Crypto equity via ICO and the other innovation chasm



Are you a bull or a bear on this question?

– Crypto equity via ICO is the secret to unlocking innovation capital and is the bridge across the chasm between crowdfunding and public market liquidity. This is the bull case.


– Crypto equity via ICO is a haven for scamsters and needs to be heavily regulated. This is the bear case.

Today we shine a light on that question. First we outline the bull and the bear case. Then we ask some experts to give their views. Bias disclosure: I am a bull, but having seen a few waves of disruptive change I know that change takes a LOT longer than people think and that the early unregulated wave of any disruptive change has a lot of what are politely referred to as “sketchy characters” and less politely as scamsters.

The other innovation chasm

The old saw is “if it ain’t broke, don’t fix it”.

The corollary, for entrepreneurs, is “if it is broke, find a way to fix it”.

The innovation capital business is broken.

Most entrepreneurs understand the chasm between MVP (Minimum Viable Product) and PMF (Product Market Fit). The low cost to build MVP increases supply, but real demand does not change that fast, so lots of MVP ventures fall into the chasm (i.e. they fail).

The next chasm is less well understood. This is the chasm between PMF and Liquidity (via an IPO on the Public Markets and failing that via trade sale).

Today, we don’t see this chasm so clearly because there is a very expensive bridge across it – in a few locations. The very expensive bridge is provided by the big PE/VC Funds. Uber has raised over $8 billion and is still supposedly not ready for an IPO. That is an expensive bridge a) for the Limited Partners (aka the LPs aka the real investors who pay the PE/VC Fund Manager their 2 and 20 cut) and b) for the entrepreneurs (faced with all those preferential equity terms that toss founder and management equity to the bottom of the stack).

Not only is the bridge very expensive, but it is only available in a few choice locations. If you are in Silicon Valley, no problem, there are lots of expensive bridges. If you are in New York, London, Singapore, you have a few bridges. Outside those centres you are scrambling and doing so in the knowledge that some entrepreneur in Silicon Valley just raised 10x what you raised and is planning on using that to crush you.

It gets worse. Unless you do your IPO on NASDAQ or NYSE, you will face a discount. Look at the valuation discount of great companies trading on reputable stock exchanges all around the world. So now you have a second very expensive bridge operated by the “bulge bracket” investment bankers (such as Goldman Sachs and Morgan Stanley) who you use to “take you out to IPO”.

So, yes it is broken. The innovation capital business does need fixing. Whether some variant of the ICO is the fix is what we now turn our attention to.

Crypto equity via ICO 101

ICO = Initial Currency Offering.

It makes you think of IPO. That means it also makes regulators think of IPO.

Yet it is C for Currency, not company shares. You buy a Crypto Currency Token that you can use on the network.

Some examples of ventures that have been funded in this way include:

  • Storj
  • Lykke
  • Ethereum
  • ZCash

In all cases, traditional VC were not in control. Sure they could invest alongside everybody else. But they had no information advantage.

The Howey test (from an SEC legal case from 1946) is basically – if it looks and acts like an equity it probably is. Many ICOs fail this test, putting them in the regulatory cross hairs.

Crypto Equity Bear Case

It is very simple to raise money via an ICO. This will bring out honest entrepreneurs who are fed up with the current way of raising capital. It will also bring out crooks. It already has. So far the losers have been people playing with found money. For example if you invested in Bitcoin in 2009, putting some of those profits into Ether in 2014 seems pretty easy, even if you follow it up by losing on the DAO in 2016. It is quite different when Joe Q Public is invested from earnings that took 40 years to accumulate and which he is banking on for a comfortable retirement. If ICO scales, more crooks and more Joe Q Public actors get involved.

Crypto Equity Bull Case

Crypto Equity – done right helps ventures get across both chasms:

  • Chasm 1 between MVP and PMF. The investors are often also the users. They use the tokens on the network. So they help get the venture to PMF.
  • Chasm 2 between PMF and Liquidity. The Crypto Currency Token is traded. Speculators provide liquidity.

The fat protocol thin app thesis

This thesis was articulated by Fred Wilson of Union Square Ventures in August 2016. I urge you to read the whole post and the very informed comments from the community. If you don’t have time, these two pictures paint a thousand words:





The original thinking, from 18 months earlier and, amazingly prescient being  a few months even before the Ethereum ICO, was from Naval Ravikant (founder of Angel List who we have written about here, here and here).

What do the experts say?

The experts we reached out to are in what I call the “Other BBC” space (Bitcoin Blockchain Crypto), so they will be inclined to a bullish case. If you have an alternative view, please let us know in comments.

My questions to them are:

  • Use Case Suitability. Is ICO only suitable to businesses at what USV call the fat protocol layer? This will be very few companies. Or could the ICO, with some modifications and regulations, be used for any company? If yes to the latter, what do you see as the essential modifications and regulations?
  • ICO Lessons. What key lessons should entrepreneurs, bankers and regulators draw from the ICOs that have happened so far?

Use Case Suitability

From Fabio Federici

“I think we need to distinguish between two types of tokens. On one hand, we have the tokenization of equity, where the token does not serve any specific purpose in the product/protocol but rather represents a digital form equity as we know it today. While this will improve liquidity and efficiency, I don’t believe this to be a paradigm shift.

On the other hand, we have decentralized blockchain-assets, ranging from currencies (BTC), over commodities (ETH) to application-specific tokens like Golem (a decentralized AWS) or Storj (a decentralized Dropbox) (see @ARKblockchain). These are just some examples blockchain-based assets, where the value of the network is captured by its users, rather than a centralized entity – and that is what will power the next phase of the Internet. I believe that the most exciting use-cases are yet to come. Just like it was hard to imagine Google, Snapchat or Uber in the early days of the Internet, it is impossible to predict the applications that decentralized blockchain protocols will enable.”

From Oscar Jofre  (see our review of his Korecox venture here).

“I am a bull/bear crossover on this subject because of the lack of oversight even by the industry to make sure proceeds are used in a manner that will not cause a domino affect of disgruntled coin holders in an empty network.

Not everything needs regulations but given that the retail market is just learning of the crypto currency, the industry needs to mature so this can be a very viable method for companies to utilize.  Unfortunately at the moment we are not seeing that and my bear comes out because I am seeing first hand, how companies are using ICO as a form of equity raise and not having a care if the person purchasing their coins makes any return on that investment.”

Richard Olsen of Lykke:

“In future, any company will be able to take advantage of the ICO route. No regulatory changes will be necessary, because Lykke will acquire the necessary legal licenses and future ICOs can happen under the Lykke umbrella,

ICO Lessons

From Fabio Federici:

“I think it is important to distinguish between the tokens representing pure equity, and blockchain-based assets that serve a purpose in a protocol. While the first is just a digital version of what we know today, the latter represents a new type of asset class.

Also, one should always take a close look at each asset before making a decision, whether it’s building on it, investing in it or regulating it. Many factors play into the evaluation of these assets, from the aforementioned purpose to the fundamentals, the code, the team and many more. We are still in the early days – ontologies and (e)valuation methods have yet to be developed.

The main lesson for me is to keep an open mind and evaluate each token or asset individually. We are in the midst of the rise of a new asset class that will change the world.”

From Oscar Joffre

“ICO’s are here and need guidance. They are not used to harm but to really bridge the large funding gap we have globally for companies.  The industry can choose to be proactive and self-regulate, which in the end will be better than regulators injecting in.”

Richard Olsen of Lykke:

“The new future has started – entrepreneurs, bankers and regulators have understood that ICOs are a new reality and are essential funding tools. They combine cost efficient funding with building a motivated network of supporters.”


Crypto Equity is a gamechanger – if done right.

Those three little words –  if done right – cover a lot of complex detail.

We can leave that to regulators in each jurisdiction to create their rule books. That can take a lot of time and will devalue the frictionless cross border nature of ICOs today. Or the community can create a self-regulatory code of conduct as Oscar Jofre suggests. We have opened a thread on Fintech Genome where this initiative can be crowdsourced.


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Welcome Arun to Daily Fintech

Arun (Arunkumar Krishnakumar) is taking over the Friday slot – where we cover how technology is changing consumer banking and finance around the world.

Arun epitomizes our mission at Daily Fintech, which is to create conversations that make things happen.

One reason why senior people give us their attention is that we connect the dots between Fin and Tech. We translate Fin to Tech and Tech to Fin. Arun is equally comfortable in both worlds, as a quick glance at his LinkedIn profile will reveal.

We do that all across the globe because “bits don’t stop at borders”. Arun is from India originally and currently calls London home. Arun has the experience and global mindset to cover innovation wherever it comes from, whether from hyper efficient wealthy economies such as the Nordics and Switzerland or from rapidly growing big population economies such as India and China (and all points in between).

Arun has a particular passion for impact investing.

FinTech is being driven by big agile companies as well as scrappy upstarts and the relationships between the two. Arun’s experience spans both. His big company experience includes Barclays and PWC. In his current role at Angels Unleashed, StartUp Bootcamp and Funding XChange, Arun swims in the world of the scrappy upstart.

Our mission is to enable productive conversations. Our Authors job is to ignite and facilitate those conversations. Please welcome Arun’s unique voice to this conversation.

IOT Meets DLT and Blockchain meets M-Pesa in Africa



Editor’s Note: Last week, Aunkumar Krishnakumar (Arun for short) wrote a great post about the effects of Demonetization on Microfinance in India. We liked it so much that we asked for more and this week Arun has found two amazing stories from Africa. Both are practical uses of leading edge technology to change the lives of millions (for example to enable crop insurance for farmers). The technology used forces one to think again about some conventional wisdom. One uses a mix of Internet Of Things (IOT) and Distributed Ledger Technology (DLT), without using any Blockchain. Another uses Blockchain but with M-Pesa (not with Bitcoin or any Altcoin). Following our theme of “first the Rest then the West” we would not be surprised to see innovation like this coming to the West soon.

From next week, Arun will join our other Authors as a regular. Please see our announcement later today.

In the last few years, every time I visited India, I have got excited looking at the number of frictions and inefficiencies in day to day transactions. There were problems that could be solved to create huge impact to large communities of people. Of course, when executed with a good business model, those could be great stories creating social and monetary value. When I was talking about this to my friend from Nigeria a few days back, he mentioned that he had the similar thoughts about Africa, the continent with 54 countries, truly a land of infinite possibilities. Over the last few years, financial services driven by mobile penetration have created a few “leap frog” initiatives in Africa.

M-Pesa completed its 10th anniversary this month. It is the firm that revolutionised financial services by providing a simple way of transferring money, and has crossed 30 Million users across 10 African nations (only 10). But the impact it has created has already highlighted it as a model to be used for the emerging world.  In 2016, according to Vodafone, M-Pesa was used in six billion transactions. Research by Digital Frontiers found a 22% drop in female-headed households living in poverty in areas with access to M-Pesa. The same study noted that the source of income for almost 200,000 women in rural areas shifted from the low-income, labour intensive agricultural sector to more prosperous small business creation. However, there is a lot more to be done through financial inclusion and I believe Blockchain will be a key catalyst in unlocking the potential of this great continent.

Micro-Insurance for Farmers:

In my previous post, I discussed the challenges Microfinance had in improving farmers’ lifes in India. While researching for that, I came across instances where farmers who had insured their crops and lost them to drought had serious challenges in claiming money from their insurance providers. This was primarily due to lack of understanding of complexities around what triggered their insurance claims and also due to the bureaucracy and corruption that existed in the system. Crop insurance is one of the most underserved industries in the developing world.

Typically Blockchain firms have two different exploratory routes to address pain points in the Insurance value chain. The first set of firms which are the more common one try to add efficiencies around instant reconciliation using distributed ledgers. The second set of Blockchain firms, re-imagine the whole structure of the business from scratch, and in some cases intend to create a new structure altogether. A Blockchain company Etherisc is working on crop insurance in Africa and across the developing world. They are trying to solve the problem using a methodology called “Parametric Insurance”. In this model, the insurance pay-out is triggered by pre-agreed set of simple triggers, which do not involve any middle men. The data that triggers the pay-out would be sourced automatically by the system which will disburse payments according to pre-programmed rules. The other advantage is that this model offers crop insurance for one or two dollars a month, which is typically not economically viable for a traditional insurance provider.


For instance, a farmer can insure his crops against lack of rainfall for a particular year. Etherisc would have a rule that if the rainfall for that region in Africa doesn’t cross a particular threshold, the pay-out to the farmer would happen automatically. From that point, Etherisc would source rainfall information automatically from the weather data base, and if the threshold is breached, the pay-out happens. There is no need for human intervention to assess claims or damages, there by keeping the process simple, transparent and efficient. More importantly, the farmer receives timely help, without having to go through the trauma of dealing with corrupt bureaucrats to get the payment. Etherisc are also working at integrating their product with M-Pesa to plug into the existing payments infrastructure in Africa.

Micropayments Ecosystem:

In most developing nations penetration of mobile phones and internet has been better than penetration of traditional financial services and the underlying infrastructure. The main reason that there is so little private or public effort to extend financial services infrastructure into these remote and often impoverished areas is that the cost and benefits don’t add up positively. This leads to hundreds of millions of people scattered across Africa with almost no infrastructure and thus little opportunity of changing their circumstances. The solution is to take a decentralised approach that the traditional financial services infrastructure hasn’t managed to achieve.


IOTA is a lightweight crypto-token that is designed to facilitate micropayments. IOTA is derived from the acronym IoT which means Internet-of-Things. IOTA could be connected to millions of devices and could facilitate micro transactions between the devices by paying miniscule amounts to each other in a frictionless manner. IOTA is a completely new distributed ledger innovated from scratch. Unlike the Blockchain, it contains no blocks. They instead have developed something called a Tangle, which is a form of directed acyclic graph. Here a user sending a transaction verifies previous transactions through a small amount of proof-of-Work. This means that the verification of the network is not decoupled from the network’s users, as is the case in blockchains. Hence there are no external parties to be compensated, which means that IOTA got absolutely zero fees on transactions. I have painfully resisted the temptation to get too technical about IOTA’s tangle, but for those who like a good technical read, their whitepaper is here.

Due to this architecture, IOTA can be used for most business models that require a scalable ledger with no-fees. And this is especially interesting for micro payments that flow through an ecosystem of connected devices. The IOTA-Tangle infrastructure doesn’t need internet and can operate on Bluetooth as well.

A simple example highlighted by IOTA:  Business A set up a solar electricity instalment and sell it per watt in real time to business B, which is a company that saw the potential in selling sensor data to be used to optimize agriculture, so now business B is selling soil and weather data to business C which is an analytics company that turn the data into useful information that it sells to business D which is a farming company that use the info to optimize their crops. Of course, all of these companies buy their bandwidth from business E which saw the need for connectivity between these other businesses. A completely self-sustaining and scaling business ecosystem that might previously have been impossible because the profit margin was non-existent due to fees. A micro insurance model could work like a dream on such an ecosystem, a friction-free economy of things.

Unfortunately, expansion of such business models in Africa, is not going to be as friction free. Between 2010 and 2017 internet penetration in Africa grew from 10% to a mind boggling 27%. And in model countries like Kenya, this has reflected in the GDP growing as a result. However, there are challenges around how security of these Blockchain infrastructures are going to hold and how regulations would evolve around these disruptive initiatives. The other key challenge is awareness, where most people still struggle to understand what the value of a Blockchain based financial eco system is. However all is not doom and gloom, as there are quite a few initiatives across the continent educating people about bitcoin and Blockchain, and the demand for such programmes has never been higher. Onwards and Upwards!!

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The $20m Simplesurance funding shows how Berlin is becoming an InsurTech hub


The news is here ($20m in this round, $33m total funding).

We missed Simplesurance in our roundup of InsurTech by amount of VC funding. Thanks to those who gave us a heads up (they are now in the table).

Back to Simplesurance, the fact that Berlin is doing well in Insurtech is significant, because Insurtech is what VCs want to invest in. Two years ago, when we first started tracking the nascent InsurTech scene (see this post for what we found in March 2015), the action was mainly in London. Today we are seeing action all over the world. Berlin, where Simplesurance hails from, is one of those places that is picking up some of the jewels from London’s crown (after some careless politicians dropped the crown on the floor in June 2016).

In this post we look at why Simplesurance is getting traction and why that traction is happening in Berlin.

Product Insurance at Point Of Sale

Have you ever had a store clerk put on the hard sell for insurance after buying some electronics gear? The reason is simple – the margins on insurance give the store more profit than from selling the product.

So the sales person is given a lot of commission.

There is no human sales person in an e-commerce transaction.

That is where Simplesurance comes in. If you operate an e-commerce service, you can offer insurance at the Point Of Sale via Simplesurance. That is a massive market with a simple value proposition.

That is why a company called Rakuten led this funding round. Rakuten is a global e-commerce company, focused on electronics, headquartered in Japan.

One of the themes we track on Daily Fintech is that “bits don’t stop at category borders that were created in the analog age”. The categories created in the analog age get blurred as digital entrepreneurs solve pain points that cross over these category boundaries. We have chronicled how payments and e-commerce are becoming blurred. The Rakuten funding for Simplesurance shows how insurance and e-commerce are becoming blurred.

Driven by strategic investors

The narrative favored by VCs has been that most strategic investors are at best “the useful idiots” who will overpay on valuations. In that narrative, the best strategic investors morph into financial investors. The oft cited example is Intel Capital.

The Simplesurance funding story reveals that this conventional wisdom could be wrong.

We got this wrong when we saw the Simplesurance round by Allianz.

However by bringing in Rakuten, Simplesurance and Allianz are taking this to the next level.

Any financial VC worth their salt will have companies like Allianz and Rakuten in their rolodex. The normal route was for financial VCs to invest early at a low valuation and then use their rolodex to bring in strategic investors in a later more expensive round.

This Simplesurance round indicates that the Strategic VCs may be getting rid of the middle man. It makes sense that this would happen first in a market such as Germany where financial VCs have not been that strong. It also makes sense that this would happen first in InsurTech as this is a market segment where the incumbents became active very early in the development of the market.

Berlin and InsurTech

Berlin does not have a big network of top tier Financial VCs. There are some exceptions of course, but compared to Silicon Valley, New York and London, Berlin looks second tier when ranked on amount of Venture Capital.

Yet in InsurTech, Berlin has two very active and agile Insurance incumbents.

There is of course Allianz who did the earlier round for Simplesurance.

However, buried in the funding story was the fact that Simplesurance uses Munich Re to actually underwrite the policies. Although Munich Re is based in Munich, about 5 hours by car from Berlin, they share language, culture and regulation with Berlin.

We profiled the Munich Re InsurTech partnerships here.

WeFox, who we profiled last week, is also from Berlin.

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As Simplesurance is another InsurTech success story from Germany we asked Karl Heinz Passler (initiator of to translate this article into German (as he did for last week’s story about WeFox).

Die Finanzierung über 20 Millionen US-Dollar in Simplesurance zeigt wie sich Berlin zu einem InsurTech-Hub entwickelt

Die Gesamtfinanzierung von Simplesurance erhöht sich (inkl. der 20 Mio. US-Dollar dieser Finanzierungsrunde) auf insgesamt 33 Mio. US-Dollar. Hier die Schlagzeilen.

In unserer Übersicht der InsurTech Startups mit den höchsten Finanzierungsrunden hatten wir Simplesurance nicht aufgeführt. Danke für den Hinweis, wir haben die Übersicht um Simplesurance ergänzt.

Zurück zu Simplesurance. Der Fakt, dass sich die InsurTech Szene in Berlin gut entwickelt ist wichtig, da sich VCs auf der Suche nach Investments in InsurTech Startups befinden.

Als wir vor zwei Jahren mit der Beobachtung der InsurTech-Szene begannen (siehe diesen Beitrag über das was wir im März 2015 entdeckten), war der Schwerpunkt vor allem London. Heute sehen wir auf der ganzen Welt Aktivitäten. Berlin, woher Simplesurance stammt, ist nun einer jener Orte die den Londonern einige Zacke aus ihrer Krone herausbrechen (nachdem sorglose Politiker die Krone im Juni 2016 aus den Augen ließen). In diesem Beitrag geht es um die Gründe, warum Simplesurance so stark wächst und warum dieses Wachstum ausgerechnet in Berlin stattfindet.

Produktversicherungen direkt am Point-of-Sale

Hatten sie jemals das Erlebnis, das ihnen ein Verkäufer nach dem Kauf von Elektronikartikeln eine Versicherung andrehen wollte? Nun der Grund liegt auf der Hand, die Gewinnmargen der Versicherung sind höher als die des ursprünglich verkauften Elektronik-Produktes. Also erhält der Verkäufer auch eine entsprechend hohe Provision für den Verkauf der Versicherung. Bei einem Online-Verkauf gibt es keine Verkäufer. Das ist der Augenblick an dem Simplesurance auf den Plan kommt.

Wenn Sie einen Online-Shop betreiben, können Sie mit  Simplesurance sehr einfach Versicherung direkt am Point-of-Sale mitverkaufen. Ein riesiger Markt mit einem einfachen Nutzenversprechen, Sicherheit für den Kunden.

Dies ist der Grund, warum ein Unternehmen namens Rakuten diese Finanzierungsrunde anführte. Rakuten ist ein globales E-Commerce-Unternehmen, das sich auf Elektronik spezialisiert hat und seinen Hauptsitz in Japan hat.

Eines der Themen über das wir auf Daily Fintech schreiben ist, dass “Bits und Bytes nicht an den Grenzen von Sortimentskategorien halt machen, die im analogen Zeitalter festgelegt wurden”. Die damals entstandenen Einteilungen fangen nun an zu verschwimmen, da neue Startups Probleme lösen die diese alten Grenzen überwinden. Wir haben in einem Artikel aufgezeigt wie im Bereich der Zahlungen und des E-Commerce die Grenzen verschwimmen.

Das Investment von Rakuten in Simplesurance zeigt anschaulich, wie die Grenzen zwischen Versicherungen und E-Commerce immer mehr verschwimmen.

Getrieben von strategischen Investoren

Eine bekannte Weisheit der VCs besagt, dass die besten strategischen Investoren im besten Fall “die nützlichen Idioten” sind, die sich in ein bereits überbewertetes Investment einkaufen. Demnach entwickeln sich die besten strategischen Investoren zu Finanzinvestoren; das oft zitierte Beispiel ist Intel Capital.

Die Erfolgsgeschichte der Simplesurance sagt uns, dass wir mit dieser Binsenweisheit falsch liegen könnten. Die Finanzierungsrunde der Allinaz in Simplesurance scheinen wir falsch eingeschätzt zu haben. Denn mit dem Einstieg von Rakuten schalten Simplesurance und Allianz in den nächst höheren Gang rauf.

Jeder VC der sein Geld wert ist, pflegt Kontakte in Unternehmen wie Allianz und Rakuten. Bisher war die normale Vorgehensweise der VCs frühzeitig bei einer niedrigen Bewertung zu investieren um dann die Kontakte zu nutzen strategische Investoren in spätere teurere Runden reinzuholen. Das Beispiel der Simplesurance Finanzierungsrunden zeigt auf, dass die die Dienste des Mittelsmanns anscheinend nicht mehr gebraucht werden.

Dass dies zuerst in einem Markt wie Deutschland passiert, liegt auf der Hand, dort VCs weniger stark vertreten sind als üblich. Es ist ebenfalls nachvollziehbar, dass dies zuerst im Bereich von InsurTech geschieht, da etablierte Versicherer bereits sehr früh in diesem Markt aktiv wurden.

Berlin und InsurTech

Berlin bietet kein großes Netzwerk von erstklassigen Finanziers und VCs. Natürlich gibt es einige Ausnahmen. Aber wenn es um das Volumen von Venture Capital geht ist Berlin im Vergleich zu Silicon Valley, New York und London weit abgeschlagen.

Jedoch bietet Berlin InsurTech Startups zwei sehr aktive und agile Versicherungsunternehmen. Zum einen die Allianz, die die frühere Finanzierungsrunde mit Simplesurance durchgeführt hat. Wenn man dann noch etwas tiefer gräbt sieht man, dass Simplesurance die Münchener Rück als Rückversicherer nutzt. Zwar sind die Büros der Münchener Rück in München (ca. 5 Stunden Autofahrt von Berlin nach München), dennoch scheint dies nur ein Katzensprung.

In diesem Artikel haben wir die Münchener Rück mit ihren InsurTech Partnerschaften profiliert.

Über WeFox, die ihren Sitz auch in Berlin haben, hatten wir bereits letzte Woche berichtet.


Simplesurance ist eine weitere InsurTech Erfolgsgeschichte aus Deutschland. Daher hat uns Karl Heinz Passler (Initiator von bei der Übersetzung dieses Artikels ins Deutsche geholfen.




Interview with Tom Dunn of Orbian about the past present and future of Supply Chain Finance



There are some people who do more than they tell. Tom Dunn, the Chairman of Orbian, is one of them. He has quietly built a big and profitable Fintech business that is delivering low interest finance to SMEs and better risk adjusted returns to investors. I have witnessed Tom building this business for many years, having first met him in 2013, before I started Daily Fintech. It was great to sit down with him and get his take on this interesting but often misunderstood segment of Fintech.

Fintech before it was called Fintech.

Orbian is no overnight sensation. Orbian began as a joint venture between SAP and Citibank in 1999. In short, Orbian is the offspring of Fin and Tech parents. In 2003, Orbian became an independent company through a buyout led by a group of private investors. Between 2003 and 2006, Orbian focused on being a white label provider to Citibank. In 2007, just as the financial crisis was getting started, Orbian started developing its own financing capabilities and separated itself from Citibank.

Sumitomo Bank bought a 15% stake in 2014 and offers services based on Orbian on a white label basis.

Growth as an independent business got going after the Global Financial Crisis. Orbian is another example of businesses that get their major traction in tough times.

Orbian currently operates in 60 countries (while keeping operating overheads very low because they are not having to assess credit risk) and has 73 buyer programs. Orbian targets investment grade or other corporates with high quality financials. This is not a business that aims to get financing for troubled companies.

Orbian provides supply chain finance (SCF) working capital services. They focus on the largest corporate buyers and their most important strategic vendors – what Tom calls the big intersections. They focus on a wide range from $50k pa in spend to their largest to date at around $1.1 billion pa in spend. The financing model is bank agnostic (ie anybody can be a lender).

SCF works on a simple and elegant principal. The credit is based on the Payable (not the Receivable) of the Corporate buyer (not the SME seller). Let’s say the Buyer is a AAA rated Corporate (Orbian will go as far as BBB) and an approved invoice from a Seller is being financed for 3 months. What is the risk that a AAA to BBB rated Corporate will not pay an invoice that they have approved? The risk is comparable to developed country sovereign debt, but with a much better risk-adjusted return on capital. So it works for investors, particularly in a world starved for yield for investors who don’t want to pile on the risk in the hunt for yield.

Tom pegs the SCF market today as about $50 to $70 billion pa of assets.

The results, for SMEs who have corporate customers, speak for themselves. They get an APR that is LIBOR + 1.5% for a BBB rated buyer (about 2.5% with LIBOR at 1%). Contrast that with alternatives such as Receivables Financing, or term loans through Banks or AltFi. Even better for the SME is that the lender has no recourse on the SME. That is because the investor is NOT lending to an SME. Also the seller/borrower gets 99% of the receivable amount (vs around 70-80% for factoring).

To understand how that works, one needs to dive a bit deeper into how Orbian does it. They buy the confirmed Receivable (aka Approved Payable as seen from the Buyer side) on a “true sale” basis. Orbian is not a marketplace that matches on a best efforts basis. Yet Orbian is not taking credit risk. Orbian buys the confirmed Receivable asset and send the money; financing is assured. Orbian then sells Notes secured against that payable into the Capital Markets. Investors never have to look at the SME. Investors simply look at the credit rating of the Corporate Buyer and the length of the loan and price it accordingly.

Investors can be anybody who wants high credit quality, short term self-liquidating assets priced at LIBOR Plus. Typical investors are Banks and Corporates. Orbian does not run auction processes. They experimented with that but found that it was better to manage it on a relationship basis so that investors can be confident of getting enough volume on a consistent basis. This is a market where the supply of borrowers is more of a constraint than the supply of capital.

Orbian view themselves as a financing company enabled by technology rather than a technology company with application in finance. It is a subtle difference as both models tend to converge on the same end result.

What will drive future growth?

SCF clearly works. It has been around since 1999. What I wanted to know was what will drive future growth? Tom uses one word to describe this, which is “execution”. The SCF concept is simple to understand and the technology is no longer leading edge. There are almost no barriers to entry. That has brought in many market entrants who have confused the market. What matters is:

  • Confidence from Buyers, Sellers and Lenders that they will be paid correctly.
  • Ability to onboard new Buyers quickly (a few man days max).
  • Ability to onboard new Sellers quickly (software as a service via a secure portal).

The last two points are why a third party such as Orbian does well. Many banks offer SCF and the payment part can be licensed on a white label basis. However, the last two points are about customer service and that is where banks have usually struggled. Customer service is that intricate balance of people, process and technology that Tom sums up as “execution”. It is easy to say, but hard to do.

That is why growth is now coming from corporates who have long understood the conceptual value of SCF but have struggled to realize the benefits due to weak execution.

What about Blockchain and SCF?

Tom’s team at Orbian has spent time and resources looking at Blockchain and how it could apply to SCF. There are some interesting similarities on an abstract level.  SCF and especially Orbian’s offering rely on a collaborative effort between the participants of every SCF programme they offer.  In a similar way, distributed ledger technologies rely on collaboration between participants to reach a mutually beneficial result.

Tom understands how Blockchain works and what it could do. He can see the potential application to physical supply chain and therefore to Trade Finance. However for Orbian’s business, Blockchain is not a game-changer. The SCF model does not rely on knowledge of where something is in the supply chain. The Corporate Buyer needs to worry about that, but Orbian gets involved at the point in time when Corporate Buyer has approved an invoice. By that time the Corporate Buyer must know where goods are in the supply chain.

It is theoretically possible to envisage a decentralized market without any intermediary, however there are more obviously broken markets to go after. The relative efficiency of SCF evidenced by the 150 bp spread over LIBOR means it fails the Jeff Bezos test (“your fat margin is my opportunity”).The main parties of the SCF model (the buyer, the supplier and the funders) need  Orbian to play an intermediary role. Without it, the efficient aggregation and dissemination of necessary receivable information would be impossible.

Distributed ledgers, irrespective of their permission type, rely on a network effect to both be able to reach transaction validation consensus, secure the immutability of the platform and protect it against malicious attackers.  Although some new organisation can very well develop the next Blockchain platform, if social consensus does not enable it to be adopted by the intended users, it will not succeed.

Some parts of the capital markets are hyper efficient but rely on certain constraints – such as regulation, legal jurisdiction. It is unclear that Blockchain brings a lot of value in return for all that risk.  Code-is law is an interesting concept but big hyper efficient markets don’t like experimenting with interesting concepts (translation = “unknown outcome”).

Or, as Tom Dunn puts it, execution matters.

Orbian is not following the Bank’s lead in spending $ millions on Proof Of Concept projects. They prefer to analyse the risk/reward on a fundamental basis and for them today Blockchain falls into the watch and wait category.

What markets have been early adopters of SCF?

Markets that are active include:

  • Industrial Manufacturing
  • Transportation
  • Food
  • Renewable Energy

Markets that are less active than anticipated are Services and Government Sectors.

What global corridors are the most active in SCF?

The biggest market today is US domestic i.e. US to US trade. While there is a lot of attention on cross border trade, the market today is primarily domestic and follows GDP – so after America come markets such as Germany, UK and China. While supply chains are global, the last link to an investment grade corporate buyer, is more often domestic.

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Effects of Demonetisation on Microfinance in India


This is a guest post by Arunkumar Krishnakumar, who is deeply involved in the early stage Fintech scene in London but was raised in India. So he is highly qualified to write about this important and controversial topic.  

Muhammad Yunus, who was awarded the Nobel Peace Prize for founding the Grameen Bank and pioneering the concepts of Micro Finance, said:

“I did something that challenged the banking world. Conventional banks look for the rich; we look for the absolute poor”

The Micro Finance industry, despite being hailed as a saviour of the poor, has had a turbulent ride in many parts of the world. There have been various incidents in the emerging markets where farmers have committed suicide when they haven’t been able to pay off their debts. As a result, the industry was regulated in some parts of the world, and institutions offering Microfinance had to adopt different credit strategies. While the focus of many of these institutions have moved away from achieving volumes to offering affordable micro-credit, the global average rate of borrowing is about 30%.  Micro Finance in India has been no different and has had its ups and down. The recent Demonetisation (DEMON) drive in November 2016 looks like a setback to the primarily cash based Microfinance industry.

Microfinance in India:

In India, pioneer Micro Finance Institutions (MFI) operated as non-profit, non-governmental organisations with a strong social focus. They developed new credit techniques; instead of requiring collateral, they reduced risk through group guarantees, appraisals of household cash flow and small initial loans to test clients. In recent times, MFIs have transitioned from non-government organisations to nonbanking finance companies (NBFCs). As a result, once primarily donor-led, MFIs are now increasingly funded by banks and private and shareholder equity.

The Indian Micro Finance industry hit its peak in 2010, when SKS Microfinance, one of the industry leaders had its IPO. Muhammad Yunus, hailed as the father of the industry, criticised the move as the IPO was fundamentally conflicting with the principles of Micro Finance. The IPO offered at $350 million was 13 times over-subscribed. But due to reckless lending and strong-arm collection tactics that followed, strict controls were imposed on the business and loans written off which resulted in a slump. However, over the past few years, regulation of MFIs has been centralised in India and the industry growth stabilised. By 2016 the size of the industry in India was about $8.2 Billion serving over 40 Million customers. About 40% of this industry thrives in the four southern states of India.

In a country traditionally notorious for lack of women empowerment measures, MFI has been a shining light. About 70-80 per cent of the customers are women with a repayment rate of about 95 per cent against repayment rates of about 70 per cent for middle class men who form the primary borrowers for commercial banks.


In November 2016, the Indian government launched a huge DEMON drive when they banned 500 and 1000 Rupees notes. In a country where 69% of the population lived in rural areas and 90% of the transactions are cash based, the move was paralysing. For the Micro Finance industry this came as a blow too. Most of the borrowers of the MFIs are based in rural areas; they borrow in cash and repay in cash. Typically, MFIs that have had a repayment rate of 99% have had a fall of upto 12% in repayment rates. For many MFIs the non-performing assets (NPA) have risen by 7-10%.

For a discussion of the impact of DEMON in India please go to this thread on the Fintech Genome.

What does this mean for the MFIs? It might just be a short term blip, rather than a long term trend. However, these MFIs could be affected by the DEMON drive, and the resulting non-payments by their borrowers. While the borrowers will have some negative effect on their credit scores, it might be a bigger issue, if that affected the credit worthiness of the MFIs themselves.

What does this mean for the borrowers? Particularly farmers and SMEs that make up most of the customers are affected in a big way. The drying up of liquidity that the DEMON drive has caused has affected cash dependent rural communities in a big way. Especially in the southern states of India, the drought this year has made matters worse. In Karnataka, about 800 farmers committed suicide in the 12 past twelve months due to the drought and mounting debt, although what percentage of that is due to pressures from MFIs is unknown. In TamilNadu, my home state, farmers-suicide due to debt issues is almost a daily occurrence. There have been several cases where farmers have had to borrow from local lenders at higher rates, to pay off the MFIs, as MFIs tend to be stricter on their debt collection dates.

What can be done about all this? While these are certainly tragic incidents, there are various avenues the government and the MFIs have explored and continue to explore. One positive outcome of it all is that, the top 8 MFIs in India that hold about 40% of the market share, have now been provided the small finance bank licenses. Which would mean they can have their own cash out points and the DEMON drive is very likely to increase usage of their accounts. MFIs have also been lobbying with the Reserve Bank of India (RBI) to extend deadlines for the usage of the banned currency notes and farmers have had some special exemptions to this extent. RBI has also provided MFIs with a further 90 days extension before classifying loans as NPAs, if payments were due in November and December 2016. There have been some signs of recovery in certain parts of the country where repayments had fallen immediately after DEMON. However, most industry experts expect that there would be a further increase in NPAs before the industry recovers.

While the industry shows every sign of recovery, the livelihoods of drought stricken farmers are still up in the air.

PS: I am a big fan of Narendra Modi and his DEMONetisation measures. However, these were some of the unintended effects of such a huge initiative in a land of 1.3 Billion people. The human cost is clearly terrible, yet we have not seen the final chapter in DEMON. If it leads in the end to a more efficient digitized Micro Finance industry, it will have a positive impact on the poor in India and will be studied by other countries facing a similar mission.

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The WeFox #insurtech story is about augmenting rather than replacing agents


When we did our roundup of the top InsurTech ventures by money raised, we missed WeFox (fka FinanceFox) and their $28m Series A in September 2016 (the news as reported in Techcrunch is here).

This week we dig more into the WeFox story. When a venture raises a big round from some smart VCs, they are probably doing something right. You don’t get $28m for a story, they must have serious traction.

Our research reveals that one bit of conventional wisdom about InsurTech maybe wrong. It also tells us more about the reality of the European venture scene.

Conventional wisdom says Insurance Agents are fading.

In one sense this is literal. The average age of an insurance agent or broker has steadily increased from 37 years in 1983 and is now 59. They will be retiring soon, are not digital native, built their business pre digital and see no reason to change now. In this post Amy Radin, outlined the pain very well when she wrote:

“The Agents have a poor survival rate: only 15% of agents who start on the independent agent career path are still in the game four years later. Base salary is negligible and it’s an “eat what you kill” business. This is a tough, impractical career path for most, and has become less attractive over time.”

So who would want to build a business catering to those dinosaurs? That is what WeFox is doing. They are clearly getting traction, so maybe conventional wisdom is wrong.

Conventional wisdom says replace agents with a digital system. That might be as simple as a comparison engine – which is doing well in emerging markets where first time insurance buyers need a lot of help- or as complex as a Robo Agent.

There are two reasons – other than WeFox traction – to indicate that conventional wisdom may be wrong:

  • A lot of the momentum in AI is in human augmentation, rather than in human replacement. When the stakes are high human augmementation is often more sensible – think driver assistance rather than driver replacement or doctor assistance rather than doctor replacement. This may also be true with insurance agents.
  • “Relationships are the one thing you cannot commoditize” (quote from Wikinomics). You want your agent empowered to offer better, faster, cheaper service. An App can simply leave you doing the hard work – and you might also like your agent.

What WeFox tells us about the European venture scene

WeFox is a Swiss company, founded in 2014. But they are based in Berlin (as per their Crunchbase profile. That is not even all in the European Union.

This trend to multi-location startups (which we first wrote about here) is one sign of closer integration within Europe. Moving from Zurich to Berlin may soon be no more remarkable than a venture moving from Kansas to New York. Culture and language ties will beat the simple mechanics of regulation.

This shows that the post Brexit landscape is becoming decentralized. There is no single hub. Instead we are seeing networks emerge with each node in the network serving key functions. In this emerging reality, corridors become key. These corridors such as between Zurich and Berlin as illustrated by WeFox, are more important than individual hubs.

Switzerland and Germany share a language (as does Austria). The WeFox site is all in German. At this time there seems to be no desire to sell to English speakers. My German is not good enough to write my posts in German, but was happy to have Google Translate do the job. Even better was that  Karlheinz Passler (founder of, offered to do the job properly and translate this article properly. Danke Karl. Check out what Karl is doing at


Als wir unsere Übersicht der InsurTech Startups mit den höchsten Finanzierungsrunden erstellten, haben wir WeFox (ehemals FinanceFox) mit seiner im September 2016 durchgeführten 28 Millionen US-Dollar Series A Finanzierung vergessen (Techcrunch berichtete darüber).
In dieser Woche schauen wir uns die WeFox Story mal genauer an. Wenn ein Startup eine so große Finanzierung von mehreren etablierten VCs erhält, wissen die Investoren wahrscheinlich genauestens was sie tun. Für eine reine Luftnummer erhält WeFox keine 28 Millionen US-Dollar. Die müssen schon was ernsthaftes vorzuweisen haben.
Unsere Untersuchungen zeigt auf, dass unsere bisherige Einschätzung bzgl. InsurTech falsch sein könnte. Die Ergebnisse zeigen uns interessante Einblicke in die Praxis der europäischen Finanzierungsszene.
Die allgemeine Meinung ist, dass Versicherungsvermittler an Bedeutung verlieren werden

Ein Argument für diese These ist offensichtlich. Das durchschnittliche Alter der Versicherungsvertreter und Makler hat sich kontinuierlich von 37 im Jahr 1983 auf nun 59 Jahren erhöht. Da diese Vermittler nicht digital affin sind und bald in den Ruhestand gehen, haben sie auch keine Veranlassung ihre Agenturen zu digitalisieren. Im folgenden Beitrag von Amy Radin skizziert sie diese Probleme folgender maßen:
“Vermittler haben eine geringe wirtschaftliche Überlebenschance: Lediglich 15% der Vermittler, die diesen Karriereweg beginnen, sind vier Jahre später noch mit dabei. Die Basiseinnahmen sind so gering, dass es gerade zu Beginn der Tätigkeit darauf ankommt Abschluss-Provisionen zu erzielen, um das eigene Überleben zu sichern. Dies ist für die meisten ein zu harter und wenig attraktiver Karriereweg, der in den letzten Jahren weiter an Attraktivität verloren hat.”
Welcher Investor will diese Dinosaurier am Leben erhalten? Nun, WeFox tut es. Sie scheinen erstzunehmende Ergebnisse vorweisen zu können. Anscheinend liegen wir mit (unserer) allgemeinen Einschätzung bzgl. #Insurtech falsch.
Die langläufige Meinung ist, dass klassische Vermittler durch digitale Prozesse und Systeme ersetzt werden. Das kann zum Beispiel mit einem relativ einfachem Vergleichsportal – was in Wachstumsmärkten gut funktioniert, wo Erstkäufer noch relativ viel Hilfe benötigen – oder mit Hilfe von deutlich komplexeren Robo-Advisors umgesetzt werden.
Jedoch gibt es zwei Gründe – anders als bei der WeFox Traktion – die aufzeigen, dass die herkömmliche Einschätzung falsch sein könnte:
Eine Schwerpunkt im Bereich der künstlichen Intelligenz (AI) liegt in der intelligenten Unterstützung von Menschen, statt diese zu ersetzen. Wenn es um wirklich wichtige Dinge geht ist die Unterstützung der handelnden Personen sinnvoller. Wir denken dabe an Fahrerassistenz-Systeme als an Fahrerlose Systeme oder die Unterstützung von Ärzten, statt deren Ersatz. Dies kann durchaus auch für Versicherungsvermittler gelten.
“Soziale Beziehungen kann man nicht programmieren” (Zitat von Wikinomics). Sie möchten, dass Ihr Versicherungsvertreter und Makler dazu im Stande ist einen besseren, schnelleren und preiswerteren Service anzubieten? Eine entsprechende App kann ihn dazu befähigen diese anspruchsvollen Aufgaben besser durchzuführen.
Was WeFox über die europäische Venture-Szene verrät

WeFox ist ein schweizer Unternehmen das 2014 gegründet wurde. Mittlerweile ist es in Berlin ansässig (gemäß ihrem Crunchbase-Profil; Anm: Schweiz ist nicht einmal Mitglied der Europäischen Union.)
Der Trend, dass Startups mehrere Niederlassungen nutzen (was wir hier geschrieben haben) zeigt den hohen Grad der europäischen Integration auf. Ein Umzug von Zürich nach Berlin ist für ein Startup bald nicht bemerkenswerter als von Kansas nach New York. Die starke kulturelle und sprachliche Verbundenheit überwindet somit die Hürden der nationalen Regulierungen.
Schweiz und Deutschland haben eine gemeinsame Sprache (wie auch Österreich). Die WeFox-Seite ist zur Zeit ausschließlich auf Deutsch. Aktuell scheint es kein Wunsch zu sein im englischen Sprachraum zu vermitteln.
Dies zeigt uns deutlich auf, dass die Post-Brexit-Landschaft in Europa dezentraler wird. Es gibt keine zentralen Drehkreuze mehr. Stattdessen sehen wir zunehmend Netzwerke mit Knotenpunkten die wichtige Funktionen für das gesamte Netz übernehmen. In dieser neuen Welt nehmen Korridore eine Schlüsselrolle ein. Diese Korridore wie z.B. zwischen Zürich und Berlin (Aufgezeigt durch WeFox) sind wichtiger als bisherige Drehkreuze.
Da mein Deutsch ist nicht gut genug ist, um meine Beiträge auf Deutsch zu schreiben, habe ich Karl Heinz Passler (Initiator von gebeten diesen Artikel für mich zu übersetzen.


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