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How Blockchain Affects Start Ups

Understanding Blockchain

Earlier this month, in his article “How Blockchain is Reshaping Business,” Pat Bakey, the President SAP Industries, does an excellent job of defining blockchain. He writes: “Blockchain is a globally distributed ledger of all the information pertaining to a digital transaction. It runs on millions of devices, is open to anyone and can be used to securely move and store anything of value, including money, art, intellectual property and even votes.” And, as the Harvard Business Review put it, “it’s the first native digital medium for value, just as the internet was the first native digital medium for information.”

The analogy that blockchain is to currency what the internet is to information is a good one. It also hints at the inherent value of blockchain to companies of all sizes, including start ups. Bakey points out that even though one might expect large banking-related companies to be some of the first to adopt blockchain technology, this has not been the case. “It is important to remember that the first implementations of blockchain which really impact customers may in fact have nothing to do with banks at all. Because blockchain technology has started with currency, most consumers and business leaders assume that banking and capital markets will be the first users. Somewhat ironically, the most obvious applications to the consumer may not be banking related.”

Bitcoin is perhaps the most famous digital currency to use blockchain. However, other “cryptocurrencies” are emerging, such as Ethereum by UBS. Companies are also joining together in collaborative ventures to explore the many practical uses that blockchain offers. Two such ventures are the Hyperledger Project and Digital Asset Holdings. DLT has also introduced “smart contracts,” which some call the biggest “killer app” to run on blockchain. Microsoft has gotten into the act via their Azure platform, as well as Facebook, Google and Amazon.

All of these developments that relate to online currency and financial transactions are considered part of the “fintech,” or financial technology” industry. As one of only a dozen or so Title III investment portal approved by FINRA, Jumpstart Micro is a player within the rapidly-growing online investment sector.

Blockchain’s Effect on Start Up Businesses

1. Perhaps the most notable way that blockchain is affecting the start up world is in the sheer number of blockchain-related investments by VCs.

According to CoinDesk, as of Q1 2016, the total venture capital investment in bitcoin and blockchain startups now exceeds $1.1 billion. The first quarter of 2016 was also the first time blockchain and hybrid startups raised more money than bitcoin startups.

The other ways that blockchain affects start ups are as different as blockchain is itself. On SAP.com, Pat Bakey writes: “While considerable debate has emerged over the merits and prospects of public (or open) and private (or permissioned) blockchains, the ability and flexibility of blockchain technology to serve many different purposes is one of its most powerful qualities. Blockchain’s innate versatility means that it truly has the ability to reshape nearly any industry if put to use correctly.”

2. The ability to generate more revenue is one of the biggest reasons companies of all sizes are taking a look at blockchain.

Bakey believes that the industries that have the most to gain by implementing blockchain technology today are “those that may believe they’re years away from even considering how it can be rolled into their strategic business ecosystems.” Bakey encourages start ups to be purposeful in implementing blockchain and to do so “as an extension to their current business.”

Likewise, in his insightful and thoroughly honest article, “The 9 Mistakes I Made When Bringing Blockchain to My Startup,” John Rampton, the founder of the online payments company Due, suggests that start up CEOs proceed, but with with caution, in adopting blockchain.

Here are the 9 top blockchain mistakes Rampton warns against: 

– Failing to understand how blockchain actually works
– Not selecting the blockchain software that aligns with your business purpose
– Being impatient and trying to rush the timeline for blockchain adoption
– Thinking every business function can be improved with blockchain
– Believing the system is already protected from user mistakes
– Not limiting access to private keys
– Making the blockchain too heavy
– Not realizing there are limitations to blockchain as a database
– Not seeing the potential flaws within blockchain

Rampton also talks about the importance of staying abreast of changes in blockchain, and engaging with forums and thought leaders in cryptocurrency. Equally applicable to CEOs and CIOs, Rampton’s article is a great read and gets very specific.

3. Because Millennials like and demand easier payment methods, using blockchain applications is also a way to win and keep Millennial customers.

Bakey explains: “Gaining the trust and loyalty of Millennials is becoming more and more difficult, as increased competition has made it difficult for many legacy industries to differentiate themselves based on pricing or offerings alone. Low-cost micro-transactions can be processed through a blockchain without the fees that existing payment platforms demand.

4. Through creative, thoughtful use of blockchain, start ups can make doing business easier for their customers. They can operate more efficiently and can even protect their intellectual property.
Some practical examples of how blockchain can be used by start ups include:

Legal – Because legal transactions usually involve a lot of data and paperwork, start ups can benefit from using smart contracts. These are agreements that can “automatically activate actions based on specific conditions. Smart contracts can drastically reduce transaction costs and provide superior security than traditional means.”

Healthcare – Blockchain can be used to safeguard digital assets, including medical records. It can make processing claims easier for customers and sharing records easier for patients, while still maintaining privacy.

Media, Entertainment and Content – As with many industries, blockchain can eliminate or drastically lower the cost of transactions. For example, blockchain could allow subscription-based sites to charge readers by the article or video, as opposed to a monthly fee. A blockchain ledger could also be used to secure intellectual property for companies that work with film and music, protecting artistic rights and reducing digital piracy.

In fact, blockchain, has the power when adopted in an innovative way, to save entire industries from extinction. Time will tell. Buckle your seatbelts and enjoy the ride.

Sources:
SAP.com – http://news.sap.com/how-blockchain-is-reshaping-business/
Coindesk – http://www.coindesk.com/state-of-blockchain-q1-2016/
Coindesk – http://www.coindesk.com/the-9-mistakes-i-made-when-bringing-blockchain-to-my-startup/

Growth and Promise of Fintech

On November 16, 2016, KPMG, a global network of professional firms providing audit, tax and advisory services, and CB Insights released a financial report entitled “The Pulse of Fintech: A Global Analysis of Fintech Venture Funding.” Their report provides an excellent overview of what happened in Fintech investing worldwide for the 3rd Quarter of 2016 and makes predictions for Fintech in 2017.

According the report, the Fintech (Financial Technology) sector can be divided into 8 vertical markets. These include:

1. Equity crowdfunding: Platforms that allow a collection of individuals to provide monetary contributions for projects or companies in the form of equity, such as Jumpstart Micro.

2. InsurTech: Companies creating new underwriting, claims, distribution and brokerage platforms, enhanced customer experience offerings and software-as-a-service to help insurers deal with legacy IT issues.

3. Lending tech: Primarily peer-to-peer lending platforms, as well as underwriter and lending platforms using machine learning technologies and algorithms to assess creditworthiness.

4. Payments and billing tech: Payments and billing tech companies span from solutions to facilitate payments processing to payment card developers to subscription billing software tools.

5. Personal finance and wealth management: Tech companies that help individuals manage their personal bills, accounts and/or credit as well as manage their personal assets and investments.

6. Money transfer and remittance: Money transfer companies include primarily peer-to-peer platforms to transfer money between individuals across countries.

7. Institutional and capital markets tech: Companies either providing tools to financial institutions such as banks, hedge funds, mutual funds or other institutional investors. These range from alternative trading systems to financial modeling and analysis software.

8. Blockchain and bitcoin: Companies here span key software or technology firms in the distributed ledger space, ranging from bitcoin wallets to security providers to sidechains.

KPMG reports the number of investment deals in the Fintech industry in the 3rd Quarter of 2016:
– Globally, there were 178 deals, representing $2.4B in funding
– This breaks down to 96 deals in North America for $0.9B in funding; 38 deals in Europe for $0.2B in funding; and 35 deals in Asia for $1.2B in funding.

Overall, KPMG concludes that “while VC-specific funding in isn’t expected to exceed 2015’s peak investment levels, total funding to fintech companies is on track to exceed 2015 totals. The future of fintech remains positive from an investment perspective, with an uptick expected in 2017, if not in Q4’16. Investors are expected to become more confident as the immediate ramifications associated with Brexit ease and uncertainties in the U.S., especially with regards to the election, stabilize.
 
Specific Fintech Observations for 2017

Here is a sampling of some of the most significant predictions KPMG makes for the future of Fintech investing:

– “As in past quarters, payments and lending remain the leading fintech subsectors across the globe and continue to earn considerable VC attention despite signs of market saturation in some subsectors. Other areas, including RegTech, blockchain, data and analytics and InsurTech are on the rise.”

– “There is a lot of liquidity in the market as well as a continued demand for fintech innovation by the large financial institutions. As such, these financial institutions will continue to look for ways to embrace the promise of these innovations through a number of different avenues, including partnerships, direct investment and merger and acquisition transactions.”

– Technology doesn’t respect national boundaries or national differences in regulations. The only boundary that technology respects is consumer adoption.”

– “While InsurTech continues to be a big bet, there is also excitement building around areas like blockchain, robo advisory and artificial intelligence. As scrutiny around privacy and data security rises in North America, interest in security and biometrics technologies may also grow.”

– “There are definite headwinds to be overcome in certain fintech verticals, such as payments and marketplace lending. However, the continued positive momentum in other areas, such as blockchain and robo advisory, coupled with the ever-increasing consumer demand for alternatives to traditional financial services, should make fintech the most dynamic sector for venture investing in 2017.”

Earlier this year, a similar study by Accenture, a leading global professional services company providing a broad range of services and solutions in strategy, consulting, digital, technology and operations, concludes much the same.

Accenture called what’s happening in the Fintech sector a “Fourth Industrial Revolution, a global phenomenon in which “new innovation and digital companies (will) compete and collaborate with traditional financial services.” They found that global Fintech investment grew 75 percent in 2015, exceeding 22 billion dollars.

Highlights of Similar Accenture Fintech Study are as follows:

– “Global investment in financial technology (fintech) ventures in the first quarter of 2016 reached $5.3 billion, a 67 percent increase over the same period last year, and the percentage of investments going to fintech companies in Europe and Asia-Pacific nearly doubled to 62 percent.

– “The drive for fintech innovation is spreading well beyond traditional tech hubs. New frontiers like robotics, blockchain and the Internet of Things are bound less by geography than by the industry’s ability to adopt and scale clever ideas that improve service and efficiencies.”

– “Collaborative fintech ventures – those primarily targeting financial institutions as customers – are gaining ground over so-called ‘disruptive’ players that enter the market to compete against those institutions. The percentage of funding for collaborative fintech ventures in North America rose dramatically from 2010 to 2015, from 40 percent to 60 percent.”

– “While a growing proportion of collaborative fintech ventures have emerged, the report cites relatively low participation in venture-investing by the banks themselves, which in 2015 invested $5 billion of the $22.3 billion of reported investments.”

– The number of ‘big ticket’ deals in the global fintech sector is growing. In 2015, there were 94 fintech deals larger than $50 million, compared to 52 in 2014 and just 15 in 2013.

Based on the research, Fintech companies, such as Jumpstart Micro, are positioned well for growth as investors and consumers rush to take advantage of the convenience and innovation that technology can offer within the business finance and personal finance arenas.

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All rights reserved Jumpstart Micro, Inc 2017

Important Disclosure: Jumpstart Micro, Inc is a Registered Funding Portal under SEC regulation Crowdfunding 4(6)(a) and a member of FINRA. Under the regulation, Jumpstart Micro acts as an Intermediary platform for Issuers (companies selling securities in compliance with the regulations) and Investors (individuals purchasing services offered by Issuers). Jumpstart Micro does not provide any investment advice or make any investment recommendations to any persons, ever, and at no time does Jumpstart Micro come into possession of Investor funds which are transferred directly to a bank escrow account. Please see disclosures. for more details.
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