The winner of Daily Fintech Venture Pitch Rating System at #swissfintechpitch is…Bee Solar 

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Today I attended the Swiss Fintech Pitch 3 event in Zurich (with 4 ventures and 4 investors pitching).  I used the Daily Fintech Venture Pitch Rating System, which we have used with some success in past Pitchathon events; this is now V3.

Daily Fintech Venture Pitch Rating System

We first tested this out at the inaugural Barclays Techstars Demo Day in October 2014 and my top picks from then seem to have done quite well two years later, so I was emboldened to try it again and refine that MVP at the Nexus Squared Pitchathon in July 2016.

This is Version 3 (at Swiss Fintech Pitch 3, yes 3 is a magic number).

The objective of the Daily Fintech Venture Pitch Rating System is to add some slow thinking methodology and metrics to what is traditionally a fast thinking gut decision.

There are two main attributes – Quality of Presentation & Fundamentals.

For each attribute we use a simple 1,2,3 score (3 is best).

Quality of Presentation. This might sound superficial, but it is a proxy for quality of team & focus. We look for:

  • Strong opening attention grabber
  • Strong middle with the details, real data, hold my attention
  • Strong close, make me want to talk to them.

This is clearly subjective. The quality of fundamentals impacts this (it is much easier to present a great business) but I have seen great businesses that lost investors because of presentation and vice versa. This is also a proxy for quality of founder (see below). So, Quality of Presentation gets a maximum total score of 9.

Fundamentals. This is still pretty subjective as it is based on a quick pitch. We scored Fundamentals on 5 dimensions (so a maximum total score of 15, weighting it more than Presentation):

  •  Pain. Amount of Pain felt by immediate customers/users in market entry niche. Is this a pain that is acute (customers must have to now) or just annoying (may get around it after untangling the headset cord).
  •  Innovation. Amount of Innovation involved in solving that pain. In short, any secret sauce creating a barrier to competitors?
  •  Monetization strategy. Starting with free is good; Freemium works. But the team must have a plan to make money. If the answer is advertising I switch off (because of adblockers, ad-fatigue and because you cannot beat Google and Facebook in what is now a scale game).
  •  Timing. Why now? Brilliant ideas ahead of their time are money losers. Just another follower in an established market needs lots of capital. Timing is the most critical factor in venture success;  see this amazing talk by Bill Gross, the founder of IdeaLab.
  • Go To Market Strategy. Is this clearly articulated and credible? This leads to Product Market Fit, where the “rubber meets the road”. Relates to the Pain question.

Then we add Quality Of Presentation to Fundamentals to get total score (out of a max of 24).

Notes:

  • Filters. Investors use Pitchathons as a first filter – actually second filter, because Incubators, Accelerators and Pitchathons provide the first filter. After a Pitchathon, investors look at those fundamentals in more detail but what they are really doing is rating the founder (based on how well they handle questions about the details). The old VC mantra is back the jockey not the horse.
  • Founder Rating. Do you see a founder who can go the distance in a hard game? If I added Founder rating I would make it as much as the two other attributes put together (so if the max score of Presentation + Fundamentals is 24 I would add another 24 just for Founder). However, you can only evaluate a Founder in a one on one meeting and the objective of the Daily Fintech Venture Pitch Rating System is a quick rating score based on a pitch.
  • CoFounders. “Founder” can mean 2 or more people and that is critical in the early days when founders have to do everything but cannot afford to hire top talent to do those jobs; but the reality is one person tends to emerge as a leader and you have to evaluate that person (think of Bill Gates vs Paul Allen or Steve Jobs vs Steve Wozniak).
  • Fast and slow thinking. The theory behind the Daily Fintech Venture Pitch Rating System is combining fast and slow thinking (from this amazing book). VCs work on “gut” – thinking fast based on a lot of experience. Quality of presentation is a gut call but with some metrics based on dividing the pitch into open, middle and close. The advantage of doing this at a live event is that you can also gauge how the people around you are receiving the pitch – crowdsourced gut if you like.
  • Confirmation bias. This operates at two levels. One level is highly destructive. Some investors base their gut evaluation of a founder on seeing somebody they are comfortable with. This can simply be disguised racism and/or sexism and/or ageism. This is a well recognised problem in Silicon Valley. Although the top VCs may not have diversity among their GPs they sometimes work hard to get diversity in their entrepreneurs because they know how much this matters, but understanding the problem and doing something about it is a different thing. Another level of confirmation bias is based on seeing other ventures  in that “space” succeed or fail. That is why we have Timing as a critical parameter. An idea that failed x years ago might be brilliant now (or vice versa).

The 4 ventures in their own words

Bee Solar Sàrl

(BeeSolar offers a new type of impact investment by installing solar panels on residential buildings in Switzerland)

IMburse 

(A payments marketplace to access any payment type to collect and pay out monies.)

Lend 

(Lend matches investors with borrowers. Both benefit from a fair and transparent business model.)

Protos Cryptocurrency Asset Management 

(Protos Cryptocurrency Asset Management invests in pre-ICO tokens and trades established tokens like bitcoin using advanced quantitative strategies.)

Werthstein 

(A Revolutionary Private Wealth Management.)

And the winners is – drum roll please

With a total score of 19, Bee Solar is the winner.

From the snapshot description I had not expected this one to win. It appears to serve a real need and the way they have set this up was elegantly simple. If the IRR (net over 15%) bears up under scrutiny, they are onto a winner.

We don’t do negative reviews on Daily Fintech because we respect how hard the entrepreneurial journey is. So we don’t say why we gave low marks to others.

And we can of course get it totally wrong. The best ventures often surprise everybody and are roundly rejected/dismissed at the time of launch.

Now we have to wait a few years to see if that was a good call. That is why we waited a few years from the V1 MVP at Techstars in 2014 as we can then see how these ventures performed in the years after the pitchathon applause has faded away.

Investor Rating System

Sitting on the entrepreneur side of the table, you look for two things to qualify if an investor is worth talking to:

  • Stage. Do they like to invest Early? Look for clarity below the words e.g. in actual deals and in ticket size and is it pre or post PMF? Investors may say Early but really prefer late stage. Late stage maybe sensible for investors, but I focus on early stage because that is what most attendees at pitchathons are looking for.
  • Value Add. Do they have a clear point of view on where they can add value beyond cash and is that relevant to early stage investors.

It was hard rating the investors in this event because there were three different types:

  • Angel representing an angel network.
  • Corporate VC (Swisscom and AXA in this event).
  • VC Funds (RedAlpine and DI Ventures in this event).

My take is that VC in Switzerland is still pretty immature. It does not have even close to the depth of other markets. It was notable that the Swiss VCs had invested in more ventures in Germany (mainly Berlin) than Switzerland. It appears that more VCs VCs fly to Switzerland to pitch to LPs than to invest in ventures.

I was also looking for mention of the elephant in the room – ICOs. Privately everybody was talking about this. On stage it was not mentioned.

Serial Entrepreneurs and Capital Formation

The Keynote was by a Serial Entrepreneur (Stefan Heitmann of MoneyFarm, who is now onto his next venture after a good exit). This is how it works in Silicon Valley and other Swiss Serial Entrepreneurs include Richard Olsen and Dorian Selz. So it is now happening in Switzerland and I expect this will soon have a positive impact on investor appetite for early stage ventures.

Image Source.

Bernard Lunn is a Fintech deal-maker, author, adviser and thought-leader.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Swiss Fintech is moving into prime time #swissfintechpitch

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The third Swiss Fintech Pitch event is in Zurich next week.

Daily Fintech is global. We have subscribers from 130 countries, mostly tracking GDP but skewing English speaking (until we get our act together in other languages) and our 6 Authors are from 5 nations of origin and 5 nations of residence (which are different as we have two Greeks in two countries and two people who moved to Switzerland).

So we don’t take sides in the Fintech capital of the world debate. But as I love living in Switzerland, I may have some cognitive bias.

Which is a long way of saying that I am looking forward to the third annual Swiss FinTech Pitch on October 11th at Landesmuseum in Zurich. Daily Fintech readers can get a 25% discount by quoting sfpmedia discount code.

I want to mark this occasion by noting how far Swiss Fintech has come in a few years and to give a shout out to the pioneering work of John Hucker in bringing this community together. If you wanted to connect with the Swiss Fintech community in the early days, you went to the MeetUps organised by John. Today the meetings have morphed into more professional events as the community became bigger, but it is still a gathering of the tribes.

The Swiss Fintech world has changed a lot in a few short years. In December 2014 I reported back from one of those early MeetUps with Zurich Fintech Fans Look Jealously To London. in those days it felt like Switzerland was playing a catch up game at best and the game itself (Fintech) was not in prime time. Nearly 3 years later, the whole Fintech market is moving into prime time and Switzerland is taking a leadership role.

7 reasons why Swiss Fintech is moving into prime time:

  1. Bitcoin is a legal currency in Switzerland. This is a little known fact (obscure history around WIR). Nor do many people understand the significance, but it is quite simple. For Bitcoin to go mainstream it must be legal. The companies that want to profit from this move to the mainstream want a country that welcomes them rather than fights them legally.
  2. Switzerland led the way with the first wave of innovation around ICOs. Yes, that wave went too far in one direction (free and easy wild west era) and is now moving into the next phase which is more regulated and professional. If Switzerland can get the balance right between enabling innovation and regulating away the bad actors, the country can lead the change that is coming to the Innovation Capital business (from Seed to IPO)
  3. London scored an own goal with Brexit. As a Brit by birth, it is sad for me to note this. London will always be a great Fintech center, but Brexit has sure made it easier for other centres to grab more share.
  4. Switzerland is a great place to live and work. This is true whether you want the beauties of nature, a thriving arts scene or business friendly environment or a well educated workforce or great trains and other infrastructure.
  5. Switzerland as a Financial Centre is right-sized. It is big enough to have capability but not so big that they have to play defence. Fintech is better for upstarts than incumbents. If the market and the regulations are dominated by incumbents with more to lose than to gain, innovation will be stifled.
  6. Switzerland has a very innovative Fintech License. Nobody would have forecast this three years ago, when FINMA was at best playing catchup with FCA and MAS. (See this post for more).
  7. The Crypto Finance specialisation. This is where Switzerland moved from playing catchup in the 1st and 2nd wave of Fintech to taking a leadership position in the third wave of Fintech by playing to strengths rather than overcoming weaknesses. The combination of regulation, technical bench strength and financial capital in Crypto Finance is hard to beat.

3 hurdles for Swiss Fintech:

  1. Cost. It is expensive here, which is a killer if you are trying to get traction based on a skimpy seed round. What we are now seeing is startups from all over the world coming here for expertise in crypto finance, to raise money the modern digital way. So we can see ventures where most of the workforce is outside Switzerland, making the high Swiss costs less of an issue.Nor are ICOs usually skimpy rounds, so there is less problem being undercapitalised.
  2. Angel investor tax incentives. The SEIS tax scheme in UK has been a major boost to angel investing. Switzerland has a perverse/strange issue where individual investors pay zero capital gains tax on occasional investments but pay at income tax rates if they are classified as a “professional” investor. What determines professionalism – total amount invested, number of deals, IRR? That maybe why one sees a lot of Funds in Zug which is a low tax Canton.
  3. Risk aversion. This will take time. It happens when founders become serial entrepreneurs. This is happening today with Lykke and Squirro for example – but in Silicon Valley there are hundreds of examples like that.

The issue of risk aversion brings us back to the Swiss Fintech Pitch event. In addition to the usual mode of entrepreneurs pitching investors they have a reverse form of this where investors pitch entrepreneurs. This makes sense as investors need high quality deal flow and if they tell entrepreneurs what they are looking then they are more likely to get deal flow that is a good fit. This “reverse pitch” also illustrates the changing balance of power between founders and investors. This has been well understood in Silicon Valley, where there is great competition by investors to get in the good deals. Seeing this happen in Switzerland is another sign of Swiss Fintech hitting prime time.

In short, if you live near Zurich and are into Fintech be there or be square. I will be there. Details are at Swiss FinTech Pitch.

Bernard Lunn is a Fintech deal-maker, author, adviser and thought-leader.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

NYSE & Nasdaq fueling the mini-boom in SPACs – The Bancorp leading Fintech SPACs

Some may have been at the beach in July when NYSE’s filing regarding SPAC listings got approved by the SEC. The enhanced ruling means that NYSE is opening its doors to listings of early-stage companies and SPACs!

There is no hype right now around SPACs. They are nowhere close to being the poor and distant relative of ICOs; in terms of branding. They are not new structures. But they are on the rise thanks to NYSE’s and Nasdaq’s eagerness to find new streams of revenues. A mini-boom is going on and is more or less unnoticed and shadowed by political macro risks and ICO related events.

What is a SPAC?

The acronym SPAC is “Special purpose acquisition companies”. For some of us who were Star Trek fans early on, it does resonate but I can assure you that the structurer of this “special vehicle” is not Spock.

A SPAC goes public and raises money that is kept in a trust. The mandate of the SPAC is to go out hunting to acquire a private operating company (or companies) in a specific sector. It used to be a tech unicorn hunt in the old days. The success of SPAC listings a decade ago didn’t actually become a hit. It was an expensive process that partially made it faster to list for private companies of a certain size (typically above $200mil valuation) and the returns were not that spectacular. In many cases, the SPACs never completed an acquisition and liquidated. Data from listings since 2003 in the US shows that 55% of SPACs completed acquisitions. In the rest of the case, either the targets were not identified or the merger/acquisition was not approved. In which case, 95% of the invested funds were returned upon liquidation (another haircut).

The management team of the SPAC upon listing has a period of time, usually 24 months, in which to identify a private company acquisition target and complete the acquisition. If such a deal is made, management of the SPAC profits by owning 20% of the common stock acquired from the shares of the founder and any other shareholder and receiving an equity interest in the new company. This is a large “haircut” that hasn’t changed.

The key part of NYSE’s recent SEC filing was about modernizing the listing rule requirements for SPACs, revising the fee structure and developing new distribution standards for SPACs upon listing.

As competition between exchanges for the listing business is not a gentlemen’s game, Nasdaq also recently filed for a SEC approval to allow for new rules for SPAC listings on their platform.

SPAC listings – facts and figures

SPAC structures have a long history dating back to the early ‘90s, when the SEC issued Rule 419 to govern these blind pools of money as listed acquisition vehicles. SPAC listings hit a peak in 2007, with a total of 66 SPACs which at the time accounted for more than a fifth of all IPOs!

For 2017 the WSJ reports that 22 SPACs (18 of these listings were in NASDAQ) have floated IPOs so far, raising nearly $7bil. This is double the size from 2016 and 7 times more than 2010 (Source).

A great example of a SPAC listing of a large size is Social Capital Hedosophia Holdings Corp. listed on NYSE in September IPOA.U) and sold $600 million worth of shares to the public so that it can go out and hunt for a private tech unicorn to take public. This SPAC is a collaboration of a US and a UK VC (Social Capital in SanFran & Hedosophia in London). They want to address the fact that as of May 2017, there were about 150 private tech startups valued at over $1 billion, compared with about 200 public technology companies with a market cap of $1 billion. One of the reasons being that there is so much private money around that many companies stay private. Chamath Palihapitiya, the founder of the venture-capital firm Social Capital, is setting himself up to become the Warren Buffett of tech investing. (Source)

According to CB insights unicorn listings in Fintech, we have 25 listings currently and about half of them are close to the $1billion cut-off that could make them great SPAC candidates.

Company            Valuation          Unicorn  status

Greensky $2 10/22/2015 United States
Mozido $2.39 10/22/2014 United States
51Xinyongka $1 9/21/2016 China
Rong360 $1 10/12/2015 China
Adyen $2.3 12/16/2014 Netherlands
AvidXchange $1.4 6/8/2017 United States
One97 Communications (operates Paytm) $5.7 5/12/2015 India
Stripe $9.2 1/23/2014 United States
Kabbage $1 10/14/2015 United States
TransferWise $1.1 1/26/2015 United Kingdom
Avant $2 9/30/2015 United States
Social Finance $4 2/3/2015 United States
Klarna $2.5 12/12/2011 Sweden
Robinhood $1.3 4/26/2017 United States
Coinbase $1.6 8/10/2017 United States
Saxo Bank $1.45 8/21/2015 Denmark
Credit Karma $3.5 9/29/2014 United States
Zenefits $2 5/6/2015 United States
Funding Circle $1 4/23/2015 United Kingdom
Tuandaiwang $1.46 5/30/2017 China
Lu.com $18.5 12/26/2014 China
LaKala $1.6 6/23/2015 China
Symphony Communication Services Holdings $1 5/16/2017 United States
Gusto $1 12/18/2015 United States
Avaloq Group $1.01 3/22/2017 Switzerland

I also believe that lending and crowdfunding platforms are great candidates that we may see “wrapped” into a SPAC in the next months rather than taken over from a private equity firm. Think of the recent announcement of Prosper raising $50mil of capital – what an injection for treating the trauma of losing its unicorn status! Its valuation has plummeted over 70%!

Screen Shot 2017-10-02 at 9.20.28 AM.pngSource

The only pure Fintech SPACs are listed on Nasdaq, FNTC and FNTEU. They are both was a managed by The Bancorp (TBBK) and aim to acquire a financial technology business,

First FinTech Acquisition Corp. (NASDAQ: FNTC) which listed on Feb 2015 and raised $100mil. On March 2016 it acquired CardConnect, a decade-old private payment processing firm with 60,000 merchants on its platform and over $17 billion in credit card transactions processed to date.  The acquisition was based on a valuation of $350 million in cash ($180mil) and stock ($170mil).

FinTech Acquisition II (FNTEU) was listed in Jan 2017 again to acquire a financial technology business and raised $153 million by offering 15.3 million shares at $10, up from the 13.5 million shares originally filed. Currently trading close to $10.50 and hunting for a target.

Bancorp is a small cap dedicated Fintech player in many different ways. Not only have they partnered with Fintech startups but also have invested in two innovation labs! Last year Bancorp partnered with Varo Money, the mobile-only banking app, in which The Bancorp Bank will be providing private-label banking services for Varo’s mobile checking and savings accounts. Just last December it launched Bancorp Cube8, a division to “explore unconventional–even radical–ideas in financial technologies”. The initial focus will be on digital lending, digital payments, mobile payments, and blockchain. Cube8 also will explore ways to improve efficiencies in AML/Bank Secrecy Act sphere, big data and artificial intelligence.

Who else will join Bancorp in listing Fintech SPACs? Maybe Visa or Mastercard? Are some fintech sub-verticals natural acquisition targets for Fintech SPACs?  “It makes sense,” says Ellenoff (from a law firm specializing in SPAC structures) “I could see over the next six months or so a SPAC buying a crowdfunding platform.” Source Is fintech the next hot SPAC market?

Wallets are too early, crowdfunding, lending, and payment solutions are riper. But all the Fintechs whose unicorn status is vulnerable (just close to the $1bil) and are B2C plays are also yummy SPAC prospects.

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

 

 

 

 

 

ICOs: Two birds One stone

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The digitization of financial services means that we are at the very early stages of tackling two significant social impact topics (Jason Bates says “Digital Banking is only 1% done”):

Financial inclusion – mainly in the “Rest”

Tokenization of the economy – on a global basis

Since the tokenization of our economies is really nascent, we are at risk of thinking of different aspects when we hear the term. We are even at risk of dismissal altogether of this emerging reality, from those that see this as fraud, exuberance, a fad. Jamie Dimon, a Greek immigrant that made it on the billionaire list, being one of them. Others, look at the thousands of tokens that have been issued (over 6,000 and growing as we speak) and the ever-increasing ICO rounds (over $250mil lately) and are naturally, worried about this young market.

There is room for all these concerns but the market will grow and advance with or without our opinions, thoughts, and concerns. The reality (including stumbles and crashes) will be exactly as Richard Olsen, co-founder and CEO of Lykke describes it and as David Siegel, CEO of 20|30 and the Pillar Project, quotes in the opening of his in-progress e-book The Token Handbook:

There won’t be millions of tokens. There will be millions of kinds of tokens. Richard Olsen

Today we are mostly focused on the thousands of fundraising tokens with a just a few functionalities, like tokens that represent ownership, or some rights, or rewards, or incentives.

Tokens are not only alternative fundraising (crowdfunding) weapons that make VCs stay up at night because of fear of extinction; as some like to believe.

Tokens will enable network effects and the creation of ecosystems, we cant imagine with the current business processes. These are the “other kind” of tokens that Richard Olsen is referring to, I believe. So, stay tuned.

The Zurich ICO summit organized by Smart Valor

For now, we mostly see crowdfunding kind of tokens and most of them can’t answer the question “Why this token?” without admitting that it is a quick, techie way to crowdfund and “acquire users” or it is an existing app that is tokenizing its self. Actually, in many cases, ICOs look more like Initial User Acquisition Events – IUAs. In some cases, like Civic which already had an app, the ICO was a cheaper way to KYC and onboard users and at the same time finance their growth (Civic can answer clearly the Why question).

What is important to keep in mind is that the technology of ERC20 tokens that has clearly facilitated the explosion of ICOs, isn’t going to help in building a community (be it developers or users) and therefore, there is no magic way in building “Network effects”.

A token sale can be a financing tool and a user acquisition tool! But it is not panacea for network effects.

Smart Valor, founded by Olga Feldmeier (ex-Xapo), organized the first ICO summit in Zurich with an amazing lineup of speakers from around the world. I was able to watch part of the conference which was streamed live. From the opening speech of William Mougayar and then some of the topics and angles during a few panel sessions.

Smart Valor is a blockchain venture that is focused on the tokenization of all kinds of alternative investments (real estate, funds, private equity etc.) on a decentralized platform that can make them accessible to Emerging markets. In other words, private banking kind of financial services for EM. You can hear more about the value proposition in this interview.

William Mougayar, the keynote speaker, reminded us that June 2017 was the first month that ICO funding ($600) surpassed the total seed-angel fundraising ($500mil). He shared his insight that on Sep 1. the market cap of cryptos was around $172billion and the amount from ICO crowdfunding was $1.7bil. This shows that ICOs were 1% of the total market cap. So clearly, there was simply a shift (diversification maybe) of 1% from cryptos into ICOs.

He reminded us that Ethereum ICO’d in the summer of 2014 and Ether started trading only one year later (summer 2015) when the network went live. Will this be one aspect of the self-regulatory standards that ICOs adopt going forward?

Here is my collection of self-regulatory standards to be considered. A few inspired from the panel discussions and a few additions of my own.

  • No more white papers, unless they are exceptional highly computational academic breakthroughs
  • No more token trading before the protocol or the app is live
  • More Smart tokens that release funds as milestones are achieved
  • Allocation of tokens with the whitelist technique (i.e. KYC users-signup and guarantee a minimum token allocation) so that communities are built and whales don’t dominate.
  • Avoid Slack and Telegram for pre-ICO community building because they are vulnerable to phishing (Chainalaysis reports $250mil have been hacked to date).
  • Ventures that can answer the “Why the token?” question with a vengeance, join the IGF.

Miko Matsamura from Pantera Capital (a San Fran. $100M ICO-only fund) highlighted a new self-regulatory effort the ICO Governance Foundation (IGF) which is an international organization and Swiss Foundation whose mission is to protect global ICO investors and facilitate capital formation for ICOs. It aims to create something like S-1 filling for ICOs. The Crypto Valley Association (CVA) also issued recently a code of conduct around ICOs.

Panel participants here. Source of original image

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

First the Rest Then West – the MoneyOnMobile ($MOMT) leapfrog story in India

MOM

A major theme on Daily Fintech is “first the Rest then the West” (for example in this post).

Countries such as China and India (and the rest of Asia, Latin America and Africa, together the “Rest Of the World”) used to be considered tech deserts that at best copied innovation. They are now the locus of innovation for a simple reason – leapfrogging. Unencumbered by legacy technologies, huge populations that are starved of services that we take for granted in the West are more open to innovation. This accelerates as their economies grow and productivity is prized by their people; something that used to take hours is no longer acceptable when “time is money”.

One place where we see this playing out is India, which is why India is the country to watch in Fintech.

We have profiled companies such as Paytm in India that have taken in huge amounts of Venture Capital. Today we look at MoneyOnMobile, a low profile mobile money in India venture, with a more capital efficient model, that is traded on the OTC market in America. Rather than compete with physical retailers,  MoneyOnMobile works through physical retailers as a distribution channel. That explains their capital efficiency.

We have also often written about M-Pesa. This is a Fintech venture within Vodafone that is dominant in Kenya. M-Pesa is not a pure play Fintech stock, because it is controlled by a Telecom operator. A country such as India that has a highly competitive Telecoms sector, with brutal price competition driving adoption, does not want a single Telecoms company also having huge influence over financial services. So although M-Pesa is available in India, we do not see it having the dominance that it enjoys in Kenya. One way to look at MobileOnMoney is as a comparable to M-Pesa except for one crucial difference – they do not compete with Telecom operators.

Disclosure: MoneyOnMobile is a client of Daily Fintech Advisers. I am not a financial adviser, please do your own diligence before investing.

Made in India, listed in America

MoneyOnMobile is an unusual company. All their business is in India and they are proudly “made in India”. Yet the company also lists a Headquarters in Dallas, Texas and you can buy their stock on the US Over The Counter (OTC) market with the stock symbol MOMT.

AFAIK, this is the only pure play Fintech focussed 100% on India traded in the US.

We also like to track publicly traded Fintech companies (for example here). One publicly traded Fintech that we admire and that investors clearly like is Square. Their stock has been on a tear and the company is valued at nearly $11 billion as I write. MoneyOnMobile is a micro cap with a tiny valuation (less than $20m as I write). Yet one of Square’s founders, Jim McKelvey is on the board and in this video explains why he is excited by MoneyOnMobile Money.

India Macro View

China and India share characteristics as big growth markets. The India macro story is not as well known as the China story, yet it may be more interesting. The data is available from many sources (including here from OECD). The TL;DR summary:

  • big population
  • high GDP growth
  • youth demographic (supporting high growth in future)
  • weak infrastructure (gradually getting better)
  • problems with corruption (which the Modi government is laser focussed on)
  • services and software economy in contast to manufacturing in China
  • a growth spurt that started later than China
  • a messy democracy (maybe better in long run but slows pace at which change happens)
  • English as a major language
  • rule of law like UK (but slow and inefficient).

The macro part to highlight is the youth of the population. This is what will fuel future growth.

Foreign capital (including Chinese and Japanese) has flowed into India. This illustrates how open the Indian economy is to foreign capital, which we will explore in more detail later.

One reason that so much Chinese capital is flowing into India is that, in addition to understanding the macro view on India, they also understand the micro view about cash and payments in India.

Flipkart and the Cash On Delivery model

For a long time entrepreneurs tried creating the Amazon of (name your country). That fast follower strategy worked for while in other developed markets such as Europe that like the US had high Credit Card penetration rates. Eventually Amazon tends to crush these local rivals, but a copy cat geographic approach worked well for a while.

However it did not work well in countries such as India. The market there evolved differently through 3 iterations:

  1. Blind copy of Amazon. This did not last long – most consumers don’t have Credit Cards and the delivery infrastructure is terrible.
  2. Flipkart figured out how to make Cash On Delivery logistics work.
  3. Paytm and others  figured out that the cash could be digital in a mobile wallet.

Today the big mobile money ventures all want to be like Amazon and Alibaba. It is no coincidence that Alibaba is the biggest investor in Paytm. This is a bet on e-commerce replacing physical stores. This is a high risk, capital intensive moonshot strategy.

The high risk, capital intensive moonshot e-commerce strategy

The phrase “Amazon of India” may have been replaced by the “Alibaba of India” tag, but the strategy is the same – to replace physical stores with e-commerce and leverage payments innovation to do that.

This is a high risk, capital intensive moonshot strategy. Huge success may go to the winner, but huge amounts of capital are put at risk to achieve that goal.

Some smart commentators are seeing that there is a gap between the 30,000 foot view (huge market for mobile money and e-commerce) and the on-the-ground execution realities of creating a profitable business. For example, see this article entitled Blood and Sand: The Moment-of -Truth for Mobile Wallets in Asia. Or see this article in Times of India entitled: digital wallets may soon run out of cash.

The reality is that cash remains alive and well in India. A big surprise from demonetisation was that most of the black money cash found it’s way back into the banking system. Another ground reality is the brutal price competition between mobile phone operators. This is great for consumers and drives the Modi government “digital India” agenda. However it squeezes the margins of e-wallet ventures which got started with mobile recharge.

This has led to some of the high profile e-wallet ventures diversifying (pivoting in venture speak). For example, Paytm has moved to become a small finance bank, and has started selling gold and Mobikwik has moved into insurance. This strategy requires a lot of capital and makes partnering harder.

When the easy money macro times end (as we all know they will even if we cannot know when) the race to deploy a lot of capital to get to scale even at the expense of profitability may give way to a focus on M&A, strategic partnerships and capital efficiency.

Mobile payments clearly is a scale game, dominated by network effects and data. Sub-optimal scale is the “kiss of death”. The question is how efficiently is that scale acquired. Not everybody can be like Amazon. For example, more investors are questioning whether Uber can really grow into that high valuation. At some point old fashioned metrics around customer acquisition costs and capital efficiency will be more highly rewarded. In that sort of market, investors will be paying more attention to Money On Mobile, which has some impressive traction statistics achieved in a short time with small amounts of capital.

Capital efficient scaling at MoneyOnMobile

  • ​200​ ​million​ Unique​ ​Phone​ ​Numbers (more than 15% of the 1.3 billion mobile phones in India) within 5 years.
  • 1+ million domestic money transfer transactions processed in August 2017; this is for a line of service introduced only 20 months ago.
  • 335,000 retail locations.

One reason that MoneyOnMobile is growing so fast is that they do not rely on smartphones, which only has 27% penetration in India compared to 70% in China.The other 73% use feature phones and MoneyOnMobile also works on feature phones.

The MOM ATM

One part of the MoneyOnMobile (MOM) business that is scaling fast is a mobile ATM service. This keys into the reality that, despite what pundits have been saying, physical paper cash is alive and well in India.

Conceptually the MOM ATM is like the cash out services that Retailers in the West offer consumers at checkout. The Retailer gets cash in their account without loading up the cash truck to take to the bank (an expensive service because robbery is a real risk) and the customer gets a service that saves a trip to the ATM. Now translate that to India where 95%+ of transactions are still in physical cash and the ATM is a long way away (and maybe broken and/or out of cash) and you can see why the MOM ATM service is so popular with both consumers and retailers.

One number says it all – ATM density is less than 20 (per 100,000 users) in India vs 100 or more in America and Europe.

That is possible for a simple reason – MoneyOnMobile views physical retailers as partners/distribution, compared to the more high profile e-wallet vendors who view physical retailers as roadkill in front of the e-commerce truck. MOM ATM is one more service to the retailer. This is classic cross selling. Once MoneyOnMobile acquires a retailer, the revenue per retailer goes up as the retailer starts  to use new services.

5 enablers for the Fintech revolution in India

– Aadhaar. This is biometrics based digital ID at massive scale – over 1 billion issued in 5.5 years, making it the fastest digital service growth in history. (Android hit 1 billion in 5.8 years; WhatsApp took 7 years.) This is transformative for millions of people.It is hard to overstate the importance of this. Without this, all the other enablers would only impact the urban middle class. Aardhaar really brings the power of digital to 1 billion people. It is an incredible achievement combining vision, tech smarts and drive.

– Mobile leapfrogging. There are 900 million mobile connections and Indians spend 45% of their incomes on mobile technologies and platforms (Americans only spend 11%), because mobile is the main point-of-entry to the Internet (PC penetration is 5% vs 75% for mobile).

– Immediate Payment Service (IMPS). This is a real-time inter-bank payment system through mobile phones that is a) net payment (unlike RTGS) and b) works 24/7. It was launched by the National Payments Corporation of India (non-profit, Government funded) in 2010.

– Payment Bank licenses. This enables entrepreneurs to deliver regulated payment services without becoming deposit taking banks.

– Unified Payments Interface. This enables Mobile wallet interoperability (read this post for why this is so critical).

This shows how positive change can come from the right mix of public policy, new technology and entrepreneurial drive.

The XXX Of India is XXX

It is common to refer to the Facebook of China or the Google of China or the WhatsApp of China. This is quite different in India where the Facebook of India is Facebook, the Google of India is Google and the WhatsApp of India is WhatsApp.  In short, India is open for business. This reflects two realities in India. One is the Modi government Digital India strategy; digital adoption by the masses is more important than who owns a digital service. The other is the relatively weak capital markets in India; this may change, but for now the welcome mat is laid out for foreign investors.

Square for the Rest of the World

As Jim McKelvey explains in this video, MoneyOnMobile is payments for retailers where credit card penetration is weak. This is true in India, where Money On Mobile operates today but there are many other big growth markets with the same characteristics.

Publicly traded pure play Fintech with an inexpensive valuation

MoneyOnMobile is a pure play publicly traded Fintech focussed on India with a historically low profile and thus an inexpensive valuation today.

Image Source.

Bernard Lunn is a Fintech deal-maker, author, investor and thought-leader.

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Carbon risk management: Engaged Tracking (ET) Index sets gold standard

The Paris climate accord has brought carbon risk management under the limelight more than ever before. Nations are gearing up to provide better transparency around their carbon emissions, which in turn will put pressure on businesses to do so.

The world is on a fast track (and I would like to think so), to economy-wide decarbonisation. The G7 nations have committed to phasing out fossil-fuel subsidies by 2025 and renewable energy has arrived at scale. So, how can investors catch up?

2015-12-15-1450208825-2044525-EiffelTower100Renewable

Image Source

Engaged Tracking (ET) Index Research is a London based organisation whose mission is to help investors and corporates identify, understand and manage climate and carbon related risks. They offer solutions for investors who would like to reduce their carbon risks without compromising on performance.

In the past, businesses declared their carbon risks based on direct emissions from their own operational activities. However, as per ET Index research, direct emissions (termed as Scope 1 and 2), make up only 25% of a business’ carbon footprint. In order to get the full view of a business’ carbon efficiency, its essential to analyse the value chain of the business (termed as Scope 3).

Rankings

The ET Carbon Rankings calculate the carbon emissions of the world’s largest 2000 listed companies including scope 3 emissions – from transportation of raw materials to the use of the products they sell. Scope 3 emissions are critical because they typically make up 75% of companies’ carbon footprints and therefore reveal their exposure to increased costs across their value chain.


The top 2000 companies account for approximately $45 trillion in market capitalization and approximately 9.5 billion tonnes of CO2 indirect emissions. That exceeds the combined total emissions of the United States, Canada and the European Union


The ET Index Series reduce individual investor exposure to carbon risk by shifting capital away from high-carbon companies, while closely tracking the market. They reduce aggregate exposure to carbon and climate risk by indicating to the largest listed companies that they must decarbonise in order to move up the Rankings to gain weighting within the Index.

A higher weighting in the Index would give companies a larger share of invested capital. It also provides investors visibility on firms that are consciously moving up the rankings.

In March 2017, ET Index became a member of the Social Stock Exchange (SSX), which is the world’s first regulated exchange, dedicated to businesses and investors seeking to achieve positive social and environmental impact.

It is good to see that the low carbon transition is underway, with carbon intensity falling globally. As a result, investors will be/should be increasingly asking companies to disclose the risks and opportunities arising from climate change.

Thanks to ET Index, carbon footprint reporting will now include Scope 1, 2 and 3 emissions. Better reporting by companies is a must if markets are to identify and price climate risk and direct capital to low carbon opportunities. The US coal sector is in decline and the European power utilities face an existential crisis. It is clear that businesses that ignore the rapidity of the shift to a low-carbon economy will suffer financially. Good times ahead!


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

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Tokenized Capital markets with reserve ratios & no exchanges: Bancor Network, Kickico,…

Bancor’s token sale (BNT) held the ICO record in June, with $153million raise in just one hour. Back then (it feels already like ages) it was the first one to launch a “One-hour uncapped” sale! Needless to say, that the record has been broken every month and we are now at a $257million for Filecoin just a few days ago who beat Tezos with $232million.

Bancor token sale was not a white paper fundraiser. A team of 10 developers was already working for a whole year and had a beta product delivered about 1.5 months before the ICO!

I first heard about their value proposition, it was late May when they contacted DailyFintech to share content. At first sight, it was solving liquidity in the token emerging market and resembled the mission of Lykke exchange whose global trading platform is open source on the one hand but uses a proprietary match-making mechanism on their exchange that will be able to handle (eventually) any kind of digital asset.

I had the pleasure to speak to Eyal Herzog from the Bancor foundation, recently and got to the heart of their core value proposition. Bancor is focused on adding liquidity to digital currencies or any token without the need of an exchange that depends on market-makers or any algorithmic match-making. Bancor is not automating the match-making mechanism that clears trades. Bancor is automating the conversion of tokens (I.e. buy one, sell another) through a programmable smart mechanism. So liquidity is offered outside of exchanges – I like to think of this as off-road liquidity. Eyal likes to think of the analogy of transportation via cars, trucks, planes, ships etc but with no driver, pilot, captain etc.

This way the Smart contracts will be facilitating the issuance of tokens which of course are ERC20 compatible but offer more than just transferability. You can convert the tokens without having to go to an exchange.

Liquidity is measurable. For Bancor it is determined by the CRR – Constant reserve ratio. For example, the BNT token has a 10% Ether reserve ratio. The higher the CRR of a token, the more liquidity; the lower the CRR of a token, the less liquid. 100 CRR would be pegging it to Ether. BNT is not a derivative of ETH but you could say it is denominated in ETH. When you buy a BNT, there is an issuance of the token/and adding ETH to the reserve (on the smart contract) and when you sell BNT, the smart BNTs are destroyed.

Bancor wants small cap tokens to have liquidity. Their upcoming release will be the first step in that direction by offering the ability to integrate any third party ethereum wallet (like Metamask, Parity, Imtoken, etc) and enable on-chain conversion between any two tokens (without having to go to an exchange).

Second major step is Bancor’s recent announcement of a strategic partnership with Kickico, a kind of decentralized Kickstarter or rather a 3-in-1 platform for ICO’s, crowd funding and crowd-investing. The KickCoin has launched its sale since Aug 29 and is ongoing until Sep 16.

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KICKICO aims to become a platform for small to medium size fundraising ventures through Initial tokens offering. However, since most of them will not have enough capitalization to be listed and traded on crypto-exchanges, the integration with the Bancor network will make their tokens really “Smart”.

Through this partnership, the Bancor network is scaling with the onboarding of the Kickico ventures. Kickico offers liquidity to its clients that choose to issue a “Smart token” which would mean that it can be exchanged with any of ERC-20 tokens. The way it will work for Kickico and Bancor, is that every KickCoin will have a 5% reserve currency of BNTs.

A very different world

I can see the fear in many eyes these days around ICOs, ethereum etc. We are still very human and so we overreact to all the sweeping changes that are happening. And of course, it won’t be a straight line to the direction we are heading to.

Let’s switch to think of the change that is happening. ICOs are not only about funding a company. “ICOs are more about an ecosystem on which for profit companies will be built on; more like a country. We are in a unique time that protocols are built on which the next generation of the Web will operate” echoing words from an excited Eyal Herzog.

Bancor wants to remove the barriers to liquidity for the issuance of all sorts of tokens: from community, to loyalty, to business etc.

Anyone today can issue a currency against any asset. The cost of failure is so low and we have all the technologies needed:

  • 24/7 internet
  • secure and decentralized = blockchain tech
  • connecting all blockchains = liquidity

For those that still think that Smart contracts and Smart tokens are just a programmable module on the blockchain, much like an Excel or a Google sheet cell with a Macro; there is a wake-up call that they can’t continue ignoring.

Smart contracts and Smart tokens can hold Assets on-chain and off-chain; can transfer Value on-chain and off-chain; can create Liquidity on-chain and off-chain. Centralized checks, audits etc. are not needed.

Doesn’t Bancor network feel like the decentralized tokenized version of future Central Banks and a few other Capital markets crucial institutions (SWIFT, exchanges etc), with reserve ratios determined in a decentralized way? Very exciting times of new decentralized monetary tools to consider. So stay tuned.

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

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