In 2013, Sheri Kaiserman published the first Wall Street analysis of Bitcoin’s value. And while “The report didn’t explicitly recommend buying the cryptocurrency, it did say huge gains were possible— and investors who dove in that day have seen a more than 600 percent return.” 5 years later, Kaiserman left her position as Wedbush Securities Inc.’s Head of Equities to co-found Maco.la, a blockchain-focused investment fund and advisory firm.
On our members only forum, we’ve noticed several discussions between founders asking if they should be incorporating blockchain technology into their product. So, Edge tapped Sheri’s expertise for a breakdown of the blockchain landscape from a founder’s lens. Read on for her thoughts on:
- 5 major implications of The Blockchain
- Why founders need to know how the blockchain will impact their startups
- How to determine if blockchain technology is right for your startup
- What blockchain investors are looking for
- An assessment of the hype around the technology
5 Major Implications of The Blockchain
It Significantly Reduces Costs and Increases Accountability
Being able to have one accounting ledger that all involved parties access and trust will eliminate the duplicative processes and costs involved with each party needing to maintain their own accounting ledger. This will also increase transparency and therefore accountability.
It Saves Time
Since all parties are utilizing a shared ledger, there is no need to reconcile anything between counterparties. Settlement for any transaction can be immediate. Additionally, with the transparency enabled by blockchain, the tracing and tracking of anything is more transparent and efficient. All involved in a supply chain will understand where the goods are, where they came from, know the history of the experience of the journey of those goods and benefit from the streamlining of manual processes. Let’s look at Walmart as an example. They have been working on a proof of concept with IBM for tracking pork they buy from China. If there’s an issue with a tainted batch they have sold in any of their products and they need to find out where it came from, it previously would have taken them a week. With blockchain technology, it takes them minutes.
It Fosters Financial Inclusion
There are two billion people out there that don’t have bank accounts. And yes some are millennials that don’t trust banks, but many of them can’t get bank accounts because it’s not cost effective for banks to service low account balance customers. With blockchain, everyone who has a smartphone and an internet connection can access the financial system.
It Makes the Internet More Secure
Right now there are so many issues with security on the internet, and blockchain can help it become a more trusted infrastructure. And that’s really exciting, especially when you’re thinking about the Internet of Things and machine to machine transactions. Cybersecurity threats are scary and blockchain helps with authenticating whoever or whatever is interacting to make sure something on the network isn’t corrupt. Or having transparency and provenance of a part coming for a military plane and knowing it hasn’t been tampered with. The ability to trace, to have provenance, to authenticate identity, and have transparency online and along a supply chain will lead to less fraud and online vulnerabilities.
It Solves Global Issues
There are are 1.1 billion people around the world who do not have any form of identity. This means they don’t have access to many services and basic human rights that come with being able to prove who you are. The blockchain solution for identity will include self sovereign identities. As a user, you’ll be in control of all the proofs of identity that have been issued to you and no one will be able to take that away from you. Also, for those in developing countries, they can build a whole repertoire of interactions with people who know them and use that to establish a relationship with a company that has no prior experience with them. Eventually, people will be starting life out with their birth certificate on the blockchain. Refugees will ultimately have access to be able to prove who they are.
“With blockchain, everyone who has a smartphone and an internet connection can access the financial system.” @Sherikaiserman
Why Founders Need to Know How The Blockchain Will Impact Their Startup
Most businesses are starting to realize they have to understand what blockchain is and how it will impact their business, whether it’s from a cost savings standpoint or a revenue potential opportunity. There are some businesses that are going to be totally disrupted by blockchain. If those companies don’t educate themselves on what it truly is and don’t conceive a strategy for how to blockchain enable their business, which is at risk of becoming extinct, they are in trouble. Those are really interesting projects we love to take on.
“Most businesses are starting to realize they have to understand what blockchain is and how it will impact their business.” @Sherikaiserman
Is Blockchain Technology Right for Your Startup? Do These 3 Things To Decide:
Understand the Technology
First, make sure that you understand what blockchain technology is and how it is connected to cryptocurrencies. Also understand that there are different types of blockchain: public and permissionless, private and permissioned, and hybrid. Understand that Blockchain is not right for every business.
Consult an Expert
Second, have what I call a “conceive session” with an expert to help develop ideas for how blockchain technology can positively impact your business from a cost savings and efficiency standpoint to potentially creating an additional revenue generating model.
My recommended reading on the topic is Blockchain Revolution by Don Tapscott and Alex Tapscott, as a starting place to understand the vastness of how blockchain technology can ultimately impact the world. Coindesk.com is a great resource to get educated. Also, anytime you hear about something of interest, Google or YouTube it! There is so much information out there about all of this.
Learn about Tokenomics
Third, once you learn about Tokenomics, determine if having a token economy can benefit your business model. More and more existing businesses are also starting to look at tokenizing their equity to do a capital raise.
“I recommended reading Blockchain Revolution by Don Tapscott and Alex Tapscott as a starting place to understand the vastness of how blockchain technology can ultimately impact the world.” @Sherikaiserman
What Blockchain Investors are Looking For
Equity + Tokens of Companies Solving Real Problems
At Maco.la, we’re looking to invest in the equity of companies that are providing the tools and services that enable the broader adoption of blockchain into the global economy. Additionally, we look for opportunities to invest in disruptive business models that are being built by proven management teams.
There are different kinds of tokens and for simplicity sake I will narrow the discussion to utility tokens and security tokens. A utility token gives rights to interact within a particular network/company and is also used as an incentive to align the interests of all stakeholders. For security tokens, I would like to make two clarifying distinctions to clear some confusion: There is a difference between a security token offering and a security token. A security token offering refers to the way any token is sold to investors; the token sale must be done in accordance to SEC securities regulations. A security token represents some form of ownership and is akin to traditional investment securities.
Typically, companies issuing tokens will retain a percentage of them on their balance sheet. As an equity investor, Maco.la also gets exposure to the token via the company’s retained token ownership. Additionally, we are happy to buy equity that has been tokenized and will also accept any kind of token as a supplemental position to our equity.
“At Maco.la, we’re looking to invest in the equity of companies that are providing the tools and services that enable the broader adoption of blockchain into the global economy.”@Sherikaiserman
Is Blockchain Overhyped?
Hype + Capital = Innovation
I think new technologies often get overhyped, and as a result bubbles form. But that’s all part of the healthy evolution of a new technology’s lifecycle. The bubble allows so much capital to flow in to fuel the development of the technology. And then when it gets crazy silly, the bubble bursts, which is not fun. But just take a look at internet stocks from the dotcom bubble. They went up thousands of percents, then crashed and lost 90% of their value. Now look at the value of the companies that survived that crash— their value is 10X greater than it ever was. And I see the same thing happening with crypto. Maco.la typically won’t invest unless proofs of concepts have already been done with several customers and the company is more than just a whitepaper representing a napkin idea. Clearly, as in the dot com bust, it is important for these companies to have enough money to survive through the downturn.
It is Still Early
With blockchain, we are still so early. When you look at the how long it actually took for the internet to develop that helps put things in perspective. However, because of the existence of the Internet, new technologies develop much more quickly.
By the Numbers
The market cap for the whole sector is around $255B — contrast that to the market cap of just Amazon which is $880bb. Any one particular coin could look overvalued but the fact of the matter is the market as a whole is still in its infancy. The outstanding question for me is how much of the value will accrue in the equity vs. the tokens. Look at the difference in one of the highest valued equity based blockchain businesses, Coinbase. The last valuation was cited to be $8.5bb. But the valuation of bitcoin network as measured by the price of its token is $110B.
The token is part of the technology protocol and having value accrue to the token democratizes access to successful investment returns vs having the success being mainly enjoyed by the founders and the elite investors who had access to investing. I think the ones who are really going to win are those who aren’t greedy and are able to build entities that will survive beyond the life of the founder.
“I think the ones who are really going to win are those who aren’t greedy and are able to build entities that will survive beyond the life of the founder.” @Sherikaiserman
Sheri will be sitting down with our LA Chapter of founders on July 19th, 2018 for an intimate roundtable on blockchain technology and an assessment of the investment landscape. If you are a founder, please RSVP here to join.
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