Coinbase and Debevoise & Plimpton have published a legal framework for understanding Initial Coin Offerings. The document attempts to frame how to think about this emerging phenomenon, and do it in a way consistent with securities law. We have been watching the digital currency markets develop an extra-legal way to raise funds, which involves selling the tokens of an underlying blockchain to the public without going through the laws of a country. To date, these have been small, but there are standouts like Ethereum ($20mm) and the DAO ($150mm), each subject to immense risk. The interesting elements are that (1) the raises entirely sidestep the venture and public markets, and instead crowdfund directly, and (2) these are international events that intersect in unprecedented ways with sovereignty and law. If ICOs find a way to become mainstream and legally acceptable, this could impact the fundraising activities of investment and merchant banks. Read more.
If we want to understand how to build a modern user experience in financial services, we have to understand the evolution of communication technology. The shift to the consumer web gave us Mint.com; the shift to the mobile web is powering Acorns; and the shift to conversational interfaces explain the partnership between UBS and Amazon. Right around the corner are virtual and augmented reality, each a multi-billion dollar market of hardware, content and media. Below is a preview of Occipital, a mixed reality headset than can map out the real environment and project 3D rendered objects into it for interaction. Welcome to your virtual bank branch. Read more.
Lemonade, the renters insurance company built for Millennials, has raised a $34 million venture funding round. The investors were the top tier of venture capital, including General Catalyst, Google Ventures, Thrive Capital and Sequoia, among others. The firm became an insurance carrier in September of this year, and uses artificial intelligence and analytics to replace the front-office function of incumbent carriers. Simply, their mobile app can chat with users and onboard them without much human involvement. The language around how the firm operates reminds us about the initial excitement about Betterment and Wealthfront, though renters insurance is a narrower entry point than wealth management. These developments are in line with innovations we see more broadly in fintech. Startups focused on digital acquisition channels are often able to create much better onboarding experiences for clients. Read more.
Trying to understand why Snapchat or Virtual Reality matter? We answer in a Techonomy Op-Ed. Technology, information, data and analysis are merging with the human mind. The separation between work and leisure has faded. The Attention Economy demands our focus, trading influence and meaning for cash. But we are full – there is no more room in our lives for more media. So media must become better. That means it will be more empathetic, more emotional, more connecting and personal. As consumers learn to detach from meaningless click-bait information, they will reattach to causes that give them mission and purpose. High technology giants are already in the process in developing technology hooks that measure how we feel so they can optimize the data stream. This will be used both to generate empathy, and to increase sales.Read more.
Ideas are more powerful than the sword, and this one in particular is a direct preview of our future. As artificial intelligence and API-accessible data grow into conversational interfaces (voice/chatbot), we will rely more and more on bots to do our bidding. Not only will we ask bots to do things for us, but we will have bots representing our preference graph talk to other bots. Already, 8% of Twitter is automated accounts talking to each other. The CTO of HubSpot agrees in this thought-provoking article, suggesting how bots may one day replace APIs. Any B2C company that doesn't have a Facebook Messenger or Slack strategy is missing the bus, as we are already on the second derivative of the idea.
R3 is a darling of the private Blockchain community. It was first out of the gate with a consulting/subscription business model, signing up 70 banks in a whirlwind of activity and media coverage. Ripple, Chain, Digital Asset and Ethereum were building interesting technologies, but did not have the breadth and the same cooperation of heavy weights behind it. Or so it seemed. Last week we learned that Goldman Sachs, Morgan Stanley and Santander have elected to leave the consortium. Speculation about the reasons abounds, from issues around control, to the pricing of the desired $150mm funding round (reduced from $200mm), to the cost of annual admission. Others point to Corda, R3's technology, as lagging the open source alternatives already in place from Hyperledger or Ethereum. A supposedly leaked internal note shows the company's current fundraising progress, and points to the inherent difficulty of the project. Can there ever be coopetition between financial firms that allows all of them to mutually own the technology, worth possibly billions in future infrastructure rents? Can adverse selection be addressed between the strong and the weak? Can banks both invest in proprietary companies and share their findings? Maybe not.
The world is going through a referendum, with events like Brexit and Trump's election shaping a narrative about disenfranchised populations. Rising income inequality and disappearing manufacturing jobs have led to a sharp counter reaction by those affected. Politicians are claiming that they can fight globalization and bring back a legacy economy. What we hear from business leaders like Mark Zuckerberg is that despite who controls state power, the relentless march of technology will continue. Trends like globalization, automation, artificial intelligence and democratization will persist--breaking down borders of access and empowering clients. But in this process also lies the danger of major economic displacement. When roboadvisors automate financial advice, chatbots challenge the call center, self-driving trucks replace the truck driver, millions of jobs are at stake. We ignore this effect at our peril. So focus on the long game of investing in technologies that make everyone better off: the consumer, the shareholder, and the emloyee. Read more.