once a script is completed, the producer will lead a pitch to secure the financial backing usually about 25% of the budget; this is the “green light”that allows production to begin. Translation to Venture = find lead investor.

 

  • secures the necessary rights (for script, music etc). Translation to Venture = patents, trademarks or existing code (being careful that the open source is not restrictive).

 

  • hires the director. Producers rarely have creative or technical involvement. Translation to Venture = hires the CEO. The closest parallel to Producer in Tech Ventures is Chairman, in the sense that Chairman can hire/fire CEOs, but independent Chairman is unusual in early stage tech ventures. 

 

  • supervises casting. Translation to Venture = involved in talent hunting.

 

  • assembles a crew. Translation to Venture = involved in talent hunting.

 

  • oversees the budget. Translation to Venture = formal Board role.

 

  • coordinates the post production work (e.g editing, commissioning music, encouraging the film’s stars to plug the movie on talk shows). Translation to Venture = informal Board role (leveraging board director’s network).

 

  • The Producer often multi-tasks across several projects at once. Translation to Venture = those people listed as Co-Founder on multiple ventures.

In Hollywood, Producer is such a critical role that the credits often show many variants such as:

co-executive producers: executives or distributors who have a limited financial stake in the project.

  co-producer: works under the executive producer on casting, financing, or postproduction

line producer:  on the set at all times to supervise the budget but has little or no creative input.

Venture creation is both a creative and a repeatable process

That statement defies conventional wisdom in two ways:

– building a business is a creative act. We think of building a business as something requiring hard work, grit and lots of boring tasks – totally unlike the creative arts. I am indebted for the insight that this conventional wisdom is wrong to a post from the great VC, Fred Wilson of Union Square Ventures. As he recorded on his wonderful blog (AVC), he was on holiday in Paris, standing in front of an iconic painting and realized that venture founders are like painters, standing in front of a blank canvas and envisioning what should be there.

– the creative process is repeatable. Creative work require hard work, grit and lots of boring tasks  – and is a repeatable process. Let one of the most consistently creative (and funny) people on the planet tells us how in this video. John Cleese is unusual – a scientist  turned comedian and educational content entrepreneur who is obsessed with figuring out where creativity comes from. Watch the video to learn the difference between open mode and closed mode creativity. Open mode creativity is that flash of inspiration. Closed mode creativity is the hard work we call execution. Entrepreneurs and artists  know that creativity is also needed in closed mode. The plot or character idea may come in a flash of open mode creativity, but realising that idea requires further creativity and hard work in closed mode. It is the same in venture creation, where an execution step, such as improving funnel metrics, requires creativity as well.  The Hollywood Producer ensures that both open and closed mode creativity are done right.

How Venture Studios reduce the primacy of passive capital

Look at the credits at the end of the next film/movie you watch. You will see credits to all kinds of people, some with mysterious titles such as key grip, but you will be hard pressed to see or remember who financed the film/movie.

Now look at the tech venture success stories; they will often start with something along the lines of “XYZ BrilliantUnicorn, the HotABC Funded venture….” In the tech venture role, the VC Funds (“HotABC Fund”) have the starring role.

The role of Talent in both models

Talent is a word that made the leap from Hollywood to Silicon Valley, but the roles of talent are different:

  • in Hollywood, talent includes actors but also behind the camera folks such as director, writers, camera crew, set designers etc. Talent are free agents who contract for a specific film/movie. Talent employ agents to help them with this.
  • In Silicon Valley, talent  includes engineers but also marketing, sales, design, HR, finance, etc. The difference is that talent in the Silicon Valley model have to sign on for long periods as employees to get their equity upside. While increasingly free agent in reality, talent in tech ventures have to pretend that it is a 1950s  jobs for life world.

The other big difference for talent is that upside participation in Silicon Valley means equity which means exit via either trade sale or IPO. This makes talent vulnerable to financial engineering by Funds that are harmful to the interests of talent. In Hollywood, upside participation is primarily revenue share. That revenue share is variable and tied to the success of the venture/movie, which makes the upside a bit like equity, but it is not dependent on exit – only on value creation.

Big powerful interests in both models can give a raw deal to talent, but Hollywood has a longer tradition of talent being able to negotiate good deals.

From Incubator to Accelerator and Skunkworks to Studio

Incubator was the venture creation model popular during the Dot Com era.

Accelerator is the current model, as investors of all types ran away from the early stage risk of incubators, with hundreds of accelerators attempting to copy the Y Combinator success.

Skunkworks is a proven model of innovation within big companies aka intrapreneurship. This model pre-dates incubators and accelerators. Skunkworks usually operate with a small elite team removed from the normal working environment and given freedom from management constraints. The term originated during World War II by Lockheed Martin, but the most famous skunkworks was how Steve Jobs developed the Macintosh computer; other examples include Google X Lab and Microsoft Research.

The model for both incubators and accelerators have a graduation event, when the incubator and accelerator role is finished.

Hollywood Studios operate more like the skunkworks, taking responsibility until the product has delivered its value.

How Consensys created an early version of the Venture Studio

When Joseph Lubin made a fortune from Ethereum, he could have done anything. He chose to put a lot of his capital and energy into Consensys. I had the great pleasure of meeting him and his early team very early in the history of Consensys.  My impressions at the time (recorded here on Daily Fintech) were that I was seeing something radically new that I did not really understand:

“Last week I left the smart Manhattan offices to head to northern Brooklyn to visit Consensys. This was not a colorful developer pampering office. Yes, we sat around a conference table that doubled as a ping-pong table; but this was clearly a bootstrapped operation full of bright people fired up by changing the world not by the trappings of success. I had trouble finding the office because there was no logo on the door; I went through a coffee shop to get to their offices. This neighborhood was still in the early stages of gentrification.

Around the ping-pong table (ahem, conference table), developers were as comfortable talking about the finer points of derivatives clearing and compliance as they were discussing developer tools. Big Wall Street firms could feel comfortable here despite the decor.

Yet they were also developing consumer-facing applications.

It is hard to put a label on Consensys. All of these fit:

Consumer app developers

Enterprise IT developers

Core Ethereum developers.

Venture production studio.

Custom solution vendor.

Consultants.”

That same “how do we label you” issue hit the early Hollywood Production Studios, as they moved from a few creative people to a big business with lots of employees. It is easy to write off Consensys; after the fall in ETH price that meant some reassessing of the business model many headlines talk about the rise and fall of Consensys. Pioneers get arrows in their back.  I suspect that future headlines will talk about the rise and fall and rise again of Consensys. Even if not, Joe Lubin will have changed the course of history by creating a new model and a new type of company at the heart of a new protocol based ecosystem.

How Andreessen Horowitz (A16V) is creating their version of the Venture Studio

Andreessen Horowitz (A16Z) is massive force in the global Silicon Valley ecosystem. They are one of the few new Funds to break into the Top Tier in the last decade. Yet they still act like outsiders, making big bold moves that disrupt the game that they are already masters of. “Disrupt your own game before somebody else does” is easy to say, but very hard to do and A16Z is actually doing it.  A16Z has made two prescient moves that position them well for this new model that is emerging:

  • Full execution team means they are active not passive investors. They have the resources, not just cash, to help ensure that the ventures they invest in are a success. This is like the Hollywood Studio.
  • A16Z recently became an SEC registered RIA, giving them the ability to invest in cryptocurrency assets. This means A16V can win in the Blockchain Economy. A later section of this chapter describes why tokenised early stage equity is the game-changer that enables the Venture Studio. A16Z has signalled their determination to ride the next wave of innovation even if if disrupts the Fund model that makes them money today. 

Other Famous Venture Producers

  • Peter Thiel – co-founder of multiple huge ventures from PayPal to Palentir.
  • Richard Branson – using his insight, personality and brand to take on massive broken markets, with external financiers along for the ride. Branson is the closest to the Hollywood model.
  • Steve Jobs – most famous for Apple but also NeXT and Pixar.
  • Jack Dorsey – both Twitter and Square. 
  • Elon Musk – most famous for PayPal, Tesla & SpaceX, but also Neuralink, The Boring Company & OpenAI.

Some are CEOs of the ventures they help to create, others are content with a big % of equity and a corresponding Board role. What they all have in common is a brilliant entrepreneur who attracts capital like bears to a honey jar. Some may put in their own capital, but their signalling/brand value is far more important than their cash. Many have Hollywood connections, most notably Peter Thiel moving to LA and Steve Jobs with Pixar and now Elon Musk aiming to bring Silicon Valley and LA physically closer with The Boring Company.

The institutional stage is coming. This is like the early Hollywood history, when a few big swashbuckling  personalities created institutional studios.

The Silicon Valley model is already institutional with a few Top Tier VC Funds, most notably Sequoia Capital, managing the leadership succession across multiple generations. The Sequoia Capital WhatsApp deal, where they financed all the rounds themselves from an $8m investment in 2011 to a $19,000m exit in 2014, is like a Hollywood Studio that takes all the risk & reward. 

Tokenised early stage equity is the game-changer that enables the Venture Studio

Imagine a movie that took 10 years to get to the box office. Yes there are some outliers like this (Avatar took 10 years), but they are exceptions that prove the rule. This does not count what can be decades, when an idea lies dormant (ie not spending any money) because the timing is wrong or some key piece is missing. Yet, early stage venture investors typically have to wait over 10 years before getting a return. Tokenised early stage equity, whether IEO or STO, is the game-changer that enables the Venture Studio model to flourish. The time to liquidity is now much closer to the time to create a movie/film.

Why The Blockchain Economy requires creative non-conformists

The book called Originals: How Non-Conformists Move the World describes  how leaders champion new ideas and fight groupthink. The Blockchain Economy will be a bigger shift than even the disruptions that drove Hollywood and Silicon Valley. Every market is up for grabs in the Blockchain Economy. Entrepreneurs are restricted only by their imagination. Capital is far less of a constraint. There is plenty of capital in the world and Blockchain ventures require less capital for 3 reasons:

  • the crashing cost of building technology thanks to open source, APIs. offshoring etc. This well documented mega shift pre-dated Blockchain.
  • there is no need to invest in massive centralised data centers, because the users provide the servers in a decentralised network.
  • marketing costs are reduced because early users are motivated to evangelise because they bought Tokens (either Utility or Security or both).

Context & References

Why the Blockchain Economy won’t be financed by ye olde artisanal VC funds.

The 4 wrenching leadership pivot gates that entrepreneurs face.

 

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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