Investing in Blockchain-based idea or actual product? The investor's dilemma
Correction... Name of the first developer of bloackchain application, bitcoin, is Satoshi Nakamoto and not Hiroshi Sakamoto as was mentioned in the copy- Editor
 
I was pitched an investment recently. The essence of the investment was that if I invested a little bit of money, enough for the founders to generate a white paper, and begin work on the product, they would, in return raise pots of money from a token offering or initial coin offering (ICO) and they would be able to use that money to hire a great team, complete the product, buy a bunch of companies and kick start their blockchain-enabled business. And, the blockchain-enabled business would win. Why? Because they would be first; but more importantly, because decentralised blockchain solutions are vastly more democratic, the story went.
 
Businesses built on blockchain do not have the technical, control and financial inefficiencies of centralisation. Cutting out the middleman, increasing transparency in the system and allowing anyone to conduct a transaction with anyone else (allowing suppliers to interact seamlessly and directly with buyers, for example), is just better. Better on an absolute scale and more technically compelling than the opaque black box that is the walled-garden Internet of today.
 
An Internet in which companies are simply extracting way too much money for being middlemen in a transaction, while simultaneously not providing real transparency so nobody actually knows or can determine how inefficient the transaction truly is. What is worse, companies are getting away with it because there is no reasonable alternative. That is, until now. Finally, thanks to Satoshi Nakamoto, who developed bitcoin, the first application based on blockchain, that provides a transparent, decentralised, democratic alternative…or that is how the story goes.
 
The new revolutionary blockchain technology, transparency and decentralised democracy (who can be against any of that) that is promises is all well and fine, but independently of whether the specific idea I was being pitched was a good one or not, the investment process seems completely backwards to me. Yes, you can call me old school, traditional, unable to keep up with the new wave and all that.
 
But let me explain what I mean:
A good team working on a potentially great idea that has not yet found a product-market fit should absolutely be able to raise money. It could be a seed round or a series A, perhaps few million dollars, or, if you prefer, a couple of hundred bitcoin at today’s rates. And then, once they are able to show the product-market fit, they might sell another tranche of now-more-valuable equity tokens (or bitcoins, or raise more capital via a traditional financing progression that includes a series B or C) to scale up the business.
 
But this pitch was quite brazenly the opposite of this. No users, no product, no team, no technology (yet), no nothing. Only the promise of a potentially great idea and raising enough money through an ICO to conduct a rollup and buy other companies? To this writer, that smacks of the kind of opportunism that creates and perpetuates bubbles such as those made of Dutch Tulips.
 
Being opportunistic and taking advantage of any new revolutionary technology and the huge hype surrounding blockchain to kick start a business is one thing, but this feels a tad over the edge. Arguing that blockchain is so revolutionary, that once people invest enough money, the next Alphabet, Amazon, or Apple businesses will happen is just backward thinking. The pitch seemed to twist the old adage, “If we build it [a great product], they [investments] will come, to “If we raise enough money (using an ICO), we will build something great (on blockchain)”.
 
To be sure, the ICO or token sale phenomenon is here to stay. According to a December 2017 report of Pricewaterhouse Coopers (PwC), more than 438 ICOs took place in 2017, raising over $4.6 billion. The majority of this was raised by companies without a product, many with just a whitepaper. It is yet to be seen whether these 438 companies will be successful for their investors at a rate greater than traditional funding mechanisms from private equity and venture capital.
That said, prospectively, ICOs could perhaps be thought of as an alternative to classic debt or capital-funding as performed by Venture Capital (VC), Private Equity (PE) firms and banks today. Alternative funding mechanisms are fine, but using the popularity and hype surrounding ICOs to skip past simple things like team, product, (let alone product-market fit) seems like folly at best, and at worst adding to Tulipmania-like bubbles.
 
ICOs are still largely unregulated and it often remains unclear whether a token represents a security (traditional share or portion of asset of a company), utility token (future or present access to a product or service) or a digital currency, and how any of these can be enforced or how investment returns are measured.
 
That said my counsel to those who made the pitch was that they should not worry about the funding mechanism, but instead worry about having a great product. They should round up a great team, flesh out the idea, raise a seed round or series A and work on producing a great product using blockchain. Hopefully, they should then show a market fit for the product that proves the business value by reducing the cost of the middleman and increasing the transparency and efficiency of the transaction.
 
Once the company had a proven the business or at a minimum product market fit, using an ICO or a standard equity financing are both further financing options that can be pursued. Running an ICO to raise funds because they may be able to do so well before the company has anything, I said, is not the answer to build a successful enterprise. There is much more than funding to building a company and neither a decentralised protocol nor a pile of cash are sufficient conditions in and of themselves. I had a feeling I would be ignored, and I found out later the company had ignored my advice and filed for an ICO. Best of luck to them.
 
 
(Jayant Kadambi is entrepreneur, technologist, and business leader who led his most recent company, YuMe, to an IPO as a global leader in digital media technology.  Jayant is based in Silicon Valley and is spending his time as an advisor, board member, and angel investor.)
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    COMMENTS

    Ravindra Malve

    1 year ago

    Which R the entities working in blockchain technologies.
    Also agree to Akash's comment.👍Kindly rectify the error.

    Akash Karmakar

    1 year ago

    Satoshi Nakamoto is the pseudonym used by the person who invented the blockchain not Hiroshi Sakamoto, who is a japanese swimmer.

    REPLY

    Amit Gupta

    In Reply to Akash Karmakar 1 year ago

    Satoshi Nakamoto is 'inventor' of bitcoin, not blockchain. The blockchain concept was designed/invented in 1980's. But Satoshi's credit is that he developed the first application based on blockchain- the bitcoin.

    French security expert with Twitter handle @fs0c131y has rattled Indian IT experts, exposing security issues of top wesbites
    UPDATED on 26 March 2018 to add response from Khosla Labs
     
    French security expert who goes under the pseudonym 'Elliot Alderson' (@fs0c131y) is sending shivers down the spines of the IT security community by exposing flaws, bugs and sometimes gaping loopholes in the security of top Indian websites who are charged with protecting the data of individuals. @@fs0c131y who guards his anonymity has in the process attained something of a cult status, especially when he decided to take on Aadhaar or the UIDAI. His twitter handle only describes him as — Founder/CEO fsociety, French security researcher. 
     
    When companies at the receiving end of his ruthless revelations discover, engaging with him, abusing him or attempting to challenge and deny his findings only goads him on and he seems to enjoy ripping holes in their defence. For the rest of us, ordinary people, who are at the mercy of large global and Indian tech companies who force us to share sensitive data,@fs0c131y is doing a much needed public service and all free of cost. What makes his tweets engaging is his sense of humour when techies from the companies he dissects begin to spar with him on Twitter. 
     
    For instance, in a series of relentless tweets he pointed out how Unique Identification Authority of India (UIDAI) and Khosla Labs, a licensed Authentication User Agency (AUA), are risking privacy and security of crores of Aadhaar holders. In his tweet, had had said, "This 'NewTest' app is an implicit confirmation by @UIDAI of the problem, I raised three days ago. They are trying to understand how to encrypt properly a SQlite database." (Read: Aadhaar Mess: How UIDAI continues to goof up on its own mobile apps
     
    While dissecting UIDAI’s mAadhaar app, the security expert has pointed out several vulnerabilities and issues with the coding of the app. He even called the UIDAI’s app development as ‘school project’ with a copy-paste job!
     
    In an email, Khosla Labs, however has denied any association with mAadhaar app. "Khosla Labs has not created or co-created the mAdhaar app or any other app with the UIDAI," says Saranya Gopinath, General Counsel for Khosla Labs, in an email.
     
    UIDAI’s application programming interface (API), a set of subroutine definitions, protocols, and tools for building application software, are available publicly on the net and can be accessed through AUAs like Aadhaar Bridge, run by Khosla Labs and Quagga Tech.
     
    On Thursday, @fs0c131y pointed out how user data at India Post is at risk and asked the tech team to connect with him directly to avoid a public expose of the flaws. There has been no response from IndiaPost so far. Similarly, he exposed how security flaws in the websites of Mumbai University and Allahabad University. 
     
    PayTM is the latest in @fs0c131y’s crosshairs. His latest tweet ominously says, “(I) know @Paytm created his own bug bounty. However, as I don’t have a #Paytm I will not participate to it. Moreover, I will show you why asking root privileges is a problem, the first #Paytm “malware” is coming”. 
     
     
     
    A measure of @fs0c131y impact on the tech developers and the fear he is generating is evident from this advisory created by @iam_anandv (Anand V) who wrote an entire 14 point Twitter-thread on how to handle @fs0c131y. Anand tweeted: I was tired and sick of people bungling their responses to Baptiste. The thread is a reminder on why he is doing what he is doing. #9 is not an overarching generalisation. 
     
    Here are V Anand’s tips about the French expert:
     
    For all those who fumble, scream, curse @fs0c131y in India, Pro tips on how to handle him follows. 
     
    1. Understand his motives. 
    2. He is not in it for money. 
    3. Has serious skills. 
    4. Outside Indian Jurisdiction. 
    5. He is seriously bored (and looking for meaning).
    6. Creates Google AWOSP Mods. So you can’t beat him in technology arguments. 
    7. Please note @deepakabbot. 
    8. He contributes to Google AWOSP mostly(?). 
    9. He knows the damn android much better than any of the two bit developers whom you hire from 2 minute sweatshops.
    10. Has pretty good understanding of web security. You can’t deny and escape or do what-about-ery or escape. 
    11. Given all this, the “best” strategy to contain him is to “listen” to him and “fix” your damn holes. 
    12. Unlike many C-Sec researchers in India, threats won’t work.
    13. And remember he is french. I don’t think they have it in there, the culture of obedience and obsequity. You do what-about-ery and denial, like what the telengana guys did, you are just digging a bigger hole. 
    14. And then you are also giving him the meaning he seeks in life.
     
    So this is a battle you can’t win. I don’t like his public outing which I consider unethical, but it does make you accountable somewhat. And that is all he wants. Give him that, and improve your systems. And he won’t stop because you just made his life meaningful. Remember that #
     
    @fs0c131y’ response was to say @im_anandV is his favourite twitter handle.  
     
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    Files Go: Clean Up Space on Your Phone
    Files Go helps you clean up your photos, videos, WhatsApp media, downloads, etc, very efficiently. Files Go also recognises and helps you get rid of spam and duplicate images. It can search your important photos, videos and documents superfast—since it is a Google app.
     
    It is very light and helps in sharing your files offline (both users should have the app installed) and you do not use data connection for the transfer. You can also use Files Go to see how much free space is left on your phone and SD (secure digital) card. Easily transfer files to an SD card to free up your phone’s storage, right from the app. Use the app to get helpful suggestions of files to erase before you run out space.
     
    Files Go recommendations get smarter the more you use the app. Besides, it recommends rarely used apps to delete so your phone stays clean and speedy.
     
    A very useful utility, to keep your phone in good shape and light-hearted!
     
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    COMMENTS

    Pradeep Kumar M Sreedharan

    1 year ago

    I already have it.
    Kindly help me put to use my several Android phones, under disuse.
    One application I seek is WiFi security camera. Kindly advise. Thanks.

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