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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Bernard is a Fintech thought-leader & deal-maker.

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T-Zero sings “Love me do” to the SEC with its Blockchain Series A Preferred Shares


Wonders are still happening in America!

Who would imagine that an online retailer who started out as an e-commerce business liquidating merchandise of failed companies, would be the first publicly traded company offering Blockchain Shares.

Let me introduce to you Overstock, a Nasdaq listed online retailer (OSTK) based in Utah and founded by Patrick Byrne.

Tee-zero ( is a majority owned subsidiary of Overstock that is focused on using blockchain technology in capital markets. Last summer, we covered the issuance of a private crypto-currency denominated bond that settled on the T0 platform. It was a symbolic move, demonstrating that it is possible to issue, trade & settle (synonymous in the future T0 world), and have very fine divisibility of a bond and fast transferability. The trading activity of this bond was not the point of the implementation.

This December an even more important symbolic implementation happened. After the SEC approved in early Fall the issuance of a blockchain public stock offering; Overtstock will go down in history as the first publicly traded company that offered blockchain shares trading on an Alternative trading system (ATS).

The historic offering: Overstock Preferred Shares

Voting Series B Preferred Shares

  • 560,333 @ $15.68 (roughly $9mil)
  • Trading on NasdaQ OTCQB

Blockchain Voting Series A Preferred Shares

  • 126,565 @ $15.68 (roughly $2mil)
  • Trading on ATS under the symbol OSTKP

The above offering (total roughly $11mil) was handled by Keystone Capital, a conventional broker-dealer that worked diligently and closely with the regulators to obtain the required approvals.

Existing shareholders had the right to participate in the offering as follows: One subscription right for each 10 shares of common stock owned. Each share of the preferred stock has a preferential right to a 1 percent cumulative annual cash dividend.

The symbolic significance of the Blockchain Series A transaction is all about the

Transparency of the transaction and the fact that it boils down to the verification of two blockchain addresses.

What’s next?

I wasn’t an Overtsock shareholder on the required date and therefore didn’t participate in the offering. The broker-dealer, Keystone Capital handled the onboarding of the buyers (existing shareholders that exercised their right to buy the Series A preferred stock) of the digital securities. They created digital wallets and accounts for them and are now continuing to onboard outside buyers who will be matched on the T0 platform to sellers (those that participated in the first placement). Any individual that qualifies under the Title III Jobs Act, can participate.

Nasdaq is watching and probably nodding its head, since a large-scale adaption of such a process is not imminent. However, it is threatening to its core business.

Stock exchanges are one of the main three categories of players involved in capital markets; Brokers and Central Securities Depositaries handling settlements, are the other two main categories. The million-dollar question here, is who of them will embrace the T-zero or some such blockchain based platform and make the other two obsolete?

T-Zero is actually a viable product that targets the capital markets B2B vertical and is out there for the first mover to embrace it. Ironically T-zero is a private blockchain. In addition, this first symbolic implementation was accomplished with the participation and collaboration of market players and intermediaries that will be directly affected should this technology prove to change the capital markets infrastructure. Broker-dealers for example, which were instrumental in obtaining approval from the SEC and effectively laying the seeds for the growth of such an ecosystem of digital assets; will be cannibalized.

At the same time,

T-zero with Keystone Capital, are bringing up to speed the SEC and holding their hand towards Full Regulatory Transparency in public markets.

For me, this symbolic transaction is the first public performance of “Love me do” from T-zero to the SEC. Right at the time that the SEC has committed to a plan to spend $1.5billion to create a consolidated audit trial (CAT), T-zero is echoing loud and clear to them “Love me do”

T-zero can offer a freemium service to the SEC, if they adopt the T-zero platform which will naturally include a Consolidated Audit Trial.

If T-zero manages to seed an ecosystem of publicly traded digital assets (even if it starts small); then I foresee Lykke, the frictionless global marketplace for digital assets, accelerating its growth. Lykke, an open source platform, has started with frictionless, transparent, immediate settlement of FX, ICOs and cryptocurrencies, but is ready to broaden its assets base (anything digital can be on boarded).

The transformation in capital markets is here. Timing is uncertain but the trend is clear.

Sources: T zero news; Nasdaq news

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

Golem and the ICO ecosystem


The Golem anthropomorphic figure

The Golem deal beckons us to revisit the ICO market. Our recent coverage can be found in IPO or ICO or IEO (briefing on Colored Coins) and Transparency missing from the suppliers of Capital to Fintechs.

Golem’s ICO is over. It raised 820,000 ETH (roughly $8.6 million) in a couple hours.

As reported by Smith + Crown

Golem is backed by the Ethereum blockchain and is a platform that aims to become a decentralized hub to create global marketplace for computation.

The Golem Network Token (GNT) was created through this ICO and is the medium of exchange between “buyers” and “sellers” on the Golem hub. So, those engaging on the platform (developers creating software, providers supplying infrastructure and “requesters” ordering computing resources) will trade GNTs.

Golem is the third largest ICO deal. In the ICO market, any deal above $1mil is considered large. Not many people are aware that the ICO market has facilitated around $220mil in capital raised over the past three years. The really large deals are, Ethereum who raised $18.5mil during its ICO and the DAO with a wopping $180mil (a tragic example).

Access to capital has and will be a business essential. The IPO market was traditionally gated by the investment banks and is being disrupted by Fintechs like Angel List, Syndicate Room, OurCrowd etc.

Crowdfunding, transparency in the syndication process, cross border deal facilitation, are ingredients of the underway disruption that are leading to access to capital without being listed on an exchange (i.e. public markets) and to improved liquidity in these private shares.

So where does the ICO (Initial Coin Offering) disruption fit in to this? The basic facts and distinctions are:

  • ICOs are one way of crowdfunding.
  • ICOs offer a cheap, transparent share ownership process.
  • ICOs can be thought of as a derivative of a bitcoin or other digital currencies, because in the process the company issuing shares is creating an Altcoin typically with its name but not necessarily that is a colored, smaller part of the bitcoin (which has 100,000,000 satoshis and therefore, could be divided in that many pieces). The small denomination will also help liquidity.
  • ICOs are a way to access global capital simultaneously; whereas traditional capital raising starts in one regulatory jurisdiction and thereafter, may choose to also list in another exchange. ICOs seem more like the FX market that trades internationally, rather than the equity markets.
  • ICOs can and are launched from very early stages of business development. They are a cheap, effective way to participate in early stage ventures.
  • ICOs can and will benefit from the liquidity traction of the underlying digital currency from which it is created.

Open issues relate to whether (actually not discussed that much):

  • ICOs are legitimate and how they could be regulated?
  • Are they an investment or a speculative trading asset?
  • Will they remain confined to facilitating funding of techie types of companies?

The ICO ecosystem

The Fintech ecosystem is building up to track, analyze and service the ICO market.

Smith + Crown, is the place for news, research, and analysis of cryptocurrencies, blockchains, cryptofinance, distributed autonomous corporations..

It offers a dedicated page to monitor past ICO deals and those upcoming.

ICOstart is a new marketplace (i.e. exchange in old parlance) to issue and trade the Altcoins from these ICOs.

ICOO is another new place to go, to track pre-launch crowdfunding ICO deals and to be able to trade them immediately thereafter, on the Open Ledger platform. This is a company created by CCEDK in collaboration with Openledger. CCEDK is the Danish bitcoin exchange that closed in May and relaunched in July, more as a hub for crowdfunding, issuance of assets, escrow accounts.

Daily Fintech will continue monitoring the space and reporting.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network.  Efi Pylarinou is a Digital Wealth Management thought leader.

Briefing on Colored Coins – IPO, ICO, IEO


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The new kid on the block is IEO (Initial Equity Offering). I coined that phrase because neither IPO or ICO fits.

– IPO (Initial Public Offering) implies listing shares on a regulated Stock Market such as NYSE, Nasdaq, LSE, SIX etc. 

– ICO (Initial Currency Offering) implies issuing a new Alt Coin. The problem is that Alt Coin are not getting any serious market capitalization. For students of exotica, here is the market cap of the top Alt Coins. The last thing the world needs right now is another AltCoin.

If it is broke, do fix it

A regulated Stock Market is how the market works today. The old saw is if it ain’t broke, don’t fix it. The corollary is if it is broke, do fix it.  Here are the 4 big flaws with these legacy Stock Markets: 

  • legacy listing processes: post Enron, the SEC (followed by other Exchanges) layered on lots of expensive process to protect investors from scams, all of which were based on manual processes (which later got automated but they were still not native digital ie they were expensive and inefficient).
  • national boundaries: it is too hard to discover stocks on exchanges in local markets, so they either suffer a valuation discount or seek a listing on one of the global exchanges (where only mega-sized companies can do an IPO). (See here for our other coverage of this issue).  
  • declining revenue line from listing fees: Stock Exchanges increasingly make their money from selling data, co-located servers for HFT and payment for order flow. This leads to misalignment of interest with the two customers who matter – issuers and long term investors.    

This post, earlier this week by Efi, describes how things went wrong at traditional regulated stock exchanges.

Why Microsoft did an IPO

They did not need to raise money – they were already profitable. They wanted liquidity and price discovery so that they could motivate employees with stock. That is the function of a public market. Any public market 2.0 initiative has to bear that in mind. Investors want to buy shares of profitable business. Uber’s $66 billion valuation in private markets is being questioned because investors cannot figure out how they still lose money after having got to such scale. Then consider a bootstrapped business such as Microsoft at their IPO 25 years ago or a Mittlestand company in Germany. As an investor, which do you prefer to own? That is what the Innovation Capital business should be serving and is not.

Colored Coins 101 for business people

Part of our mission at Daily Fintech is to demystify jargon that obfuscates. We translate Fin for Tech and Tech for Fin. In this case we are translating Tech for Fin. There is so much innovation around Blockchain that it is hard for business executives to keep up to date. Our job is to find the stuff that matters and bring it to your attention.

We think Colored Coins is an important development in the Blockchain world. We will parse the tag line on their front page to explain why: 

The Open Source Protocol for Creating Digital Assets On The Bitcoin Blockchain

  • Open Source Protocol. This is like TCP/IP or HTML. No company controls it or makes money directly from Colored Coins. You make money by adding value on top.
  • Creating Digital Assets. You don’t buy an Alt Coin. Let me repeat that. You don’t buy an Alt Coin. You “color” an existing Bitcoin ( % of a Bitcoin or number of Satoshi, which is the smallest divisible unit of a Bitcoin) to represent an asset (stock in a company, a house or car or painting or whatever). Then you can buy and sell those assets frictionlessly across borders. 
  • Bitcoin Blockchain. This is about the public Blockchain. You can also use Colored Coins on Ethereum (another popular public Blockchain). If you believe that all Blockchains will be private, this is not for you. Using the analogy with the development of the Internet, this is about the Internet not a collection of Intranets. Open Coin transactions are validated by a consensus network (either Proof Of Work by Bitcoin Miners or Proof Of Stake or whatever Ethereum uses). 

Of course, an open source protocol is only as good as the use cases created by entrepreneurs. That is the subject of a future research note.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

Whatever happened to…11 startups graduating from Barclays Techstars 2 years ago


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2 years ago I attended the Barclays Techstars graduation day pitch in London. My report from then is here. I was excited and impressed, but knew the stats about startup survival rates. So I thought it would be interesting to do a Whatever happened to… followup post two years later (an eon in startup time).

I put them into 3 categories based on recency of funding as per Crunchbase (if they have it wrong for your company, please update Crunchbase and tell us in comments). Funding is a proxy for traction but only a proxy. If the company is thriving the old fashioned way by customer revenue, please tell us in comments.

Category 1. Never raised money beyond Seed in summer 2014.

They may still be in business. (If you are, please tell us in comments and update Crunchbase). Most probably they are not still in business and the best one can say is that they failed fast, losing little of their own time or their investor’s money.


Crowd estates

Gust Pay 



Category 2. Has not raised money in last 18 months but did raise some money after the summer of 2014.

This is worse (unless Crunchbase is wrong and they are thriving) as it took longer and cost more to get to the same place as Category 1.


Category 3. Has raised money in last 18 months.

These are the ones that may make it through that uber Darwinian process known as creating a high tech startup. Their journey will be a tale worth telling. Even these are on the early stage of this journey – they may have reached Basecamp on their way to Everest Summit. This is hard and takes time.




Hard to Categorise


There is no sign of funding on Crunchbase but other signs of health indicate they may still be around but just keeping funding sources quiet.

It’s a Darwinian Process

So, How was my original analysis?

My three top rated ventures were Aire, Squirrel and Do-Pay. It looks like I may have got one out of three right – Aire is clearly raising money and getting traction.

At the event, Barclays Techstars was talking about their filtering process to get from 340 applicants to 11 that got into the program.

To get a real result for investors and founders means a liquidity event – trade sale or IPO. So even the 3 in Category 3 are only at the start of their journey.

It’s a tough Darwinian process for founders and entrepreneurs, with plenty of excitement along the way. Failing fast and trying again is the mantra for founders; investors have a portfolio so many failed ventures are OK if they get one big winner.  So tales of ventures not making it should not and will not deter those who want to give it a go.

We may see these ideas resurface

Research shows that the single biggest factor in startup success/failure is timing.Many of these maybe great ideas, but the timing was off. We may see these ideas resurface with a different name/team.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

Fintech Unicorn pain as the public/private valuation inversion comes to an end

lascaux unicorno.jpg

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# 6 on our Fintech Predictions for 2016:

 The strange inversion we saw in 2015, when private companies were valued higher (on paper at least) than public companies, will end in 2016. The headlines will refer to Unicorpses.

 This is happening now. It is happening in private unless a business totally blows up like Powa and Mozido. So we don’t normally read about what is happening behind closed doors. This post aims to shine a light on what is happening, but only using data that is in the public domain; if we had any inside knowledge we would be under NDA. However there is so much data in the public domain that one can gain insight if one knows where to look and what questions to ask.

 We don’t do negative reviews on Daily Fintech. We are entrepreneurs ourselves and we respect the tough journey that other entrepreneurs are on. If we don’t rate the chances of what a venture is doing, we simply don’t write about that venture. However we also like being realistic and avoiding hype. So occasionally we like to shine a light on issues that the whole Fintech community faces.

The Fintech Unicorn List

This a list of Fintech Unicorn ventures from Business Insider dated August 2016 ranked by valuation:


China Rapid Finance

Coupa Software



Funding Circle




Avant Credit



ZhongAn Insurance





Oscar Health

Credit Karma




JD Finance


Ant Financial

Analysis using Recency & Down Amount

Private rounds are negotiated in…private. We have no inside knowledge of these negotiations and if we did have inside knowledge we would be under NDA. Two things indicate that a venture might be having trouble raising money:

Recency. If a high profile venture has neither raised money for 18 months, nor released financials to show that they are profitable, it is possible that fund raising is a challenge. The normal rule is to aim to close the next round within 12 months (and in good times you see that schedule) but have enough cash to move that to 18 months. Many entrepreneurs do get out of this hole and many investors will back them during this time; but it can be a warning sign. We see three ventures in this category:

  • Green Sky (the investor is a PE Fund and they typically like profitable companies and so Green Sky maybe growing through internal accruals).
  • One 97 (but note that their last round was $500m and that goes a long way in India).
  • Mozido. This company is clearly having deep problems.

Down Amount. The normal trajectory of a high growth company is to raise more with each round. When one sees a lower amount than the previous round it can be a warning sign. We see two ventures in this category:

  • Klarna
  • Transferwise

We used Crunchbase  for this analysis because it is open and free – so anybody can check the data (and change it if it is wrong). Our philosophy at Daily Fintech is to do original research on public domain data – no insider knowledge and no proprietary data sources.

The New Unicorn Status Club

Being valued at $1bn is soooo 2015. The new status badge is a single investment round over $1bn. In that elite club in Fintech we see:



Ant Financial (with a staggering $4.5bn Series B in April 2016).

One 97 in India comes close with a $500m round, which is huge for a country where venture capital has not historically flowed easily.

We are only tracking private companies. Public stocks are a different story; that data is visible to all. The problem for the private companies is simple – the valuation comparables are in the public market. For example, if you are a Market Place Lender, valuation comparables will include Lending Club (LC), Ondeck (ONDK) and Yirendai (YRD). If you are a Payments venture, PayPal (PYPL) and Square (SQ) will be among the comparables. You can short a public stock, which acts as a good price discovery discipline. That shorting price discovery discipline is not available in the public markets, which is why we got that strange inversion in 2015 that is unravelling in 2016.

The Asia story

Looking at the location of these Fintech Unicorns we see:

  • Europe = 4
  • Asia = 9
  • America = 13

If you look at amounts invested, Asia is far bigger and the source of capital is different (more Corporate than VC fund with LP/GP structure). But that as they say is another story.


It’s tough being in the news business. Business Insider published this list in August with Mozido as a Unicorn and in September, the news sites are writing the post mortem analysis (such as this one in Forbes). It is worth noting that two other big Fintech Unocorn flameouts – Powa and Monitize share a business model – white label payments. We have long held the view that payments is the “boulevard of broken dreams”. The Mozido story seems to confirm that.

The Mozido story also illustrates why the funding recency analysis makes sense. The last round listed on Crunchbase is October 2014, well over the 18 month bar we set.

It takes 9 months to make a baby

And it takes 10 years to make a real Unicorn. By a real Unicorn I mean with $1bn in cash from a trade sale or $1bn in the public markets after shorts have tried to bring it down.

Yes, it has occasionally been done in less than 10 years, but that is rare. VC funds need entrepreneurs to do it in less than 10 years as they need to return cash to LPs. If you start on that high trajectory path, it is hard to avoid a huge flameout if things don’t go according to plan. Two Plan B options are fraught with danger:

  • Pull back on the growth throttle and get to profitability. Your investors did not back you to do this and the deal terms may enable them to force an exit.
  • Trade Sale. Strategic buyers are making the public market comparables analysis and will apply those to the valuation.

Software is eating the world and 50% of the 7 billion people on the planet are using a mobile phone. So, super high growth is possible. Yet the ending of the public/private valuation inversion could never end without some pain.  This is a high stakes game.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

Elio shows that Crowdfunding wins when it focusses on real world innovation


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Elio Motors is the poster boy for Reg A+ Crowdfunding in America and Reg A+ could fundamentally change how capital formation takes place.

The Elio story shines a light on crowdfunding, but it also shows that Crowdfunding wins when it focusses on real world innovation. Traditional FinServ does a good enough job financing the old. Fintech scores best when it finances the new.

Old fashioned story?

At first sight, Elio Motors looks incredibly old-fashioned – a car built in America and it is not even electric and unlike a Tesla you won’t find pictures of celebrities driving them. This is a car for poor people in America that will cost $6,800 and deliver 84MPG.

It is close in spirit to the Tata Nano in India, the first car for a family that is upgrading from a motorbike that costs about $1,500 new. Who knew there was a market for a car like this in America? Yes, there are poor people in America who need a cheap car. For a funny/sad take on this watch John Oliver’s takedown of subprime auto lending

Personal story: a few years ago I gave a hitchhiker a lift in America. Having been a hitchhiker in my youth it felt like the right thing to do. But this was no young student having fun. It was a middle aged woman trying to get to work after her car had been repossessed.

A cheap car is very much needed in America.

Elio reality checks

  • #1: it is more like a trike than a car (but if you need something to drive to work in the rain who cares about the label?) If you can afford a more expensive car, you may not be in the market for an Elio.
  • #2: it is still a prototype. The 50,000 people who placed pre-orders will have to wait until 2017.  But read that again – 50,000 pre-orders – yes there is a market for this.

The crowdfunding story

Hey, this is a Fintech site, not an Auto site, get to the point. The Elio story is about how innovation is funded and how capital is formed and how retail investors can make money in the stock market. In short, even if you are rich enough to afford an ordinary car, this is a big deal.

The Elio Motors Reg+ CrowdFund campaign was managed by a Los Angeles company called CrowdFundX. In this 30 minute video, their CEO Darren Marble explains how they did it. In short, it is like any online marketing campaign.

What is extraordinary about Reg+ is that you can market the stock of your company like any online marketing campaign. Actually what is extraordinary is that prior to Reg+, you could not market the stock of your company like any online marketing campaign. You had to go through a high touch (read, expensive) campaign of selling to accredited investors. There will come a time when that will seem as out of date as a fax or telex machine.

For more on the stock market side of things, the Press Conference for Elio Motors stock market launch at OTC Markets has it all (but beware this is an hour long)

92% and 14.8%

RegA+ allows entrepreneurs to market their stock to non accredited investors. That is 92% of the American population.

To put that another way, before RegA+ you could only market to 8% of the population. 92% and 8% does not have the sound bite of 99% and 1% but may reflect reality better.

Elio Motors may sell stock to the 92%, but they will mainly sell their car to the 14.8%. This is the 14.8% living in poverty in America.

Of course, you don’t have to be officially poor to buy an Elio. You could be a Millennial loaded up with student debt in a weak job market just wanting to be frugal enough to get out of Mom & Dad’s house.

Who knows, it might even get chic status in LA. So we might see celebrities pulling up the red carpet in an Elio?

Needed – financing for a new cheap car

The poverty trap means that even $6,800 looks like the price of a private jet to somebody living in poverty. Paying $6,800 for a new Elio is better than paying double Blue Book value plus high interest rates (watch the John Oliver takedown on subprime auto lending).

So, some Fintech entrepreneur needs to come up with loan financing for a $6,800 new Elio. Let’s run some numbers. Assume 4 year amortization, payments will be $142 per month. Add 10% interest (not so bad in a ZIRP/NIRP environment) on the declining balance and the borrower ends up paying $16,622 in interest over 4 years. 4 years to own a car outright is a dream for many people. Poor people may need some philanthropic or government assistance to make the numbers work, but it must better than the world of subprime auto lending.

Audited Financials and Reg A+

A few months ago I wrote a skeptical post about crowdfunding. My concern is that soliciting money for stock without audited financials is breeding ground for scams. It turns out there is devil in the details in this regard for Reg A+. As per the SEC site, there is Tier 1 and Tier 2:

  • Tier 1, which would consist of securities offerings of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer.
  • Tier 2, which would consist of securities offerings of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.

Tier 2 have to file audited financial statements on an annual or semiannual basis as well as “current event reports”. Tier 1 companies may choose to do this, but don’t have to. As an investor my rule is simple – I won’t invest unless I get audited financial statements. Reg A+ companies are public. They are just smaller public companies.

Better than buying hot stocks at IPO or in private markets?

Buying a RegA+ public company has risk (even with audited financials). Everything has risk. But compare that to buying a hot stock at a high valuation at IPO for a mega venture like Uber (so that the people who bought earlier can sell) or buying that hot stock at a high valuation in private markets where you might not get all the disclosure and financials that you get in public markets.

Fintech is great, but math is merciless

Old FinServ finances old stuff well enough. Fintech scores when it finances innovation. When we look at big markets such as Health Insurance and Education Loans, we can see the limits of Fintech. You cannot change the underlying math with a new UX or even a marketplace model. To change HealthInsurance or Education Loans you need to fundamentally change how they are delivered and priced.

The same is true of Auto Loans. When the average price of a new car is over $33k, a few % points less on interest, while useful, does not fundamentally change the game.

Supplier networks and the return of local manufacturing

When Elio Motors launched the P5 at the LA Motor Show, what really comes across is that this is a car built by a network of suppliers. This is not a vertically integrated GM from the 1950s. This is closer the network of companies that build motorbikes or electronics equipment in China (described in this 2005 article in McKinsey Quarterly).

The other Chasm

There is a well-known chasm between Minimum Viable Product and Product Market Fit.

The other chasm is less well known. This the chasm between high quality company and IPO. Uber has a valuation in private markets of $66 billion and yet “it is too early to go public”. Huh?

An IPO is a branding event as much as a financing event. If you have a product that people want they will pre order it. Kickstarter has proved that. Then you can go to Equity Crowdfunding platorms. Then you fall into Chasm between viable company and being big enough  to get to the massive valuation that Wall Street bulge brack investment bankers require before they will take you to IPO. RegA+ can change that game, so that fewer entrepreneurs  fall into that chasm.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.