Facebook Censors Free Speech?

On Friday, 22 September at 11.25pm, I shared the article below on Facebook.  It attracted one like and a comment, to which I replied. I thought nothing further of it.

The next day, I happened to glance at my Facebook page. The post had vanished! How strange.

On closer enquiry, I found that the post still existed on Facebook, but it had just disappeared from my Facebook page, which meant any visitors to my page would not be able to see it. Why might this have happened?

Well, take a look at the title of the article: “Artificial Intelligence Pioneer Calls for the Breakup of Big Tech”.

Had Facebook just censored a post which was critical to its own interests?

Facebook, along with Amazon, Apple, Google, Microsoft, and Netflix, are Big Tech. They have extensive power to shape and control the information that we share and consume. And Facebook appears to have used this power to hide a post it didn’t like. 

My blog has a limited following, so the impact of this one incident is small. But is the same thing happening elsewhere to bigger media outlets? How are the biases and priorities at Facebook shaping the way we think about the world? How authentic is the information we find on Facebook? And who may have paid to place it there?

In the context of Facebook allowing Russian fake news to influence the course of the American election, these are not hypothetical questions.

The free market usually works best, but what happens when it fails due to excessive concentration of power?

Has the same thing ever happened to you?  Please share your thoughts in the comments below.

Bitcoin Remains Resilient Despite Establishment Backlash

Just this week, JP Morgan Chase CEO Jamie Dimon came out strongly against Bitcoin.  Calling it a “fraud“, claiming that “it is worse than tulip mania”, and declaring that he will fire any employee who trades the cryptocurrency for being “stupid”. (While somewhat amusingly admitting that his daughter invests in Bitcoin.)

Also this week, several China-based Bitcoin exchanges including BTCC, ViaBTC, Yunbi, OKCoin and Huobi have been ordered to stop trading by the end of September. This news follows a decision by Chinese authorities earlier in the month to ban fundraising through Initial Coin Offerings (ICOs).

The price of Bitcoin dropped by around 32% during September, before rocketing 27% in a single day on Friday.

What’s going on here?

At least three things.

Firstly, Bitcoin can function without a trusted financial intermediary, which means it may take business away from established financial institutions like JP Morgan. Bitcoin is a cryptocurrency; that is, a digital currency which records transactions in the blockchain, a decentralised shared public ledger stored on computers connected to the Bitcoin network, and secured using cryptography. As a result, transactions can take place between any users on the network without needing to pass through a trusted financial intermediary. As it happens, JP Morgan Chase often plays the role of a financial intermediary, from which it earns substantial revenues [pdf]. This may help to explain why Jamie Dimon, the firm’s CEO, has been so critical of Bitcoin. It is a technology which could disrupt his bank’s business model, which makes it a potentially serious threat that needs to be squashed.

Secondly, Bitcoin allows anonymous transactions worldwide, which makes it difficult for governments to monitor and control. Jamie Dimon is skeptical that authorities will ever allow a currency to exist without state oversight, and this may explain China’s crackdown. China is likely concerned that people are using Bitcoin to shift money out of the country in violation of its capital controls.  China is also likely worried, and legitimately so, that Bitcoin and ICOs could be used for things like terrorism financing, money laundering, and organised crime. As cryptocurrencies like Bitcoin become more mainstream, we should expect increasing levels of government oversight and regulation. America’s SEC, Australia’s AustracJapan’s Financial Services Agency, and others have already started to do this. My feeling is that the crackdown in China may be a temporary measure, which could be followed by the People’s Bank of China issuing a brand new government backed cryptocurrency that the government is able to control.

Thirdly, unlike fiat currency, Bitcoin is designed to have a strictly limited supply. No more than 21 million Bitcoins are ever expected to be issued. Assuming people continue to have confidence in Bitcoin, this artificial scarcity will help to guarantee its value. This may explain why Bitcoin’s price increased by 27% on Friday, even though there has been a lot of negative news coming from China and Jamie Dimon.

In response to Jamie Dimon’s comments, John McAfee, CEO of MGT Capital Investments, responded by saying, “you called Bitcoin a fraud? … I’m a Bitcoin miner. We create Bitcoins. It costs over $1,000 per coin to create a Bitcoin. What does it cost to create a U.S. dollar? Which one is the fraud? Because it costs whatever the paper costs, but it costs me and other miners over $1,000 per coin. It’s called proof of work.”

Bitcoin’s artificial scarcity could encourage investors to buy Bitcoin as a hedge against inflation rather than buying dollar denominated assets like government bonds. If the market for Bitcoin becomes big enough, this could make it more costly for some governments to borrow. Traditional currencies usually experience inflation because central banks tend to print more money than is required to facilitate economic activity, leading to higher prices. Inflation allows governments to borrow money today, and repay debts in future with money that is worth a little bit less. If Bitcoin becomes a global reserve currency, some governments may face pressure to issue debt denominated in Bitcoin. As a result, they would no longer be able to print money to repay their debts. For a country like America, which controls the world’s reserve currency and runs consistent budget deficits, this would represent a significant change from the status quo.

Bitcoin remains resilient despite this week’s establishment backlash.  However, the biggest risk for Bitcoin in the short to medium term would appear to be regulatory risk. Will other governments follow China’s lead by banning Bitcoin exchanges and seeking to establish their own state backed cryptocurrencies?

My feeling is that in Western countries, the free market will prevail. However, even if this is the case, we should anticipate much more government scrutiny, supervision, and regulation going forwards.

Image: Pexels

Battle of The Central Banks: China Declares ICOs Illegal

As I have been writing in this space of late, the days of the Wild West for cryptocurrency are absolutely at an end. The writing has been on the wall all summer.

The latest news to hammer the point home? As September dawned last week, six more major banks joined a UBS-led effort to create the Utility Settlement Coin (USC).  This looks set to be a new form of digital cash for clearing and settling financial transactions using blockchain, the technology behind bitcoin.  Unlike bitcoin, however, the USC will not be a new standalone digital currency. It will instead be the digital cash equivalent of major real world currencies backed by central banks.  It is unclear whether the USC project is intended to compete or cojoin with Ripple. However, UBS is in discussions with central banks and regulators. They are aiming to release an initial version of the USC by the end of 2018.

What does all this mean?

The big western banks have formally conceded that cyber currency is here to stay and they are now taking active steps to stake their claim within the quickly evolving cyber currency landscape.

Less than a week later, however, came another piece of news.

The Central Bank of China has now banned all Initial Coin Offerings (ICOs) – including ones that are in the process of raising money. ICOs are essentially a way of fundraising using cryptocurrency.  They are a financial digital hybrid, a cross between crowdfunding and an initial public offering that involve the sale of virtual coins mostly based on the ethereum blockchain.  Interest in ICOs and funds invested in them have exploded in 2017, and so has the price of bitcoin.  There are many who believe that these events are not unrelated. In fact, the gains bitcoin made earlier in the year when the new fork in its code was announced might well be wiped out by the new Chinese decision to ban ICOs. Beyond bitcoin specifically, China’s decision to ban ICOs has negatively affected the value of all cryptocurrencies.

Given the huge amounts of money at stake, it is no surprise that ICOs have attracted cyber criminals and attention from regulators.  According to Chainanalysis, cyber criminals have stolen as much as 10% of the money intended for ICOs in 2017 (more than $100 million). Governments are keen to put a stop to this kind of activity.  And so, the Chinese ban is not wholly unexpected.  Jehan Chu, managing partner at Kenetic Capital, believes China will allow ICOs in future on approved platforms.  Perhaps future ICOs in China will also need to use an officially sanctioned cryptocurrency issued or controlled by the Chinese government.

It is unclear whether the Chinese government will create their own cryptocurrency. If it does, this will raise new questions that have to date been much posed but never definitively answered. In fact, Chinese dominance of the bitcoin market has been one of the biggest boogeymen in the vertical since its inception.

What further developments can we expect in the fourth quarter of 2017?

Regulations Are Coming Fast

Cybercurrency is not at risk of disappearing, and it is becoming increasingly clear that it will play a pivotal role in the transformation of finance over the coming decade.  However, the key institutions responsible for steering development of the technology, and the laws, regulations and policies that govern the space are in the process of changing.  As a result, cyber currency will not be able to replace central banks, nor sidestep regulations. And that is an important milestone to reach.  Especially as the conventional wisdom in the world of cyber currency has long predicted that this would never happen. Or that if it did, it would be the “end of bitcoin”.

The world of cyber currency has entered a new phase. It’s not the end of the world. And its future will be much more regulated.

Marguerite Arnold is the founder of MedPayRx, a blockchain healthcare startup in Frankfurt. She is also an author, journalist and has just obtained her EMBA from the Frankfurt School of Finance and Management.

Image: Pexels

How Can The SEC Suspend A Currency? Bitcoin Goes Through New Woes

The regulation of the Bitcoin industry is getting even stranger. Not only are Initial Coin Offerings (ICOs) and token sales now subject to federal securities laws, in late August the SEC announced the temporary suspension of trading of First Bitcoin Capital Corp (BITCF). The trading ban on the Canadian company will be in effect until September 7 at 11:59.

According to the SEC, “The Commission temporarily suspended trading in the securities of BITCF because of concerns regarding the accuracy and adequacy of publicly available information about the company including, among other things, the value of BITCF’s assets and its capital structure.”

The company’s goal is to not only acquire and invest in Bitcoin start-ups but also to invest in mining equipment and bitcoin only online stores. It also has its own digital currency exchange and plans to offer its own cryptocurrency exchange called Coinqx.com.

So far, so good. What is the SEC’s beef with BITCF?

The price of BITCF on the OTC (over the counter) markets jumped 7,000% this year. At the beginning of 2017, shares were trading at $0.045, rising to a high of $3.15 in early August, before falling to a price of $1.79 at the time of suspension.

Because BITCF is an OTC security, it is not required to file information with the SEC. However, the OTC Market’s inter-dealer quotation system called OTC Link is registered as a broker-dealer. OTC Link is also a member of the U.S. Financial Industry Regulatory Authority (FINRA).

There are not a lot of ways, in other words, to completely avoid the regulated banking and securities system. Even for companies dealing in cryptocurrency.

In the meantime, since the suspension, at least three law firms are looking into class action liability issues.  Specifically, losses suffered by investors who might have been misled by the company’s claims.

The Rosen Law Firm announced its investigation on August 24. A second law firm, Gewirtz & Grossman, announced that they are investigating whether the company broke the Securities Exchange Act of 1934. A third firm, Faruqi and Faruqi is now investigating claims of those who lost more than $100,000 as a result of the large price fluctuations.

In other words, Bitcoin is becoming regulated just like any other security and for reasons that have nothing to do with the “decentralized” authority of Bitcoin, but rather the larger financial system into which it is becoming integrated.

For this reason, Bitcoin and other cryptocurrencies are well on the path towards regulation. In terms of exchange. And in terms of price. Not to mention price manipulation.

What Will This Mean Down The Road?

While cryptocurrency will continue to develop, the idea of a freewheeling, unregulated monetary or securities exchange is likely to go the way of the Dodo. As cyber currencies of all kinds as well as tokens become integrated into not only daily life but machine-to-machine operations, they will inevitably be more controlled and regulated. They will have to be. For example, in the case of token exchanges between inanimate objects, the stability of the value of these tokens will have to remain relatively stable. Otherwise, running the dishwasher or the electric car will become an almost impossible value arbitrage.

Where is this going in the land of currency? The value volatility that is a hallmark so far of all cyber currency exchanges and currencies may continue for some time. It may be that the token and currency markets will diverge. Or it may mean that all will eventually settle down into a world that is far more like the traditional securities and currency markets that exist today.

That appears to be the direction in which we are now heading. And that, despite the dreaded “R” word (regulations) may be exactly the thing that investors really want.

Can Bitcoin Be Regulated?

One of the attractions of Bitcoin and other cryptocurrencies is the idea that they are not regulated by a central banking authority. It has led to some spectacular jumps in the price of Bitcoin, which is controlled by a relatively small number of global investors. The volatility in the market was even more obvious this summer with the price of Bitcoin rising more than 50% since the start of August, and hitting an all-time high on August 15th before crashing by more than 13% shortly thereafter. The heightened interest in the cryptocurrency has been driven by an agreement reached to finally update the rules governing the software. With the new rules in place, transactions over the network should now run much faster.

This incident shows that Bitcoin is in fact “governed”, if not by a central authority, then by a small group of developers. Further, those who govern the market are insiders who know ahead of time when a change will happen.

This is not how a regulated currency is supposed to work, and can inevitably lead to problems. For example, one of the largest cryptocurrency exchanges – BTCe – has now gone down in flames. For those unfamiliar with the ongoing scams and thefts, it appears that many of them, including the stunning theft of 800,000 Bitcoins via the now defunct Mt Gox exchange, used the BTCe exchange to launder their stolen Bitcoins. The indictment of BTCe’s founder appears to show that he was responsible for most of the largest thefts of Bitcoins globally for most of this decade. As you can imagine, regulators are now taking a serious and ongoing look at Bitcoin. And so as Bitcoin establishes itself as a globally recognized currency, or taxable asset, it is slowly becoming more and more regulated.

Most Bitcoins are regulated in some way – and for a very simple reason. It is necessary to have access to conventional money, via an online bank account, in order to buy cryptocurrency in the first place.

Recognition of Cryptocurrency

Is a cryptocurrency like Bitcoin a “currency” or is it really an “asset” that can gain or lose value? Or is it both? Nobody is sure and the uncertainty is likely to continue for some time. Cryptocurrencies are currently being defined and recognised on a country-by-country and sometimes regional basis.

Australian senators have recently called for Bitcoin to be recognized as a currency in the country. They are not the only ones. In the EU, Bitcoins may be used to buy goods and services, and are designated as a “digital presentation of the value not confirmed by the central bank”. Similarly, Japan has also legalized Bitcoin as a payment method. Other countries take a different view. Israel and the U.S. generally treat Bitcoin as a taxable asset subject to capital gains tax. In China, Bitcoin is also generally treated as a taxable asset.

Concerns about what can be bought with cryptocurrency is on the mind of regulators and politicians in many jurisdictions. One of the places this is currently showing up is in locations where cannabis is being legalized, particularly in the United States. The reason is that the U.S. banking industry is still subject to federal rules on financial transactions relating to the sale or purchase of marijuana. Buying weed using Bitcoin is a logical alternative, and a number of branded sub-currencies like Potcoin have stepped into the breach. However, this is being blocked in places like Washington State due to concerns around financial transparency and money laundering. Legislators are considering banning the purchase of cannabis with any cryptocurrency.

Given all of these developments, it is clear that while cryptocurrency may not be regulated by old fashioned means – with value calculations being performed by a central authority – governments are in fact beginning to find ways to regulate this “currency” by controlling how it should be used, taxed, and what products people can buy with it.

No matter what else it may be, this clearly amounts to “regulation” of the market. Even if in its first and earliest stages.

Marguerite Arnold is the founder of MedPayRx, a blockchain healthcare startup in Frankfurt. She is also an author, journalist and has just obtained her EMBA from the Frankfurt School of Finance and Management.

Image: Pexels

Blockchain as Monetized Infrastructure

 

For those struggling to understand blockchain, think of it this way. It will be the digital connection between people as well as between machines – starting with your cell phone.

It will be used to tell your washing machine when to run. It will also be used to bill you for the electricity and water it uses. In turn, it could also deduct that amount from your solar positive mortgage.

Blockchain tends to be easier to understand if you think of it as a piece of infrastructure than as the backend ledger for all cryptocurrency. However, questions about payments are always present when talking about blockchain. In particular, blockchain is a system which enables micro-payments, in some cases in increments of less than a penny.

Why is this important?

Basically, in an Artificial Intelligence and Internet-of-things world, the transfer of digital tokens is what will make the system go. Machine processing does not happen in a vacuum. There are costs involved. Who pays and how is a fascinating part of the banking system, which will very soon incorporate blockchain.

Blockchain as a form of infrastructure has become a serious topic in a world filled with cybercurrencies and fundraising networks. One example of a company making interesting choices in this area is a Dutch innovator called Quantoz. They got their start as experts in decentralized energy and transportation. They have subsequently branched out in several intriguing directions, winning not only recognition for their innovations but also industrial clients.

Quantoz has developed their own cryptocurrency exchange called happycoins. However, they are absolutely not interested in cryptocurrency speculation, nor are they aiming to raise vast sums via a crowdfunding sale – known as an Initial Coin Offering. Their sights instead are set on a part of the market that is still coming into its own but where blockchain and cyber currency are likely to have their biggest influence.

Digital Payment Networks

Quantoz recently launched a new consortium to create something they are calling QPN. The Quasar Payment Network is intended to enable a peer-to-peer micro transaction network between consumers, enterprises and IoT. In other words, the firm is using blockchain not to become a traditional bank but to build a payment gateway that enables enterprise.

QPN creates a gateway between traditional bank accounts and digital wallets required for interacting with blockchain controlled systems.

It means that there is a direct two way exchange between traditional cash and the tokens that power the network. For example, an automobile could pay a sensor to understand current driving conditions. This information could then be used by the car to help the driver handle the road better. In turn, this safety feature and the driver’s use of it could be factored into insurance premiums, even if you are only renting a shared automobile.

In this kind of scenario, the digital tokens that are being transferred in the system are valued by the cost of machine time, which itself depends on the cost of electricity. They are a kind of currency, although the best way to understand them is as digital tokens.

Automated, controlled environments are coming fast. By looking beyond short term speculation, and understanding blockchain as an enabling infrastructure for a connected world, firms like Quantoz will have an important role to play.

Marguerite Arnold is the founder of MedPayRx, a blockchain healthcare startup in Frankfurt. She is also an author, journalist and has just obtained her EMBA from the Frankfurt School of Finance and Management.

Image: Pexels

The Rise of a Fossil Fuel Backed Cryptocurrency?

One of the most important things to remember about a digital currency is that it is just a way of transferring ownership and assets electronically. In fact, for those who are scrambling to understand both cryptocurrency and blockchain, this idea is the first, and unfortunately all too often, the only port of call. That said, it is a decent place to start.

Cryptocurrency uses a decentralized digital communications “protocol” called blockchain to facilitate value transfer extremely efficiently. As a result, the largest banks and governments are now taking it seriously. There are also multiple ideas being developed about how this technology should be used, and what types of assets can be valued and transferred, which has also attracted the interest of the largest energy companies and telcos.

It was inevitable, then, that someone would come up with a way to align the world’s existing fossil fuel reserves with a form of cryptocurrency, enabling a new form of digital currency backed by energy as collateral, rather than gold or any other kind of asset.

In today’s global economy, the US dollar acts as a global currency because that is what barrels of oil are priced in and have been since 1971. It is also why some OPEC states, such as Venezuela, have tried to change the “oil-currency” from dollars to euros. The impact of the current setup is that U.S. monetary policy can have a huge influence on the rest of the world.

This is no doubt one of the reasons, beyond the implications of Brexit and England’s search for a new place in the world, that inspired the London-based entrepreneurs behind Bilur, and helped them attract funding.

Bilur, as described in industry press in early May, is a “new Ethereum-based cryptocurrency that wants to compete with Bitcoin.”

According to founder Ignacio Ozcariz, the CEO of RFinTech, the company behind Bilur, he hopes to create an oil-based cryptocurrency. In his words “[c]rude oil and its derivatives … have been running [the world] during the last wave of the industrial revolution. All of them are primarily energy vectors that, jointly, with the flow of energy in the form of electricity, have driven the unstoppable 20th-century technological revolution. So why not consider energy as the new monetary standard, as it is the base for the technological world.”

This is already a key issue at the heart of existing cryptocurrencies like Bitcoin and Ethereum. Many people support the use and development of these cryptocurrencies because they are theoretically beyond the control of government. In order to control a cryptocurrency, a government would need to invest substantial energy, time, money and programmers in order to fundamentally change the rules of the system. And this illustrates the key issue clearly. Cryptocurrency and blockchain cannot be divorced from a concept of energy as currency. It takes energy to allow the computations to occur. This system cost is then priced into all cyber currency transactions. It is like a minimal processing fee, or ATM charge, for accessing the system.

Energy backed cryptocurrency is entering a new phase because of the debate about global warming. Bilur’s value is tied to oil, but solar is already a considerable player in many parts of the world. That includes in OPEC countries that are struggling to wean their economies off fossil fuel (starting with Saudi Arabia). It also includes India, China and Germany. Connected to blockchain technology, solar energy can be monetized efficiently. This is a field that is taking off, particularly in Europe and China. As a result, a solar-backed cryptocurrency would make a lot of sense. Rather than selling “carbon credits” to allow firms to emit pollution, a “clean currency” might be a better solution for both consumers and investors.

What Does This All Mean?

Regardless of the feasibility of a fossil-fuel backed or gold backed cyber currency (there is a high profile effort afoot in the UK to create a gold-backed UK Royal Mind Gold token), these examples illustrate one thing: cryptocurrency creates a new platform for the next phase of value exchange in a tech-driven globally-connected world.

The ability to generate, transfer, swap and monetize “energy” will be very valuable in the world we are entering. This is also known loosely as the “shared” or “peer-to-peer” economy. There will be multiple attempts to create new currencies. There already have been. Many of those new cryptocurrencies will be backed by an asset in the real world in order to give them a tangible value. However, as with Bilur, the idea that such endeavours are based on ether serves to put a dollar value on “energy/computing time” already. This is because most holders of ether buy them in dollars, and energy or calculated computations of machine time are the basis for Ethereum in the first place.

It is easy to understand why this will be so important. Blockchain connected devices are powered by energy. That energy has to be paid for, and calculating what that energy is worth is going to be the first, most basic discussion. Why? Well, you cannot hook up a block of gold or a barrel of oil to a digital network and get it to work. You can, however, hook up an electric car, washing machine, mobile phone, or solar charging device.

With shifting global currents, unstable national governments, and economic flows of capital between different parts of an increasingly globalised world, it is clear that initiatives to create a new global currency (or several of them) will continue to attract attention, and venture funding.

Here is what investors, market commentators and regulators need to remember. The value of Bilur is tied to oil. Despite Trump’s call to return to a world driven by fossil fuel, however, energy markets and cryptocurrencies based on them are meeting a new age. Questions about valuation and worth of assets – taking into account negative externalities like carbon emissions and the energy cost of accessing the system with them – will dominate market formation, rules and the digital networks upon which all will depend.

Marguerite Arnold is the founder of MedPayRx, a blockchain healthcare startup in Frankfurt. She is also an author, journalist and has just obtained her EMBA from the Frankfurt School of Finance and Management.

Image: Pexels

Blockchain For Managers

No matter one’s professional background, these days it is almost impossible to escape at least a very basic introduction to “blockchain.”

At its core, blockchain has the potential to give every individual access to data, processes, and the ability to transact with others on a scale that was never before possible. From a strictly mid-20th century point of view, the introduction of blockchain is the next step in a future foreseen by Peter Drucker. Many individuals will be self-employed, and the value creation process will be overseen and managed in a way that no longer requires multiple layers of other human beings to be part of the process. It is likely to be implemented by HR departments for employee record and compensation management, and will almost certainly be the final nail in the coffin of mandatory centrally located physical workplaces. It could also be used for proof of work, and as a means of payment using virtual currency such as Bitcoin.

For professional managers, a discussion about blockchain opens up several landmines, none of which are easily dealt with. The reason? The technology will wreak havoc on the managerial class. Many things managers do – and in many industries – are about to be automated out of existence.

Blockchain will create the same kind of career obsolescence for managers in many industries as the self-driving car, automated manufacturing, and automated supply chains will produce for “blue-collar” workers.

Unlike the less educated, lower skilled part of the workforce, however, managers will be tasked with planning their own extinction.

How to embrace that future?

Firstly, as a manager, you need to become an expert on how blockchain can be implemented in your industry. And secondly, you need to step up to the plate, and lead the change in whatever area it is that you work.

For anyone who comes from a non IT background, this might sound like a daunting proposition. However, for the current batch of MBA graduates, usually somewhere between their late twenties and early fifties, this is the task currently at hand. It will be impossible for this group to escape further formal education or work experience that requires them to understand, deal with, or implement blockchain in some form or fashion.

While a good technical background will of course be helpful, understanding how blockchain will impact your industry is much more about understanding your industry, the needs of your customers, and how this new technology might be able to solve problems in new and more efficient ways.

One of the most important things to remember about blockchain is that it is uniquely suited to tracking, monitoring and creating data in process-heavy parts of an industry. As a result, blockchain will initially be useful in banking and financial services, but will also quickly take hold in supply chain management.

Digital natives and those who have adopted this new technology because of the demands of working life (Gen X in particular), will have little trouble understanding how blockchain can be applied to these kinds of use cases.

What Are Concrete Steps I Can Take Now?

Human work and organization is in the early stages of being redesigned in a way that will be every bit as transformative as the industrial revolution was in the 19th century.

Revolutions, by definition, cannot be managed. Change, however, certainly can be.

One of the first steps to riding the wave of change is to accept that the world is rapidly transforming and that blockchain is one of the key drivers.

To that end, there are a few things you can do to prepare yourself.

  1. Take a course on blockchain. Consider a specialized course offering for managers in a banking or finance center where you will have access to the best teachers and thought leaders in this space including but not limited to IT experts (which often include lawyers, academics, regulatory agencies, and people in leading industries) where this is hitting first.
  2. Look on Meetup for groups interested in tech. This is a good way to meet other professionals who have a common interest.
  3. Think about vital processes in your industry and how blockchain might be used to improve them.
  4. Design a flow chart with one process you believe can be improved by a blockchain application.

Embracing blockchain will help you to understand the technology and identify ways that you can manage change within your industry, and be a positive driving force for innovation.

Marguerite Arnold is the founder of MedPayRx, a blockchain healthcare startup in Frankfurt. She is also an author, journalist and has just obtained her EMBA from the Frankfurt School of Finance and Management.

Image: Pexels

What Does Blockchain Mean For HealthCare?

There are many people who cringe when they think about what is going to happen to healthcare under a Trump administration. Healthcare is a subject which has wormed its way into everyday conversation since Ronald Reagan was in office. Back then “entitlements”, specifically social security, were a supposed “third rail” that could not be touched, whittled down or even frozen.

Fast forward to the present.

Regardless of what you think about immigrants, poor people, old people, sick people or children, there is one fact that is inescapable. The basic notion of the “welfare state” is being re-examined. It is not just the United States where this is a hotly contested issue.

The drivers? Exploding costs and aging demographics along with creaky infrastructure and outdated service models.

The scandal facing the NHS in mid May over a massive hack made possible by outdated software is just one example of how fragile established western healthcare systems currently are.

That the system needs to be fixed is not controversial. How to fix it is another issue.

In the United States, there is huge pressure on Republicans to overhaul Obamacare. And it is fair to say that there are no easy fixes to a system in the United States that is unbelievably complex, expensive, and which has gaping holes in it. Out of desperation, one proposal to cut costs in the United States is to incorporate blockchain technology. In Europe, where the social state as a concept has not died, blockchain has already begun to be examined as a cost-saver in both the public and private insurance industry.

Blockchain could help to reduce healthcare costs. One of the biggest drivers of healthcare costs in the United States and other places is the administrative time, cost and paperwork necessary to run a regulated industry. A key benefit of using blockchain will be lower costs of healthcare administration due to economies of scale that will provide much needed relief to state and national budgets. This means that the forecast explosion of costs might be better contained.

Rising healthcare costs are further complicated by privacy laws that aim to protect health related information. In the United States, this falls under HIPAA. Otherwise known as the Health Insurance Portability and Accountability Act, this Clinton-era legislation has very strict rules about how health records can be shared. Blockchain in this environment provides a secure way for databases to talk to each other, and offers a solution to the privacy conundrum laid out for IT professionals in this space since 1996.

For this reason, introducing blockchain represents one of the first true opportunities to “fix” a horribly broken system – in the U.S. and elsewhere.

In Europe, where the concept of inclusive healthcare is akin to a sovereign right, this conversation has already started.

Implementing blockchain will not simply be a matter of sending “bitcoins” to doctors for payment. It will be about the widespread use of “smart contracts”. The earliest use cases across the industry are mostly related to health record management and access, as well as insurance claims.

Blockchain may be a secure technology, but creating a fully digitised healthcare system raises serious privacy concerns. If people are enrolled in systems where they can be tracked for life, what happens to that information and who has the right to access it? How will such interactions be designed to protect the individual in a world where nothing, suddenly, is truly private. How can people with pre-existing medical conditions be sure that their information won’t fall into the hands of insurance companies who will use the information to charge higher insurance premiums or to deny coverage?

These new healthcare systems will need to be designed with privacy issues kept firmly in mind. An old and crumbling system is about to be replaced with a technology whose impact is as yet largely unfelt. And for the most part, it will be Generation X and Y who will be tasked with building these systems. The privacy rights of young people and many voiceless individuals on the fringes of the system will be affected. This could serve as a clarion call to those who have long been left out of the healthcare debate, but more likely it underlines the importance of safeguarding the privacy rights of groups who are presently unaware that their fundamental rights are hanging in the balance.

In sum, blockchain will absolutely play a defining role in healthcare reform. How and where it will be applied is still unclear. However, it is likely to play a central role in redesigning healthcare systems for the 21st century in America and beyond.

Marguerite Arnold is the founder of MedPayRx, a blockchain healthcare startup in Frankfurt. She is also an author, journalist and has just obtained her EMBA from the Frankfurt School of Finance and Management.

Image: Flickr

To do, or not to do

Why the traditional to-do list is possibly doing you more harm than good

We are all familiar with the concept of a to-do list. We are taught from a very early age that the best way to get things done is to make a list and tick tasks off as we complete them. The idea of a to-do list is comforting, it’s tangible and having one makes us feel like we know where we are in life.

But there is a significant amount of evidence to suggest that your to-do list may actually be damaging, not only to your productivity, but also to your mental and physical health. Consider the times in your life when you have felt stressed out, with a lot on your plate and an overfull to-do list – how were you sleeping? The stress and anxiety caused by having an overwhelming number of incomplete tasks lurking in the back of your mind can have a detrimental impact on your overall wellbeing.

The Zeigarnik Effect

The human brain is more likely to dwell on incomplete or interrupted tasks than complete ones. This phenomenon is known as the Zeigarnik effect, after the psychologist who first studied it in 1927. There have been two main theories posited for how the effect works: the first argues that it is your subconscious mind keeping track of your mental to-do list, working to make sure it is accomplished; the second argues that it is the subconscious mind asking the conscious mind for help, like a child tugging on a sleeve, your subconscious mind is giving you nagging reminders to complete what it perceives to be ‘unfinished business’.

In evolution, nothing is an accident and so there are of course instances where the Zeigarnik effect is an advantage; in the original study, participants were shown to be better able to remember the subject of an interrupted study session than a completed one. But whilst this may be positive if you are attempting to utilise the effect to effectively plan your study schedule for an exam, if you are trying to manage your day-to-day professional life, it becomes more problematic. It’s very difficult to concentrate on the task at hand if your brain keeps sending you reminders of all the tasks you haven’t done yet.

Making Plans

The solution, it transpires, may lie in how you’re writing your to-do list. In 2011, Masicampo and Baumeister published a study entitled ‘Consider It Done! Plan Making Can Eliminate the Cognitive Effects of Unfulfilled Goals’. Their findings clearly showed that the act of making a list of objectives, with a clear plan for how those objectives would be achieved, has an effect on the brain that is akin to pressing a reset button. Study subjects who had made a clear plan showed significantly less tendency to return to those thoughts later on.

Anders Thomsen, former McKinsey consultant and CEO of no-more – a specialist provider of on-demand business services based in Copenhagen – says “I advise all of my team against keeping a to-do list, as there is a growing body of evidence which shows that they can actually interrupt your thought processes, thereby disrupting productivity. Instead, we have a weekly kick-off session on a Monday morning, where each department outlines their plans and goals for the coming week. I’ve found this to be a much more effective way to work, and my team agree with me.”

Decisions, decisions

The human brain has a finite amount of decision-making power each day; the deteriorating quality of decisions made by an individual after a long session of decision-making is called decision fatigue. When your to-do list contains vague items such as ‘do sales strategy’ or ‘find new customer leads’, your brain will naturally try to skip them, as they require more decision-making capacity. How many times have you looked at your list, skipped over all the things that seemed too overwhelming and ended up doing something that was easy, but offered little value? You’re not alone.

One way to ensure that a task languishes indefinitely on your to-do list is to make it open-ended. When a task has a deadline attached to it, whether that deadline is self-imposed or otherwise, it automatically becomes more significant to your subconscious, making it more difficult to skip. The main difference between a traditional to-do list and a well-executed objectives plan is that those vague to-do items are expanded into a list of tangible actions, with goals and deadlines attached to them.

“The main thing with the service that no-more provides is that it is designed to improve productivity.” Thomsen explains, “the idea is that instead of coming into work and spending your time avoiding the elephant in the room by ticking the easy win, low return items off an overfull to-do list, you send those small but essential tasks to our specialists and spend your time on something more important that requires your full focus and expertise.”

Eat your frogs

The evidence seems clear: in order to work smarter, we need to change the way we plan our time. This means changing the way we write our to-do lists, especially when we consider that 41% of to-do list items never get ticked off, while only 15% of items on a ‘done’ list even started out life as a to-do item, representing a startling disparity between what we perceive to be the required tasks and what actions are actually required to achieve an objective or goal.

It all comes back to your ability to prioritize and to write effective plans. Mark Twain once said: “If it’s your job to eat a frog, it’s best to do it first thing in the morning. And if it’s your job to eat two frogs, it’s best to eat the biggest one first.”

Of course, as we all know, that frog is often the big, vague to-do item that you’ve been skipping over for a few days now and is becoming more and more difficult to ignore. But if you break it down into its component parts and make a plan for how and when you will do each of those tasks, that frog begins to look a whole lot more palatable.

Who knows – you might even have room for a second helping.

Emily Bolton is a writer and Marketing Manager for No-More, a Denmark-based company providing specialized business support on demand. By enabling individuals to outsource cumbersome office tasks like PowerPoint and Desk Research, NoMore is making it easier for the world’s businesses to focus on what they do best

Image: Pexels

Will Cognitive Computing Disrupt the High-Skill Labor Market?

Striding along Omotesando Street in Harajuku, Tokyo in summer 2 years ago, I came across Pepper, an emotionally intelligent humanoid robot created by Softbank Robotics Holdings Group (SBRH) in one of its more grandiose Softbank Mobile stores. She greeted and guided customers through the shop. She danced to requests and wittily answered customers’ questions on topics which ranged from product information and weather forecasts to their love life.

In January 2016, IBM announced a collaboration with SBRH, which gave Pepper a cognitive computing system named Watson which allowed her to understand sophisticated semantic context through natural language processing and process a humongous volume of data including “dark”, or unstructured, data from social media, video, images and text. With her cognitive capability enhanced, Pepper can now provide customers with in-depth analysis of products and services based on their needs and personal information [See Pepper in Mizuho banks].

To be clear, prior to the collaboration, Pepper already had an artificial intelligence that uses pattern recognition to “read” customers’ feelings through their facial expressions and tone of voice. Pepper is also connected to the cloud where data is processed. This information accumulates as Pepper gains experience. So what, if anything, distinguishes Pepper’s original artificial intelligence with the new capabilities she received from Watson’s cognitive computing system?

Definitions are still being developed in this emergent field, but it would seem safe to say that artificial intelligence is a broader discipline that encompasses natural language processing, social intelligence and machine learning among other tools, many of which a cognitive computing system also uses. The most notable feature that sets cognitive computing apart from artificial intelligence, for now, would appear to be its relationship with users.

As Steve Hoffenberg pointed out: “In an artificial intelligence system, the system would have told the doctor which course of action to take based on its analysis. In cognitive computing, the system provides information to help the doctor decide.” For example, in the healthcare industry, IBM’s Watson is helping oncologists keep abreast of the latest developments in the field by scouring through unexplored research every day rather than telling the oncologists what they should do. In other words, cognitive computing augment human capability and further our expertise.

Any discussion about advanced cognitive technology inevitably leads to the question on whether robots will eventually replace human labor. An Economist report entitled “Lifelong Learning: How to survive in the age of automation”, which appeared in the 14th-20th January 2017 edition, provides useful insights on this question. According to the report, computer science and programming is the second most offered subject on massive open online courses (MOOC) like Coursera and Udacity.

Moreover, 49% of top paid job openings in America require candidates to have coding skills. Even marketing professionals nowadays might need to understand data analytics, SEO optimization or how to develop advanced algorithms. This suggests that many who follow traditional, linear, and “safe” career paths will increasingly feel the pressure to invest in technology skills.

So what will it mean if companies incorporate cognitive computing technology into their business models whereby computer systems generate insightful recommendations, visuals and graphs or process a million pieces of data in seconds? Do we still need to learn how to write code and algorithms if cognitive computing can do the job? Will today’s prudent learners of technology skills be looking for a new niche in the near future?

I recently had the chance to discuss this matter with Jason Wang, a director of Financial Services at Baidu China, after his talk on “Artificial Intelligence Disruption in the Financial Industry”. According to Jason, there are still many hurdles that we need to cross before cognitive computing or artificial intelligence systems will be able to do our jobs. Collecting the huge volumes of data that are needed to train cognitive computer systems, like IBM’s Watson, remains a mammoth task. Data scientists still need to refine unstructured datasets before it can be used. And professionals in every industry will continue to work closely with computers to solve problems for consumers, just like they always have.

It is time to adjust our mindset and focus on learning how to work WITH these new computer systems and allow them to augment our skills. Jason put it nicely when he said, “it will not be either or but both humans and robots working side-by-side in future decision-making processes”.

Anh Dang is a Master student of Analytical Political Economy at Duke University. Before arriving in America, she studied at Waseda University in Tokyo, Japan. She also lived briefly in Australia and Bangladesh. She is an aspiring management consultant and likes meeting people.

Wearable Technology: Implications for Entrepreneurs and Organizations

Imagine a world where one can rate the popularity of any individual from 1 to 5 using a mobile device. And in this imaginary world, these ratings are important for determining one’s employability, social status, and where one can live. Furthermore, each person’s name and rating is visible to everyone else through the use of a wearable contact lens. This world already exists in the Black Mirror episode, Nosedive, but is slowly becoming a reality in our world. It is not uncommon to run across people who are staring at their Apple Watch or Fitbit as you walk through the city. In fact, wearable technology is becoming an increasingly popular trend with 50 million wearable devices shipped in 2015 and an expected shipment of 125 million devices in 2019. These statistics suggest that many people are already incorporating wearable technology into their daily lives. So, in this article, we will investigate the implications of wearable technology on businesses and entrepreneurs.

Every business is looking for ways to continually improve the productivity of its employees. One research study found that the productivity of workers using wearable technology increased by 8.5%. This is a striking statistic. How are wearables doing this? Well, for example, companies like Boeing and Tesco use wearables to gather data about the time it takes to complete certain tasks. They can then perform analytics on these data in order to train their workers to be more efficient and productive in the workplace. Ultimately, wearables allow businesses to gather information on employee activities that have not been easily accessible in the past.

Productivity of employees is also connected to their health. This is particularly relevant in America, where improved employee health can allow businesses to cut costs associated with healthcare premiums. Many consumers of wearables use their devices with the intent of improving their health. In fact, 56% of consumers believe [pdf] that their wearable device will improve their fitness. However, even though wearable devices claim that they can improve health, there is no empirical evidence that demonstrates that they can. Studies show that almost a third of users will stop using their device after 6 months [pdf]. Until more studies come out proving that wearables improve consumer health or further improvements are made in wearable technologies, businesses should be wary of using these devices as a way to improve the overall health of their organizations. In essence, an investment into current wearables to improve employee overall health may not pay off.

Another challenge for wearable technologies is privacy. Even though wearables will allow organizations to gather data that was not easily obtained before, employees may object to having their data used for analytics by their organization. It will be important for organizations to prepare themselves to navigate these privacy hurdles before implementing wearable applications to gather data analytics. For example, organizations should be open and honest with their employees about which datasets they are gathering from their wearable devices. This will prevent employee dissatisfaction and potentially costly lawsuits.

Entrepreneurs should not only think about using analytics collected by wearables to improve their startups, but also be on the lookout for opportunities in the wearable technology market. Because of the potential for businesses to use wearables as a way to improve employee productivity and health, wearable technology is an emerging market that is rapidly growing to meet the needs of organizations. As of now, the wearables market is predicted to grow by 35% by 2019. These statistics suggest that there is a lot of potential in the wearables market for startups to develop new devices and applications. Ultimately, entrepreneurs that are looking for a growing market should consider investing in wearable technology and applications.

Thomas Beck is a postdoctoral fellow in the Department of Molecular Physiology and Biophysics at Vanderbilt University and co-founder of a digital mental health startup, and runner-up in the 2016 TechVenture Challenge for a novel therapeutic. Dr. beck serves as the president of the Vanderbilt University Advanced Degree Consulting Club.

What Is Cryptocurrency?

While “Bitcoin” has become a household word over the past several years, the concept of what cryptocurrency actually is goes far beyond traditional concepts of “money”.

First invented by the individual or group of people known as Satoshi Nakamoto in 2009, the original concept was to create a decentralized automated cash machine (in very simplified form) that would allow anyone to send assets of value to any other person whereby those assets would not need to pass through or be controlled by any financial intermediary. In other words, it was an attempt to build another kind of currency uncontrolled by any central bank or government. Further, such transactions would be recorded by the computers connected to the network so that they could be verified by anyone who had access to it.

When seen as “money” cryptocurrencies pose a very real challenge to the role of central banks in that they essentially establish a new way for value to be created and transferred – globally.

How many cryptocurrencies are there?

At this point, there are too many to count.

Cryptocurrency is given value both by its creation (or mining) and by the other tools that are used to store, access, transfer, trade and transact with it. For example, Bitcoin, which is the oldest form of digital currency, is now traded on exchanges. Its reflected value is usually calculated either against the dollar or the yuan (which most people use to “buy” Bitcoins).

However, it is also not quite that simple. The inherent monetary value of Bitcoin as expressed in traditional currency terms is also impacted by how many people want to hold Bitcoins at a certain point in time (for whatever reason) and further by how many people are using Bitcoin for some other purpose (for example, transferring Bitcoin to another place or using it to buy another asset).

That said, the way that institutional entities (such as the IRS in the United States or the European Union) recognize Bitcoin as a form of “asset” is very much reflected in their understanding of cryptocurrencies as a form of “cash” or monetary asset, valued by reference to local currency. In other words, the inherent value of Bitcoin as understood from the perspective of agencies and governments who recognize and use fiat currency is to treat Bitcoin’s value as an asset understood in terms of local fiat currency – as if Bitcoin’s entire “value” was like dollars, gold or oil.

The two most widely recognized forms of cryptocurrency that are commoditized currently are Bitcoin, which is the oldest and most recognized form of cryptocurrency, and Ether – the “gas” as it were that makes the Ethereum network tick.

What is the inherent “asset value” of Cryptocurrency?

The short answer is that there isn’t one. It can be the value assigned to the currency by what is paid to acquire it, what kind of other asset worth it can be used to buy, how much it costs to create or “mine” such currency, or the perception of its worth based on its scarcity or expected future value.

Ether, as much as it is beginning to be traded, was not envisioned as a “currency” but rather a way to pay for computer processing power to effect another transaction along the Ethereum network. “Digital tokens”, of which Ether is an example, can be priced by the amount of electricity and computing time necessary to either create them or to perform a specific function along the network (such as recording a transaction). In other words, “cryptocurrency” is the juice which allows connected devices to do what they were programmed to do.

It remains to be seen how cryptocurrencies will affect national economies – in fact, the concept of what a traditional economy is could easily be upended (which is the fear of the central banks). Regulation of cryptocurrencies is still beyond the reach, if not ability, of traditional economic controls. This is part of the allure of cryptocurrency. What its ultimate asset value will be, however, is still very much an unknown and incalculable concept.

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

What Is Blockchain? A Beginner’s Guide

The year 2017, for everything else it may or may not be, is already heralded as “The Year of Blockchain.” But what exactly is “blockchain” – and why is it slated to be the debutante of the ball across multiple industries?

Essentially blockchain is a way of connecting distributed databases to each other. In other words, it connects databases on machines that are not otherwise connected to each other in one firm or location. Further, it is also a way for these databases to “talk” to each other – to issue and receive commands and data in both encrypted and hashed form to accomplish functions or tasks. Blockchain is, in effect, a new kind of database, which writes “ledger entries” in different locations, but which can then be accessed by the network of computers to confirm that transactions did occur and reconcile these transactions.

It creates what is widely known as a “trustless” network – in other words, it removes the need for trusted third parties like banks or financial institutions to “enter” or reconcile entries, however this is a bit of a misnomer. The role that was formerly played by trusted third parties is now being played by the blockchain network itself. The “trust” that is implied is that the network is stable and the code – or protocols – of the network can in fact function as they are intended to. While blockchain may remove the need for trusted third party institutions, some of the newer blockchains (including Ripple) are based on the idea of “trusted” or “authorized” parties transferring data to one another. This allows a preselected group of “trusted parties” – in this case banks – to lower transactions costs, reduce the chance of fraud and remain competitive while creating in effect a private network.

The most revolutionary aspect of blockchain is that it moves the role of verification (of a task, payment or other action) from a single entity (such as a government or corporation) to multiple computers along its network. While a government or corporate entity (or even single person with enough wealth and power) could conceivably buy the majority of Bitcoins on the Bitcoin network and then hire programmers to change the rules of the network according to its own mandate, this is currently seen as a remote possibility.

The medium of exchange in the world of blockchain is cryptocurrency – tokens that have some value determined either by (a) direct market forces as in the case of Bitcoin or Ether, or (b) by the cost of the computing power required to produce them – in which case they is known as either a “tokens” or “altcoins”.

The workhorse of blockchain is the “smart contract” – which is just another way of saying that after a token has been “paid” for a particular purpose, then a certain action or transaction is triggered. For example, if Jane wants to send Bob five Bitcoins, she can utilize the Bitcoin network to do so (as long as she and Bob both have “wallets” connected to the network) and further, a record of that transaction will be recorded in all the computers in the network. If Jane is expecting to receive, in exchange for those five Bitcoins, ten shares of Bob’s company stock, he will be required to send her the digital token assuring her that the shares have been transferred to her before he can accept the five Bitcoins.

According to Nick Szabo, a cryptographer and “father” of smart contracts, an idea which he explored in a paper published in 1998, smart contracts are “a set of promises agreed to in a meeting of the minds [which] is the traditional way to formalize a relationship.”

Said another way, smart contracts work within the protocols (or algorithms) created to link the chain of databases together, to execute how such computers communicate with each other.

There are many different use cases for this kind of technology – although it has made its first impact in the world of finance. According to the Chamber of Digital Commerce, which has just published a report “Smart Contracts: 12 Use Cases for Business and Beyond” the industries (beyond finance) which are likely to see rapid deployment of the technology in the near future range from a further development of the concept in the financial industry to insurance and the healthcare industry.

What deployment of blockchain technology really means in the immediate future, is that the world will become more interconnected, that manual processes in many industries will be automated, and that the “costs” associated with these transactions will fall dramatically.

That said, it is far too early to predict what the adoption of blockchain will accomplish – just as it was essentially impossible to see where and how the Internet would change the nature of communication and community.

Suffice it to say, however, that by 2020, the world will already be a very different place because of blockchain’s deployment. By 2025, according to top consultants like Deloitte [pdf], the banking industry (at a minimum) will be profoundly disrupted.

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

New Focus On Women In (Fintech) Start-ups

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This is a guest post from Marguerite Arnold.

It is not just the stunning reversal of fortune for Hillary Clinton at the beginning of November which has stimulated a renewed interest in more diversity in the world of start-ups, and FinTech in particular. The conversation has been underway for quite some time.

Part of the drive for diversity, to be honest, is caused by a failure of women to rise to the top in most large businesses – including the financial services, banking or tech industries, despite a generation (at least) of trying. However, the focus on gender diversity remains, just about everywhere there is a budding FinTech start-up community. And a lot of the calls for diversity are coming from not “just” women, but men.

In Frankfurt Germany, this conversation is absolutely at the front and centre of just about every FinTech gathering right now. The Frankfurt “scene” is absolutely poised to break out on to the global stage, just because of the presence of so many highly educated, financially savvy people –from all over the world. But, as is painfully obvious, at gathering after gathering, except those ostensibly “for women”, the faces are mostly white, and with very few exceptions, all male.

As a result, there is an increasingly dedicated push to change that and for reasons that extend far beyond “political correctness”. This being Germany, there is a push to fill at least 30% of management boards with women as required by new German law that came into effect earlier in the year.

FinTech and Insuretech, in particular benefit hugely from the presence of women in senior positions for many reasons. The first is that the most successful companies in the sector succeed because they are able to define niche markets and reach them in new and often more efficient ways. While men are not incapable of figuring out how to do this, of course, having a different perspective, including unique experience and gender diversity along for the ride, is one way to succeed at this even better (no matter the community being targeted or service on offer). However, beyond service provision itself, the promise of encouraging more women to enter the FinTech industry is the new range of products their insights and experience have the potential to create. Even in the ostensibly “established” world of financial services and banking, the idea of a company (or companies) that provide services tailored to what women want is absolutely exciting. Beyond this, of course, is a wide range of products that interact with the consumer in different ways. Women play a huge role in helping to define the consumer experience – from the services themselves to how users interact with the interfaces.

As a result, there is actually no better time to be a woman in the world of start-ups. And the women who are, despite speaking and pitching to audiences still mostly made up of men , are also finding that for the first time there is a new acceptance and eager willingness to welcome them into the ranks of one of the most exciting industries on the planet right now.

You go girl!

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

(Image Source: Bridging the Gender Gap)

Frankurt: Europe’s New Fintech Hub?

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This is a guest post from Marguerite Arnold.

Frankfurt is one of the oldest business centres in the world. From at least Roman times, the low-lying city, bifurcated by the welcoming River Main, has been a hotspot for global endeavours that changed the nature of many industries – including but not limited to banking. Mayer Rothschild, a courtier to the German king of Hessen at the time, used the famous freedoms of the city to launch a global banking empire in the 1760’s.

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These days, Frankfurt is not just Europe’s banking centre and home to the European Central Bank. It is also on the verge of leading another revolution – in Fintech.

Why?

The first is just geography. In no other city where Fintech has taken hold are the presence of financial types and large banks so concentrated in such a small place. Frankfurt is roughly the size of Charlotte, North Carolina (the second largest banking centre in the U.S.) However, its residents, few in number compared to other large and influential cities and banking hubs, are both highly international (40% of the city is from somewhere else) and highly financially literate.

Further, with Fintech taking hold as a revolutionary force in banking and insurance, the large banks here are considering how to transition in a digital world which will change their business operations and market footprint – and that is not limited just to corporate banks, but global powerhouses like the ECB itself.

Frankfurt is an increasingly dynamic hub of Fintech start-ups, with unparalleled access to large banks. Even in London and New York, both financial superpowers in their own right, Fintechs do not have the same ability to reach power brokers and decision makers so easily and directly.

Frankfurt is also home to a well-heeled group of investors – whether they be individual “angels” or family offices – who are looking, at this point, for the next digital growth story. That makes the city one of the best places to both live and pitch on a regular basis. The start-up scene itself here is relatively tightly knit but, critically, also open to newcomers. Most advertise meetings on the Meetup Platform. It is possible to go to (at least) one event every day of the week.

Cross promotion of different kinds of events is also beginning to happen as the scene begins to mature. While the opening of Accelerator Frankfurt marks the first of such entities, it won’t be the last. Free office space for promising start-ups is relatively easy to find.

Unlike Berlin, Frankfurt also promises to be a city that promotes the growth of more B2B financial endeavours. While there are digital entrepreneurs here with start-ups of every kind, the mix in Frankfurt promises to see an increasing slate of innovative business models challenging every part of the banking and insurance business (which in Germany are more tightly linked than almost anywhere else in the world).

The impact of Brexit is also likely to give the Fintech start up scene here a boost, although it is uncertain at this juncture how much of one and in what form. What it is likely to do, however, besides sending a flood of British expats, is create a banking industry itself that is ripe for change and innovation.

Frankfurt is also (relatively speaking) far cheaper to live and work in (certainly comparable to Berlin). There are regional trains, subways that line up with station platforms and even street trains (plus busses) that make this little gem on the Main a potential start up paradise.

Four hundred years after Rothschild revolutionized banking, therefore, on the banks of the Main, another age dawns that promises innovations that are just as earthshattering, albeit this time, digital.

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

(Image Source: Wikipedia)

Bitcoin, Digital Currency and The Future of Banking

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This is a guest post from Marguerite Arnold.

When news broke in late October that some of London’s largest banks were investing in Bitcoin, cryptocurrencies in general got another boost. According to reports, however, this latest move to embrace Bitcoin was not a positive embrace of the digital currency per se, but rather a move to stockpile Bitcoin to fend off denial of service attacks from hackers.

Beyond hoarding digital currency as a defensive move in the age of DDOS bank robbers, banks are beginning to think about ways that bitcoin could be used within the banking industry globally. This is not limited to thinking about how Bitcoin could function as a new kind of currency – although that is an ever-present idea on the horizon. Bitcoin itself was created by technologists and programmers with a deep-seated mistrust of central banks themselves. These days, central banks in places including the US, UK and China, are also considering how the underlying technology – blockchain – might be used to record transactions in the real economy more efficiently and with greater transparency.

Blockchain – a system of distributed databases that exist on either private or relatively “public” decentralized computer nodes all over the world – may in fact be the most powerful and influential legacy of Bitcoin. The technology allows multiple users, including competitors, to keep an accurate tracking of events or financial transactions in a way that can be accessed and tracked by multiple users at any given time. The technology is frequently referred to as a “digital ledger”.

The time is ripe for innovation both on the digital currency front and in the use of “digital ledgers” for everything from basic currency tracking and F/X transactions to more sophisticated clearing and reconciliation processes. According to a recent report in the New York Times, the Bank of England has recently produced a report that the economic benefits of issuing a digital currency tracked by a blockchain could add as much as 3% to a country’s economic output. During a time of unprecedented globalization as well as new business models that look set to disrupt entire industries, including banking, the idea of having a digital currency that offers both greater accuracy as well as independence from central banks and government interference is also gaining greater and greater appeal.

There is also the issue of reducing costs as well as the larger question of how to transform banking service provision in the age of “digital” personal services. Everything from sourcing loans to personal banking services, particularly in an age of negative interest rates, is potentially up for grabs – enabled by digital services and the technological backbone they rely on.

According to most industry analysts, the impact of all of these forces is likely to create a tipping point within the next 10 years, leading to wide ranging transformation of all banking services and the companies that provide them. Cryptocurrencies and blockchain are likely to be major pieces of the puzzle, however they are ultimately configured, integrated and used. What is still uncertain at this juncture is exactly how this future world will look – from consumer interactions to the most sophisticated back office clearing procedures and reconciliation measures at the world’s largest banking institutions.

What is certain however, is that digitalization has hit the banking sector – and there is no turning back.

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

(Image Source: Flickr)

Brexit & The Future of Startups In Europe

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This is a guest post from Marguerite Arnold.

Since 1972, Britain has been part of the European continent. I remember the opening very well. I was a kid, living in London. The new openness meant we could afford oranges from Spain. Every week, an old French farmer would also peddle through London with strings of onions hanging from his bicycle. I thought the arrangement was unbelievably cool and more than romantic.

Fast forward forty years, and the situation is now reversing, and that is not only a shame, but I predict it will have dire and unforeseen consequences for the British.

The England I knew as a child was a fascinating place. It was a country struggling to keep together the concept of a social state, still wounded by the war, and losing the last pieces of its Empire. You could still travel to central parts of London and see unreconstructed bomb sites left over from the war. I will never forget seeing one, incongruent with the bustling scenes around it, and asking my father what it was from. He answered “The Blitz.”

Today, of course, London is a different city, and England is a different country – transformed, much like the U.S. into an economy which may be again calling itself “shared” – but in fact is premised on something very different.

After WWII, most European countries, as well as significant parts of the U.S., believed the future was only attainable by creating a strong social platform upon which the other parts of life would work. “Regular” jobs. A middle class life. A steady pay check. A system to take care of the sick. Retirement funds to take care of the old.

That system is gone now – or at least fading, and we are on the cusp of something else. Thus the explosion of start-ups, start-up culture and the new entrepreneurialism. This is part of the reason that start-ups have thrived in the U.K. – particularly high tech start-ups. The country has been, for a generation, trying to define itself. There is no way the island can survive independently. No country can. The British train system uses German trains. The auto industry is hurting. Oil is an uncertain energy source. Overpriced British real estate in London fueled by foreign investment does not an economy make. Britain, right now, is much like the U.S. Casting off the old very quickly in an attempt to create something that works better (although for whom and how many is still an open question).

However start-up culture is not the same everywhere.

Across the Channel, things are different. There is more social integration and infrastructure. Every country east of France still has a streetcar system that works. There are still national healthcare systems which strive to provide health care for the oldest and sickest. And the approach to start-ups is a lot more cautious – in part because things still work the way they were designed to. People here just do not understand how, for example, a presidential candidate who did not pay his taxes for 20 years can even be credible.

This reliance on a broader superstructure, which the Europeans are loath to destroy in search of something “new”, does not mean there is no innovation. As a professor of mine said to me recently, mobile payments (a particularly hot area of Fintech innovation elsewhere) are just not a priority in Germany because of the continual upgrades and improvements to the customer banking experience (also known as SEPA), that has already created a workable middle way.

However, Europeans in general and Germans in particular, are not deaf to innovation. They too are looking for ways to innovate as the older systems become increasingly outdated. It is just moving a bit more slowly here – and frankly a bit more humanely. Chaos might provide a lot of exciting booms, but that is not a place where most people want to live their lives. And as Britain shuts its doors to the rest of the continent, there are many now who are looking increasingly to both Berlin and increasingly Frankfurt, to be a new platform for innovation.

brexit-the-future-of-startups-in-europe

In Frankfurt, there is a steadier (and much cheaper) platform for innovation in the form of cheap rent, transportation and an overall standard of living. And it is provided by the security and infrastructure that comes when countries do not throw the baby out with the bathwater in search for “something” if not “anything” new.

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

(Image Source: BBC and Tripadvisor)

Corporate Career or Entrepreneurial Path?

corporate-career-or-entrepreneurial-path

This is a guest post from Marguerite Arnold.

I am a bit of a late bloomer in some ways – certainly academically. At the age of 48, I decided, after a life spent in business of all kinds, to go back to school, obtain my EMBA, and focus on an entrepreneurial career.

It’s not really that delaying my master’s was a choice. When I was younger, I couldn’t get a school loan. I had no cosignors. And the jobs I got never paid enough to get the loan either.

But here I am.

If I were to compare myself to any generation right now, it would not be my own but to the generation of young people currently leaving university for the first time. I have no home loan and, despite a good stint on Wall Street earning a six figure salary, all of my net worth was wiped out in the “Great Recession” along with anything like steady employment.

As a person of a certain age, not to mention a foreigner in a country where I still struggle with the native language, I have embraced the digital “gig economy” – I had to. That said, I have always been exposed to it. My parents were self-employed. My uncle was Peter Drucker – a man who wrote about corporate management – yes – but who also foresaw the situation we face now. Going to business school these days, more than ever, is about learning to manage the dichotomy between the way things were and the way things are changing.

Don’t kid yourself. The entrepreneur’s path takes a lot of practice and perseverance. It is never easy. But thinking out of the box right now is the only sure path to longer term survival. The attraction of a steady full-time job, certainly in the U.S. and the U.K., is the comfort provided by getting a pay check each week, or at the end of the month. The concept of job security though has gone out the window. The concept of a “corporate manager” is also changing fast.

As business school students contemplate the future, one thing is very clear. The old ways of doing things, along with old business paradigms, are shifting faster than the textbooks can adapt. Faster, in fact, than society can. That is always the way it has been, but this time, the shift is more profound. Companies cannot survive without acting like lean and agile start-ups, and figuring out a way to make that happen is a core priority for managers.

In some ways, deciding whether to pursue a corporate track job or jump into a start up is not a choice – just a delayed reality. Newly minted business graduates, in particular, could do far worse than reset their expectations and set their vision on leading an entrepreneurial life, right from the start.

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

(Image Source: Copypress)

Essential Features That Your Serviced Office Should Have

Essential Features That Your Serviced Office Should Have

It is very common these days for businesses of all shapes and sizes to use serviced offices. For smaller companies and startups, however, they are particularly valuable. If a young business wants to get off the ground fast, they can do so by paying a fixed rate fee to rent a fully equipped workspace. It gives them access to state of the art resources, without the associated expenses.

If you are currently on the hunt for a suitable serviced office, there are a few things that you need to keep in mind. It is not always easy to find an adequately supplied workspace that is also maintained efficiently, but it is possible to find both of these things. A great resource to see where you can locate your business can be found here.

This post provides some of the most essential features of a serviced office and will help you find one that is perfect for your business.

Prestigious Address

If you are willing to pay for a managed office space, you have a right to expect its address to enhance your own reputation. This is why location is key when it comes to choosing a serviced office. For young businesses, it can make a huge difference, because it replaces an unprofessional domestic address with a highly regarded corporate one. It takes a lot of investment to set up that first independent site, but serviced workspaces are a great way to feel the benefit even if a company doesn’t have the necessary resources quite yet.

Flexible Contracts

The rise of nomadic entrepreneurs has bolstered the need for a much more flexible corporate culture. Innovative new businesses no longer want to be tied to one city or even a traditional work schedule. They want the freedom to work on the move and respond proactively to developing market trends. Being unrestricted by administrative ties is a big part of this and serviced offices are an easy way to invest in the amount of security that works for you. If you don’t have to commit to a two year lease, you will have more flexibility to plan for a wider range of future eventualities.

Back Office Support

The best serviced offices are more than just blank spaces for businesses to fill. They also provide access to the finest IT, secretarial, administrative, and tech support. With a back office of this calibre, entrepreneurs and startups never have to worry about going it alone. They are just one phone call away from a highly trained and experienced team of advisors. Whether you need help greeting guests, operating IT systems, or organising files, all you have to do is ask. The clue is in the name – with a ‘serviced’ office, you should expect that all of your corporate needs will be met.

Leisure Spaces

Not all serviced offices provide access to a leisure or relaxation space, but it is an essential part of the work routine. Studies have shown, time and time again, that productivity suffers when people don’t take regular breaks. In order to work efficiently, you also need to give your brain a chance to rest and recharge. The best serviced offices come with outdoor leisure spaces, so that occupants are exposed to plenty of daylight. This keeps them alert, happy, and healthy for longer. Keep this mind when searching for your ideal workspace.

Alexandra Richards is an Australian business consultant, located in Perth. She takes a keen interest in the business structures and work culture of Perth based businesses. She has recently been working with Servcorp to help deliver tailored solutions to local businesses.

4 Financial Innovations to Make Business Easier

4 Financial Innovations to Make Business Easier

This is a guest post from Sarah Smith.

Overview

The competitive nature of business today is stronger than it has ever been, and so it is important for companies to use all of the tools at their disposal.

There are many new innovations that allow companies to finance purchases creatively in order to meet their goals over the long term.

Here are four (4) examples of financial innovations that can make your business easier to run.

1. Peer Lending

Peer lending is one of the newest financial innovations in the world today. People from all over the world can come together online to offer up a loan to various companies. While the interest rates are usually higher than a regular bank loan, the collateral requirements are almost nothing. Check out this review as an example.

With peer lending, a business can simply explain what they need the investment for and pitch people around the world for funding. This is a huge game changer in industries that are capital intensive, and the non-bank lending options are growing every day. Innovative financial solutions can be used by a business to raise the capital required to invest in new initiatives or fund ongoing projects.

2. Online Banking

Online banking is another recent innovation in the banking and finance industry. In years past, it was time consuming to go to the bank and withdraw money. Online banking now allows a company to withdraw or deposit money automatically. It often provides tools and information that can allow a person to make important financial decisions in real time, and to apply for a bank loan which can be approved online. Any business that wants to streamline its finances should consider online banking.

3. Finance Tools

There are many different finance reporting tools available that can help businesses see where their money is coming from and going to. Products like:

  1. Mint, which can allow a business to link up all of its electronic transactions in a way that makes sense. These software tools publish reports monthly that show a company where they spend the most money, which can allow a business to identify trends over the long term;
  2. FreshBooks, which is another great tool to manage your finances, helps businesses get paid faster with beautiful, simple company branded invoicing; and
  3. FinancialForce, which is a cloud-based accounting system with several inherent applications, such as General Ledger, AR/AP, Billing, Revenue Recognition, Spend Management, and Fixed Assets.

Anyone wanting to take their financial acumen in business to the next level should spend a bit of time researching these various tools.

4. Online Advice

Many people do not realize that there is a lot of creativity and innovation in the advice sector of finance right now. Instead of having to meet someone in person, a business owner can go online to receive advice on a subject such as through Betterment or FutureAdvisor. This offers a lot of advantages for business owners who are stretched for time. It will obviously be important to choose the right person to work with, and so it will be useful to understand how to choose a finance specialist.

With all of the innovation happening in the world of finance, it is vital that your company takes some time to understand the changes that are happening so that you can take full advantage.

Sarah is a small business owner, and is currently learning about marketing, using the internet. Aside from working on her own business, she likes to use social media, and read travel books.

Man vs Chimp

Man vs Chimp

(Source: Flickr)

Humans and chimpanzeees (our closest genetic relatives) are both social animals that have the ability to form groups and communicate between themselves.

Why is it then that humans have populated the globe (7 billion and counting) while chimp numbers continue to fall (currently standing at around 250 thousand or less)?

A key difference between us and our close genetic cousins is our ability to use, control and reflect upon language.

Research has shown that chimps can learn, use and teach other chimps how to use sign language (an insight I picked up from Emeritus Professor Glenn Bassett‘s book “Word Play“). However, chimps don’t have the ability to use spoken language and, more crucially, codify that language in written form.

Spoken and written language are easy to take for granted because everyone who is currently alive was born after the invention of both technologies, however the implications of these technologies appear to be an important factor in explaining our ability to survive and thrive as a species.

Isaac Newton famously stated in the late 17th century that “If I have seen further, it is by standing on the shoulders of giants.”

In other words, Newton was acknowledging the important truth that his discoveries were dependent on the work of people who had come before him. People whose insights he was able to benefit from because they were communicated to him through written language.

It’s one thing to have this amazing technology available to you, and it’s another thing to appreciate and make use of it.

Here are three questions to get you thinking:

  1. What was the name of the most recent book you read?
  2. Do you keep a journal to record your thoughts and ideas? If not, why not?
  3. What was the topic of the most recent article you wrote or co-authored? Did you publish the article so that other people could read, share and benefit from your ideas?

Let me know your answers via email by hitting reply, or sending an email to tom [at] spencertom [dot] com.

The Psychology Behind Marketing Online Education

Psychology Behind Marketing Online Education

This is a guest post from Sarah Smith.

How do people decide which online university will meet their needs?

What drives a student to choose one option over another — especially when both schools have little name recognition?

No one decides on an online education based on a single advertisement or one aspect of a website. Instead, a multitude of psychological factors work together.

Every student is different, bringing personal priorities to the selection process. That said, it is possible to use psychology to decode the common factors. By understanding the thought process that goes into a student’s choices, an online program can grow its enrollment faster.

Let’s look at some of the key factors:

1. The Feeling a School Will “Work With You”

One of history’s most famous psychoanalysts, Sigmund Freud, posited that people are driven to seek pleasure and avoid pain. Prospective students want the “pleasure” of a great education and the opportunities it affords, but also wish to avoid the “pain” of failing!

Schools aimed at working adults should evince a compassionate, caring manner to make the threat of failure seem distant.

2. Social Proof as Evidence of a School’s Intentions

“Social proof” is a key concept in neuro-marketing, the fusion of neurology, psychology and marketing. To overcome their doubts about a course of action, most people prefer to see that others like them have succeeded before.

Testimonials associated with clear, smiling photos of a variety of students can be motivational.

3. The Right Visual Cues

Online schools can offer a variety of programs, from the humanities and social sciences to vocational programs. When visuals are congruent with a college’s offerings, students will be more inspired to commit.

Blue, gold, and gray are associated with “prestigious” subjects in the humanities, while red, white and green evoke the practical.

4. A Sense of Urgency or Scarcity

Deciding to go to college can be a leap of faith, especially for those who have not been in school for a long time. A sense of urgency can shake them up and compel them to take action.

Establishing and communicating clear deadlines for enrollment, along with a path to speak directly to an admissions counselor is likely to improve conversion.

5. Anticipatory Activity

Anticipatory activity” is a perspective-taking process people adopt when they want to modify their social role. For example, a student who wishes to graduate from college with good grades will usually try to adopt habits they think are associated with that success.

When a college website is written from a future-oriented perspective, with rich details relating to a student’s future success, it can help activate this process, and so would-be students may become more confident that enrolling is the right course of action.

All these tools rely on one central factor: understanding your audience.

Someone who wishes to achieve a degree in philosophy may be very different from someone who wants real estate training online. Although, if you visit NREL’s website (a company that provides online real estate courses for NSW) you’ll see many of the above techniques.

Although each student is different, they all fall into demographic categories that can be used to develop a detailed understanding of the “average” visitor. The better you understand that group, the more effectively you can tailor your site experience to their needs.

Sarah is a small business owner, and is currently learning about marketing using the internet. Aside from working on her own business, she likes to use social media, and read travel books.

Creation vs Appropriation

Creation vs Appropriation

(Source: Flickr)

What do the painter, the author and the tech entrepreneur all have in common?

They are all in the business of creation; producing new works for the benefit of their target audience.

And what about the professional gambler or the Wall Street prop trader?

They are both in the business of appropriation; placing calculated bets in order to appropriate more of what already exists in their direction.

Creation and appropriation are very different kinds of activities, and both can be extremely lucrative. But the truth of the matter is that while creation has the potential to leave everyone better off, appropriation typically doesn’t.

What kind of projects are you currently working on?

The New Philanthropy: The Push For A Renewable Capital Innovation Fund

The New Philanthropy

This post is a collaboration between BROSO™ and Tom Spencer, and was originally posted on Truth Has No Temperature.

Why is the Australian venture capital industry almost non-existent and irrelevant on a global scale?

Three reasons:

  1. A massive misallocation of capital, particularly when it comes to Australia’s $1.7 trillion superannuation bolstered capital pool, the fourth largest capital pool in the world.
  2. An attitude of risk-lethargy that impedes any real innovation from happening within Australia.
  3. An ingrained fear of failure that extends to the commercial world and business start-ups, to the point where in Australia there is a very negative attitude towards anyone who declares bankruptcy, the net result of which is less risk-takers, less innovators, less venture capitalists, and most importantly less GDP growth and a diminished tax base.

Many of the start-up opportunities for venture capital exist in the digital or online space, and these ventures by their very nature belong in an international market. Failure of Australia to play in this global sandpit means that Australia is experiencing a flight of human and intellectual capital.

In order to have a functional venture capital industry you need quality start-ups.

So where do these come from, exactly? Generally in the US and Europe it is from within high-quality University programs.

So where are the incentives to start new ventures in Australia’s vibrant University culture? Perhaps the answer is that Australia has a much too generous University and accompanying welfare system that fosters a sense of entitlement and robs young Australians of the desire to create, or take on any risk.

Why does this matter?

With the level of imagination, commercial creativity and desire to innovate in Australia there are all the ingredients for a thriving startup culture and venture capital industry.

But of course there’s the other side to the coin: capital. This is where the Australian venture capital industry has bordered upon impotence.

They simply can’t seem to raise serious capital.

Here are the facts:

  • Total venture capital investment in Australia in 2013 was barely AU$150 million; and
  • Total venture capital investment in Australia in 2014 increased significantly but still only amounted to AU$516 million.

Compare this with the total venture capital investment in Europe and the US:

  • Total venture capital investment in Europe in 2013 was AU$9.5 billion (63 times the amount of Australian venture capital investment over the same period); and
  • Total venture capital investment in the US in 2013 was AU$42.3 billion (282 times the amount of Australian venture capital investment over the same period).

An interesting comparison is to consider the total investment by Chinese Investors in Australian residential property:

  • Chinese investors pumped AU$5.9 billion into Australian residential property in 2013 (40 times the amount of Australian venture capital investment over the same period); and
  • Chinese investors pumped AU$12.4 billion into Australian residential property in 2014 (24 times the amount of Australian venture capital investment over the same period).

But a lack of capital is absolutely NOT the problem. It’s where Australia is deploying that capital.

Australia has one of the largest wealth markets in the world. Australia’s capital pool has grown at an annual compound growth rate of 12% p.a. since 1992.

The unprecedented growth in Australia’s capital pool has obviously been underpinned by its superannuation system which requires a portion of all Australian workers’ incomes to be contributed to a retirement pension fund.

Are there unintended consequences of the private and public sector both ignoring venture capital as an asset class in Australia?

One of the unintended consequences of ignoring the venture capital industry in Australia is human capital flight. What we mean by this is that if the money is not available to invest in new initiatives and to enable young entrepreneurs to start and grow their ventures in Australia then many of these people will simply leave the country. If the government invests in 13 years of school education and then 3 to 5 years of university education only to see the best people leave the country, then this is a huge gift to the rest of the world and represents both lost opportunity and a huge drain on the Australian economy.

A lack of venture capital money means that it will be difficult for innovative young Australians to launch new ventures and manage to survive long enough to reach profitability.

Consider the enormous tax losses suffered by the ATO and the general reduction of the Australian tax base as a result of losing an entire multi-billion dollar asset class to another hemisphere.

Australia could realistically expect to have a $5 billion a year VC industry.

Now let’s make some assumptions about income tax, corporate tax, and GST.

Assuming there are 250 investee companies and on average each of them generates revenues of $20 million per year that equates to $5 billion in annual revenues overall. If the average company has 20% net margins, then this would produce earnings of $2.4 million and the government could hope to collect $180 million in corporate tax revenues. The government would also pocket $500 million in GST revenues (more than what the VC industry invested in Australia in 2013).

Assuming that salary and wages for each company represents 30% of gross revenues and that the blended income tax rate is 28% then this would also mean that the 250 investee companies would produce $420 million in income tax revenues.

All in all, the government is missing out on a potential $1.1 billion in tax revenues per year.

What are the problems with the ingrained culture of the Australian venture capital industry?

American VC funds are willing to invest serious money in early stage ventures because they know how profitable it can be.

The US sees more exits, at higher valuations, and the success of American VC funds has attracted more VC players, more money, and more entrepreneurial ventures.

Part of the problem in Australia is that there is less money available, which means that it is harder for Australian startup founders to get meetings with investors and harder for them to secure investment.

But lack of money is only part of the problem. Another problem is that startup founders typically have to work harder and wait longer to secure investment. At the early stage of a venture where every day counts, delays in securing funding can mean the difference between success and failure, and distract founders from the vital task of growing the business.

Lack of money and longer waiting times are not the only problems though. The main problem is that the Australian VC industry lacks the visionary mind set required to grow successful new companies in Australia.

In the States, the VC industry is enthusiastic about investing in early stage ventures, whereas the mood in Australia is sceptical and hesitant. American VC investors look for passion and market potential, and know that asking for financial forecasts from a seed stage company is pointless. Down under it is a different story. Australian investors typically require a full blown business model with financial forecasts, which is genuinely impossible to provide if the venture hasn’t proven its business model and doesn’t yet have any customers.

What is the New Philanthropy?

Philanthropy is defined by the Merriam-Webster Dictionary as the practice of giving money and time to help make life better for other people.

The push for a more significant, better funded venture capital industry in Australian can be framed as a type of New Philanthropy.

We believe business is about solving problems and delighting people, and this becomes viable when businesses manage to do this in a financially sustainable way.

In any case, the New Philanthropy is not a new concept: this is basically what Richard Branson already does when he says he believes in supporting new entrepreneurial ventures and to our knowledge he signed Bill Gates’ giving pledge on that basis, which means he is not conforming to the way that most people would delineate business and philanthropy/charity.

Australia requires the New Philanthropy, and the push for a Renewable Capital Innovation Fund.

By Benjamin S. Broso B.Bus LL.B (Hons) and Thomas D. Spencer B.Com LL.B (Hons) (Sydney) MSc Financial Economics (Oxon).
Tom Spencer Ben Broso

7 Insights On Crowdfunding From Oxford

Crowdfunding in Oxford

Crowdfunding is a growing trend that allows individuals, non-profits and start-ups to fund projects by raising money from the crowd using an online platform.

Last week I attended a crowdfunding discussion at the Oxford Launchpad with Jonathan May, CEO of Hubbub, and representatives from the development offices of various Oxford colleges.

Asking for donations from alumni is one of the things that Oxford’s colleges do best, but crowdfunding offers a new and largely untested approach.

Pioneering new innovations is not necessarily something that Oxford is known for, and so it was interesting to attend an open discussion between Hubbub’s co-founder and representatives from some of Oxford’s colleges including Melissa Gemmer-Johnson who was representing my own college, Green Templeton.

Here are seven (7) insights that I picked up from the discussion:

  1. Firstly, and probably most interestingly, although crowdfunding is nominally about raising money, one of the main benefits of crowdfunding, as seen by Oxford’s Somerville College, is that it can enable the fundraiser to communicate with the donor in a more personalised way by providing specific and ongoing project updates. Before the advent of crowdfunding this kind of personal touch was only feasible for very large donors (think £1 million or more) but crowdfunding makes it possible for even the very smallest donations;
  2. Hubbub’s Jonathan May was quick to highlight that Hubbub, in contrast to some other crowdfunding platforms like Kickstarter, provides a number of key benefits including (a) a white-label platform that lets the fundraiser use their own branding and marketing materials, and (b) data analytics which allows the fundraiser to identify donors and track where referrals have come from in order to generate new leads;
  3. The most effective way to raise funds, at least when it comes to talking with Oxford college alumni, is to tell them a story about what’s currently happening in college rather than directly asking for money, the money tends to follow;
  4. Repetition pays dividends. It is typical for a donor to hear about a project or fundraising campaign two or three times before they decide to donate;
  5. Long fundraising campaigns are not necessarily the best; two or three weeks was suggested as an ideal length for a giving campaign.  Most money tends to be given at the beginning of a campaign (by the consistent givers) and at the end of a campaign as the pressure mounts and the laggards come on board just before the deadline;
  6. Videos are an effective marketing tools; Hubbub’s Jonathan May indicated that projects which have videos are twice as likely to be successful; and
  7. Contributions lead to more contributions; Hubbub’s Jonathan May indicated that projects that lack friends or family to provide early donations are significantly less likely to reach their ultimate donation targets.

Collaborative Consumption and Social Entrepreneurship, A Cautionary Tale

A few weeks ago I attended a panel discussion at Oxford’s Said Business School entitled “Trust Me, I’m A Stranger: Learn from leading entrepreneurs innovating in the collaborative economy”.

The panelists were Lily Cole founder of Impossible, a social network that encourages users to exchange skills and services for free in the hope of encouraging a peer-to-peer gift economy; Sam Stephens founder of streetbank, a website that helps neighbours build community, reduce consumption and save money; and Ivo Gormeley founder of GoodGym, a growing movement of runners who run to do good.

The panel was moderated by Rachel Botsman, a self-styled expert on collaborative consumption.

Collaborative consumption is a growing trend and looks set to continue for some time. It refers to the fact that the Internet enables people who have things to sell or share them, and people who need things to buy or borrow them.

Buying and selling, sharing and borrowing are nothing new. They have been going on since the dawn of humanity. But the hype around collaborative consumption is due to the fact that the Internet allows people to connect at very low cost (in terms of time and money), and so makes it possible to create markets that didn’t formerly exist because they weren’t economically viable.

While the collaborative economy does offer exciting possibilities and significant promise to enable us to consume more while producing less, I was underwhelmed by the three self-proclaimed social entrepreneurs who spoke.

For three reasons.

Firstly, the panelists demonstrated a lack of understanding of how things work online. 

Lily Cole spoke about the slow growth of her platform, Impossible, and argued that people just need time to become familiar with a new medium, and that it just takes time for people to trust each other online.

This sounds like a plausible argument, but you don’t hear Mark Zuckerberg or Reid Hoffman talking about lack of trust online.

Facebook and LinkedIn are platforms that launched successfully because they were able to attract the critical mass of active users needed to create sufficiently strong network effects, and thus a self sustaining community.

Secondly, the self-proclaimed social entrepreneurs all seemed blissfully aware and yet surprisingly apathetic about the fact that they lack the resources required to compete should a new venture-backed start-up company decide to enter one of their market segments.

Uber poses a significant threat to the taxi industry worldwide largely because it has $1.6 billion to spend.

Good intentions are meaningless if you lack the resources required to carry out your mission; and the panelists were full of good intentions.

Thirdly, two of the panelists (Lily Cole and Sam Stephens) typified the social entrepreneurship movement in that they were slightly too self serving and self congratulatory to be given the respect that they so desperately crave.

Lily Cole has a net worth of around £8 million, and yet was happy to take around £250,000 from the UK government in order to launch her (lackluster) collaborative sharing platform.

Sam Stephens took a similar amount from the UK government. He joked during the panel discussion about needing a new laptop and whether he should borrow one through streetbank, the sharing platform he founded with the money. He conceded that since nobody was likely to lend him the Macbook he so desperately coveted, he would probably just spend some of his grant money to go and buy one.

Social entrepreneurs love to frame themselves as public benefactors, but sometimes the only people they are benefiting are themselves.

Libin’s Law

Libin's Law

(Source: Techworld)

Phil Libin, founder and CEO of Evernote, was one of the guest speakers during Silicon Valley Comes to Oxford which was hosted at Oxford’s Said Business School a fortnight ago.

As part of the conference there was a debate held at the Oxford Union, the world’s oldest debating society, the motion being “This House Believes that Humanity’s Augmentation with Technology Creates a Better World”.

The debate was a heated one, and Libin was a speaker for the proposition.

In making the case for technological progress in general (as you would expect from a tech founder), and for human augmentation in particular, Libin argued that “[t]he upsides of making people better and making people smarter will far outweigh the downsides.”

At the same time he was quick to acknowledge that some of the potential risks associated with human augmentation are likely to come true, and we will need to be prepared to minimise and mitigate these risks.

These risks were variously acknowledged to include (a) the creation of an unrivalled and potentially immortal tech elite, (b) the creation of artificial intelligence which has been characterised by Stephen Hawkings and Elon Musk as a technology with extreme downside risks, and (c) the creation of greater inequality worldwide since only the wealthy will be able to purchase augmentation technology in the early stages, and so they may gain a self-sustaining advantage over everybody else.

In response to the risks outlined by the opposition team including their references to Murphy’s law, Libin proposed a law of his own.

“The opposition talk very intelligently about Murphy’s Law … but there’s an alternative to Murphy’s Law, which I’d like to propose here. In fact, I would very much like from here on out, for this to be known as Libin’s Law … It’s the combination of Murphy’s Law and Moore’s Law. It says that the number of things that go wrong will roughly double every year and it’s for this reason that we need technology and that we need augmentation.”

Whether it be artificial intelligence, or some other form of existential threat like climate change or nuclear proliferation, are you inclined to agree with Phil Libin? Do we need to augment humanity in order to protect and save it from these escalating risks?

Elon Musk Debuts the Tesla Powerwall

A revolution in energy technology? Elon Musk launches the Tesla Powerwall

Elon Musk, CEO and product architect at Tesla Motors, has just announced the launch of the Tesla Powerwall. Musk was a co-founder of Paypal with Peter Thiel (who I talked about yesterday), and has since gone on to found Tesla Motors, SpaceX and SolarCity.

The new product is a home battery that represents a potential revolution in energy technology. It is designed to store around 10 kilowatts of energy, and could be used (in combination with solar panels) to take homes off the grid.

Solar power is likely to be part of the solution that frees us from our dependency on burning fossil fuels.  The big catch with solar power though is that the sun doesn’t shine at night. The Tesla Powerwall is a wall mounted battery, and so if used in combination with solar panels, it could allow people to satisfy their energy needs without relying on grid energy.  This is significant because grid energy is often produced by burning fossil fuels which produces CO2 emissions and contributes to global warming.

It will be interesting to follow the evolution of this technology in the months and years to come.  We could very well be witnessing the initial steps in a global energy revolution.

Peter Thiel at Oxford’s Said Business School

I had the good fortune yesterday to attend a conversation between Teppo Felin, Professor of Strategy at Oxford’s Said Business School, and Peter Thiel, co-founder of PayPal and recent author of the bestselling book Zero to One: Notes on Startups or How to Build the Future.

Apart from being a co-founder of PayPal, Thiel is also known for being the first outside investor in Facebook, taking a 10% stake in 2004 for $500,000. He now sits on the company’s board of directors.

As if that weren’t enough, Thiel is also:

  • Co-founder and chairman of Palantir, an American software and services company;
  • President of Clarium Capital, a global macro hedge fund;
  • Managing partner of Founders Fund, a venture capital fund with $2 billion in assets under management;
  • Co-founder and investment committee chair of Mithril Capital Management, a global investment firm; and
  • Co-founder and chairman of Valar Ventures, a globally oriented venture fund.

Needless to say, I didn’t want to miss this conversation with one of the world’s tech startup demi-gods.

Below I highlight ten (10) of the key lessons shared by Peter during the discussion.

  1. When it comes to teaching entrepreneurship and innovation there is a certain paradox.  How do you offer a formula for how to do new things? Science always starts with experiments and every moment in the history of technology happens only once. For example, the next Gates won’t create an operating system and the next Zuckerberg won’t start a social network.
  2. A lot of great entrepreneurs have certain diametrically opposed personal qualities. They will be, for example, people who are very stubborn but yet still quite open minded.
  3. Imitation is how culture is built, but it is also how things go wrong. People who are hyper-socialised (for example, business school students) are more likely to follow the big social trends and more likely to be talked out of their truly interesting and original ideas before they are even fully formed.  Innovation requires a certain willingness to buck the trend.
  4. In a company, you want to unite people around a common mission which differentiates the company from the rest of the world. For example, Elon Musk’s company SpaceX is the only company aiming to go to Mars.  At the same time, within the company, you want the roles to be as differentiated as possible. Conflicts tend to arise when people’s roles are too similar.
  5. There is not enough time to A/B test every idea you might have.  We live in a world which is far too skewed towards A/B testing, and not enough towards mission driven and vision driven companies.
  6. If you define the culture of a company the way an HR person would, then that’s probably evidence that you have no culture at all. You shouldn’t think of a culture as “having foosball tables and lava lamps” or anything generic like that. You should define culture around the common mission of the company.
  7. Assuming it were possible to reduce innovation to a formula, Thiel says the three part formula for a successful startup would be to have (1) a great team, (2) some great technology (because Thiel is a tech investor), and (3) a good business strategy.
  8. A startup should have a great team, and the team should in fact be a team. You need very talented people who can work well together. Preferably people who have known each other for a decent period of time, and who have complementary skills. When it comes to finding a startup co-founder, Thiel notes (tongue firmly in cheek) that “you don’t want to get married to the first person you meet at the slot machines in Las Vegas”.
  9. Business strategy is about having a story which explains how the startup will move towards building a monopoly. You can have a great team, and great technology, and no business at all. If your business creates X dollars of value and you capture Y% of X, most people forget that X and Y are independent variables. In most cases Y equals zero percent (0%).
  10. Investment capital is often deployed in extremely inefficient ways. Thiel notes that there is a very big difference between investing your own money, and investing other people’s money.  When you invest your own money, you are just trying to generate good returns. But when you invest other people’s money, you have two objectives. Number one is to get good returns, and number two is to look like you’re going to get good returns.  And the disconnect between those two can be much larger than people would typically think.