The Portugal Fintech Report 2019
Founder & CEO of Revolut
After the surprising announcement that Revolut was going to expand its operations to Portugal, building a team of 400 people, Portugal Fintech went to talk with Nikolay, the CEO, and Ricardo, Portugal’s Country Manager, in order to understand what was on the grounds of this decision and what we can expect from its promising future.
It is already news that Revolut chose to expand, with more than 400 hires to be allocated to the Revolut offices in Oporto. What weighed in that decision?
Portugal is quickly emerging as a key FinTech hub in Europe, and we’re incredibly proud to be playing our part in that movement, as we look to create up to 400 new jobs. Last year, during my trip to WebSummit in Lisbon, it became very clear to me that the country was fully embracing the benefits that financial technology has to offer.
You have stressed before that Portugal is emerging as a key fintech hub in Europe - what would you say we are doing right?
The Portuguese are early tech adopters. People are keen to experience new products and services that may facilitate their day-to-day life. Due to Portugal’s amazing quality of life, great resources, good cost of living, it’s normal that tech companies are putting the country in the forefront of their mind for anew investments.
The presence of big tech events like Web Summit also, undoubtedly, help bring clarity on this journey. Portugal has been working really hard to showcase how its startup ecosystem is excelling and I think they are now profiting from it.
THE PORTUGUESE ARE EARLY TECH ADOPTERS.
What is your vision for Revolut and on which stage of it are you?
We are building a truly global bank.
Our vision is strongly based on one of our mission pillars: never
settle. Revolut is a company that is constantly innovating, that will never stop looking for new features that are relevant for our customers and that will continue on trying to break the status quo. We celebrated four years this year with more than 7 million customers and we’re expanding into new markets like USA and Singapore. We’re still at an early point in our journey, but I’m immensely proud of how much our teams have mastered to accomplish in such a short term. Our goal is always to put the customer at the center of everything we do, so we’ll just keep working hard to reach the goals we set out at the beginning of our journey.
OUR GOAL IS ALWAYS TO PUT THE CUSTOMER AT THE CENTER OF EVERYTHING WE DO (...)
How can this expansion help you achieve it?
If we want to be a truly global bank, we need to be where our customers are. Portugal is a very interesting market, across Europe we’ve been doing very well, but we need to establish our presence in other territories, like we did with Australia and like we plan to in markets around the world. The office in Matosinhos will become our second biggest customer support center.
The fact that we’re investing in the country brings additional awareness and with that, hopefully, additional customers that might only be hearing about us now. People need to know we exist. Once they know, they typically enjoy and use the product because it appeals to ever-demanding customers.
Revolut is known for developing really fast, partnering with other companies to speed the time to market. What is the “secret sauce” for such a speed in development?
There is no secret recipe for success besides having a team of talented and passionate employees, and a drive to succeed. Revolut’s success is due to our dedicated team of experts from a number of interesting backgrounds that didn’t feel that the industry had a solution for them.
This goes out to the core of every developer, every financial expert, every compliance team member, to everybody. They know they are creating a product that truly impacts people’s lives, and that’s their fuel for keeping up and getting it done.
THERE IS NO SECRET RECIPE FOR SUCCESS BESIDES HAVING A TEAM OF TALENTED AND PASSIONATE EMPLOYEES AND A DRIVE TO SUCCEED.
Can you reveal any new feature or service that is about to come?
We recently rolled out trading for our Premium and Standard customers, following the success of the trading launch in July for our Metal customers. We’re providing even more people with access to the stock market to help make financial services more inclusive, innovative and affordable. We’re continuing to build on the trading product, rolling out access to different markets and products in the near future. In addition, we’ll be launching Revolut Youth, aimed at 7-18 year olds, teaching children financial literacy. Our long term plans are for the Revolut Youth app to meet the United Nations’s development standards for financial literacy.
Country Manager of Revolut Portugal
What is Revolut's traction in Portugal and what are your plans to grow?
Revolut in Portugal is a great case study. We have more than 270 thousand users, and we have grown more than 150% in the first eight months of 2019. Portuguese consumers are very eager for our product. We’re the 7th biggest market in Europe, in our Retail, and the 5th in Revolut for Business. Our focus is to continue bringing awareness around our services, to localize the product as best as we can, and to really help democratize access to financial services.
I don’t see Portuguese as conservative as, sometimes, we think we are. The startup boom in Portugal has helped push our innovative side, Portuguese are very tech savvy, we love technology and innovative solutions that allow us to live our best lives. Revolut’s success in the country is solid evidence that we’re changing the paradigm. Portuguese are investing in the stock market with our trading feature, using crypto, making donations, creating vaults for their holidays. There’s still a lot to be done, but we’re on a good path.
People are using their Revolut accounts to spend and transfer money globally, without hidden fees, they are using their Metal cards with all it’s advantages - like the cashback, which is one of the most liked features. In addition, they are investing in the stock market and setting money aside with our Vaults feature. Revolut is their ally for travelling, but it’s becoming more and more a great tool to manage their finances.
REVOLUT IN PORTUGAL IS A GREAT CASE-STUDY.
The Portuguese - interestingly, even the younger generations - have a tendency towards conservatism with regards to their finances. Was Portugal a tough market to break into?
What are the most requested features of the Portuguese consumers? Any particular behaviour or is it similar to the rest of Europe?
Our average user age is a bit higher than Europe (35 vs 33), but the overall tendencies are similar.
Do you have any advice for Fintech startups who might want to break into Portugal as well?
I would just say you should learn about the market, take your chance, surround yourself with people with whom you can learn, explore and expand your professional network and never stop moving forward and evolving.
Chief Operating Officer, Financial Services and Digital Talent at Accenture Europe, Adrica & Latin America
I would just say you should learn about the market, take your chance, surround yourself with people with whom you can learn, explore and expand your professional network and never stop moving forward and evolving.
As a strong supporter of the Fintech Innovation Lab in London, a city that is historically known for being in the forefront of financial services innovation, can you explain how Accenture is helping startups innovate and transform the industry?
his is an exciting question. We have at least 10 years of experience in this special ecosystem, and we have learned
in that time, which has led us to iterate our approach continuously. Everyone who has participated has a real collection of stories, but I think there are two things that are really differentiating.
Firstly, the difference of skills and experiences that we bring to the startup organization. We bring mentors, we bring concepts and ideas from our whole ecosystem, - which as you can imagine, being a global business, has enormous referenceability and access to the startup enterprises - the ability to gain so much from a very large and diverse ecosystem.
The second thing, which I believe is becoming even more powerful in the journey, relates to the fact that we have also gone on an active acquisition strategy in the last five years, where our acquisition experience has grown exponentially. We therefore have our own experience of integrating small organizations into a large ecosystem, and I think it has brought an even greater level of awareness, and we can therefore be quite provocative in the ideas and the thinking around a new startup: how can a new startup become successful when they are dealing with legacy business, and indeed make you think about some of the compliance and regulation aspects as well.
I think those are the two main flavours to me that have been massively game changing and bringing Accenture much closer
to this frontier of Fintech and an ability to really assist new players in this new ecosystem.
London being one of Accenture’s three strategic locations around the world for fintech acceleration programs, how do you believe it compares for example with New York or Hong Kong?
Well, it is probably the longest, most established in some respect. And being in london, it has the benefit of two or three aspects that I think make it unique.
Aspect one is we have a government and political framework that is super supportive of innovation and collaboration, and therefore has incentives to businesses to land in London and become this ‘new player’.
The second thing I think you have in London, which is almost superlative, is this access to the education and academy. That is really unique, because you don’t see in such a small geography, in many parts of the world, this complement of education, academy and thought leadership working in such a synchronous way with technology and innovation.
Thirdly, which is something very powerful, is the investment interest. The fact that the VC players and the community who have equity or investment wallet are in London, creates a very powerful nexus for startups and for innovation and for that ecosystem to really be maturing and enabling organizations to survive and thrive. And I believe that is really important. If you look at the success rate of the organizations that have developed in London, I think you will find it has improved and developed over time, building on the insights, as well as the learnings.
Specially looking at the part you were saying about access to capital, we know that innovative fintech companies have been highly attractive to VC across all financial areas. At what stage do you believe we are at? Have we reached the top of the hype or are we just starting?
I have to believe we are just starting, right? And the reason is not because I want to underplay all the experience, learning and exponential growth, because that is phenomenal in itself, but when you look at the way in which the technology is really driving the speed of takeup, I think we are now in the next wave.
You can see this when looking at the development in AI technology, the development in Robotics technology, or the development in enabling infrastructure. All of a sudden, organizations which have got smart ideas can really leverage that advancement in the technology ecosystem. And I think you can also see it in the way that the ecosystem has matured. It used to be that it was dominated by large players with big technology background, and you look at them today and it is actually all about that agile, nimble technology startups who are taking the technology to the next level of sophistication, enabling businesses to see new pockets of value and new pockets of opportunities to grow their enterprise and their value back to consumers.
Additionally, there is the development of the mobile device - can you imagine, ten years ago when people didn’t have the same access to mobiles or computers, or all the technology? We are now at a point where there is more of an equalisation of access to the enabling devices and channels. That, in itself, is therefore almost enabling everybody to kind of move from the smart ideas of a whole new generation to an easier and more attractive ecosystem to do business with. The fact that today we can ping, we can use these new apps to actually communicate and build networks and social enterprise is part of the next wave, I think. Thus, I believe we are going into a new era where improved communication will actually enable the conversations that lead to innovation.
I HAVE TO BELIEVE WE ARE JUST STARTING, RIGHT?
On the other side, or even supporting it, how do you see regulatory and compliance measures can boost or block all this innovation that we see going on? What do you expect them to come up with in the next five years?
I think this is the cornerstone topic for Financial Services. If you think about it, five years ago when we met Financial Services clients they told us that a good percentage, probably more than fifty percent of their strategic budget spend, would be spent on compliance or regulation. I think that regulators have taken a different stance to this new economy opportunity, and I’ve seen a real shift in the way that regulators are approaching working with tech startups. The UK regulator, as an example, has its own tech sprint programme, its own community of innovation players and has really gone out of its way to extend its network to embrace people who can think smart about how to handle the regulation. You see this change in the way regulators started to realize that to be more effective in their role, they need to understand the challenges that the industry has in combining data, but they are super keen to make that process much more connected, much more thoughtful that instead of spending the time in collecting the data, they can actually have fun exploring the data and understanding what it means for businesses and for enterprises, then helping enterprises to unpick the roadblocks or to discover the areas where data or analysis is unearthing things that the industry needs to get its hands around. And I think that’s where, again, you asked me a question earlier about do we see we are at the next chapter, absolutely because when you have the confluence of regulators being a partner in the collaboration with the industry, that is a very different role from the “policing” stance that may have been more the behavior in the past.
Changing a bit the topic, looking at today’s successful Fintech companies, they are challenging incumbents with solutions, for example, built on AI and Blockchain. Do you think that these sometimes become marketing buzzwords, or do you actually see these technologies at the heart of innovation and creating value, attracting investments, and making an impact? And why specifically AI and Blockchain?
Moving into the Portuguese ecosystem. Lisbon has been emerging to become also a tech hub of reference in Europe, it has been giving birth to unicorns, attracting investment through global tech conferences, we have been having abundant growing talent, Government support and so on. Do you see Lisbon competing with London, or is it also open for more of a collaboration with for example London as a global tech hub.
You know, I’m really open minded. I think any center can take a very strong position if they get the right ingredients, and the right sort of energy in those ingredients. What London has always had an advantage in is infrastructure, which means communications, transportation and airports, are centered on the destination London. So actually, if as an entity Lisbon was to decide to put itself on the map, it would not just be about the ecosystem that supports investment in startups, it has to be that the whole enterprise is behind. Therefore these things, such as thinking about the communications, thinking about the efficiency of getting people from airports to those central hubs, those are all important ingredients to create the collaboration.
There is so much around this to build this interest and you’ve got the Web Summit this year which is going to be a phenomenal moment, and I think you have also got really exciting moments in terms of Government sponsorship to make the attractiveness of Lisbon from tax and economic purposes really high. I also know you’ve made huge investments in the local universities and academies, and I think sponsoring these S.T.E.M. subjects, which we think of as the main drivers for some of the innovation going on in the technology space, is all extremely powerful. You have got many advantages of climate, of culture, of all of those things which, again, people want to have fun as well while doing these kind of exciting projects, thus you have many attributes in Lisbon that could make you a real destination.
I THINK ANY CENTER CAN TAKE A VERY STRONG POSITION IF THEY GET THE RIGHT INGREDIENTS, AND THE RIGHT SORT OF ENERGY IN THOSE INGREDIENTS.
Nevertheless, at the same time I also have quite a strong view that we shouldn’t be trying to make one center more preeminent above another, I think the power of this model is the ecosystem of Fintech-centers where we are all feeding off each other to bring collaboration and ideas and that’s got to be the universal paradigm.
Now that there is definitely the potential for these synergies, for example Accenture has now built an Fintech ecosystem in Lisbon, how do you see the Financial Services industry benefiting from it, or would there be anything else to foster these relationships?
I think one observation would be that you mustn’t think about just an industry segment because what we’ve discovered is that you get such an interesting dynamic when you think about other industries in the ecosystem. So, for example, for Financial Services looking at retail, looking at the Amazon model or the Google model for their enterprise, really makes a fairly big difference in terms of the way that you think. The second thing that I would highlight is the way in which we are working, so this agility, this co-creation model is fostering environments where people can come together and work in a different way is super important, and I think the more that we can distribute that way, giving people the flexibility and the chance to participate, is again of utmost importance. If it’s just the people who work in their offices, you get a distortion I fear.
These are the two things I believe will make a massive difference in the open mindness of the industry, and being open minded on the intergenerational opportunity that this brings. Again, we are becoming much more advanced in terms of take up of the digital agenda, the use of devices, the ability to think smart and really be much more creative in terms of the way that some of the ideas will be executed, whether that be to consumers and people in the marketplace, or even to employees which are also a massively important community that the Fintech industry has the opportunity to influence. Everybody has a working life, but the way we can make that working life even more effective, even more participative, even more collaborative is a major topic in itself. That is another thing that I see coming through in this next wave of the Fintech era, it’s not just about the end consumers, it’s about employees as well. As working professionals, we need to think smart about how people live and work.
AS WORKING PROFESSIONALS, WE NEED TO THINK SMART ABOUT HOW PEOPLE LIVE AND WORK.
That’s a big question, I’ll try to break it down. I think when a topic most hits the headlines, there is always the risk that it appears a little bit news fad or marketing focus. But that is the communication wave, you have to get the idea out there to get the acceptability of the idea, and then people get behind it.
Now, with blockchain in specific, it is a topic that sounds so future-sighted that people weren’t sure, but as we go on the journey, you are now starting to see organizations really embracing it.
When you look at what Accenture is doing globally with blockchain technology - this is serious enterprise where organizations can see the value of moving to a distributed ledger technology that, hopefully, will simplify and provide much more consistent recognition of transactions, recognition of ledger, recognition of dimensional value. I think it’s like that for all these technologies, they have to have an incubation period where they are proven, and once they’ve gone out of the starter block then you start to see the industrialization and maturing of the way those technologies will break into the market space.
I don’t think, personally, that we’ve got much evidence in AI yet, I think it is talked about a lot and I do believe that people can see the value, but it needs to be crystallized for Financial Services into real use-cases where the industry will genuinely see collective value and get behind it, and when you get that kind of industry collective value, it is game changing. A good example is what we have seen in payments infrastructure, when finally we were able to use the Apps and comonizing structures the whole industry jumped onboard with more dynamic acceptable payments infrastructure. That’s what we probably got to find for the AI opportunity.
Dean at Imperial College Business School
Professor Francisco Veloso is currently the Dean at Imperial College Business School. He is also the former Dean at Católica-Lisbon SBE, and an adjunct Full Professor at Carnegie Mellon University. Francisco agreed to talk with us on “innovation”and its impact on the industry.
As an introduction and because you have such an interesting path, we’d like to focus on your life as a professor and as an innovation expert.
've always been interested in innovation and entrepreneurship. That interest developed during my under-
grad in engineering physics, and eventually became the topic in which I did my PhD. That has also been the area that I’ve always been working in throughout my academic career, most of it at Carnegie Mellon University in the US.
Eventually I came back to Portugal, subsequently became Dean at Católica-Lisbon and, while playing that role, precisely because of my interest, I decided to develop a lot the entrepreneurship efforts at the school.
Then came the opportunity of becoming the Dean at the Imperial College, which is a very Tech-driven business school. This is particularly relevant for our finance department, which is a top department in the world, with very strong component related to fintech in its multiple dimensions. From crowdfunding, to algorithmic trading, ethics in automated decision making in finance, cryptocoins, or climate finance, we are investing in the future of finance, and doing so through a very important connection to the fintech environment in London and elsewhere.
As an expert in innovation, what guidance can you provide to the sector on the way it is evolving and impact in finance in specific? Where do you see these innovations coming from and how do you see organizations working with it?
I think that there are two sources of innovation and both are absolutely critical.
First, its important to realize that the financial services’ world is really being transformed because of fintech. The depth and the extent of the transformation is extremely significant, and you can pick whatever indicators you want around that. For example, if one uses financial indicators, its quite significant that Lloyds Bank is investing £3 billion in its digital transformation. And this transformation is important for established organizations, as it is for new entrepreneurial firms. Therefore, I really think that existing financial services firms have to make a fundamental commitment to pretty much change everything, processes, toolkit, culture, to really
embrace digital. It is a very importance driver of transformation.
For example, JP Morgan hired as a Chief Scientist Officer, not somebody with a very strong background in finance, but actually the former head of the robotics at Carnegie Mellon
FINANCIAL SERVICES' WORLD IS REALLY BEING TRANSFORMED BECAUSE OF FINTECH. I MEAN, THE DEPTH AND THE EXTENT OF THE TRANSFORMATION IS CRAZY IN MANY WAYS.
University, the Portuguese Professor Manuela Veloso. The reason behind it is that they wanted to create a research organization capable of leveling with places such as Microsoft Research or Google Research, to help drive the future their products and services – historically, financial services have never thought of themselves as being at the cutting edge of research and technology.
They are now realizing how significant this change needs to be.
The second one is the entrepreneurial route. Precisely because this is a brand-new world, a lot of the innovations are coming from new entrepreneurial firms. Take cryptocurrencies or digital currencies, which are transforming financial services – the Bitcoins and the Etheriums of the world and the startups that support them have captured a lot of attention. These are a set of transformations opening up all sorts of possibilities for
firms, be them new or established.
And we are seeing firms entering all areas of the supply change with different approaches and different business models to try to go forward. You have players that are already quite visible, like the Revoluts of the world. But you have firms like a startup called Loot, in the UK, that basically provided basic account services to people entering the financial market for the first time. In two years they captured 200.000 clients. While they have since gone into administration, its amazing that startups coming up out of nowhere can get several hundred of thousand of clients in a domain that is supposed to be the bread and butter of the established banks.
Being considered by many as a techhub, do you see Portugal having an advantage in terms of positioning, as what regards to fintech?
I think that the advantage that we can think about Portugal is not specifically in regard to fintech. It has to do with the fact that it is a very cost-efficient country to do business and it's a very nice place to live, and it has very good “raw talent”. On top of that, it is now much more visible internationally that there is a growing vibrant entrepreneurial community in Portugal.Take a company like Feedzai, which is the most visible Portuguese fintech firm. They are very successful, global and fast growing, an amazing company that was created out of Portugal. The fact that a company such as Feedzai can be created in Portugal is relevant because it shows precisely the depth and the extent of the on-going disruption of financial services, as it demonstrates that a fintech firm can originate and develop out of Portugal.
I think the general conditions that I talk about, the vibrancy on the entrepreneurial community and these early success stories like Feedzai can be super powerful for another budding startup to go out there and position its product, and get traction and development in the global market. The early success of fintechs like Freedzai are going to help reinforce the notion that very successful innovation at an international level can come out of
IT HAS TO DO WITH THE FACT THAT IT IS A VERY COST-EFFICIENT COUNTRY TO DO BUSINESS AND IT'S A VERY NICE PLACE TO LIVE (...)
If you had something to teach to the Portuguese ecosystem, what would it be?
On the Portuguese market they need to be able to corner whatever specificity local opportunity exists, because it is important to get traction from your local market and use it as a successful demo case when one goes abroad. Yet, because the Portuguese market tiny, entrepreneurs really need to think globally, very, very quickly.
So, for example, going back to the example of Feedzai, they had an early testing with SIBS, which didn’t last very long, but immediately provided a base-case for them to go out and sell to other international clients. In fact, many Portuguese successful startups, and this is not just in fintech but also more broadly, see that one of the differences when they start to talk with people in more sophisticated markets is how fast decisions get made – the decision can be negative, but can also be positive. So, it is quite important that entrepreneurs spend the required time engaging and connecting with new markets quickly and decisively.
That does not mean necessarily moving the base of the company outside of Portugal, because I really think the cost effectiveness of doing things in Portugal is very powerful. Having been in London for the last two years I can tell you that the cost of doing business in here compared to Portugal is crazy different. Overall, it’s not about moving outside, but connecting to other realities and making sure you spend the time, the effort, and the drive to really take advantage of the opportunities that exists to anchor your firm in a different development trajectory.
As a dean, what do you feel makes formal education such an important step for entrepreneurs and innovations alike?
If you’re going to be a very successful entrepreneur, very quickly you will need to understand finance, strategy, business models, etc, all knowledge that you can acquire formal education. Of course this is not something that is going to tell you what your idea should be and what your entrepreneurial solutions should be. But a place like a university, where such education is acquired, can also be an environment where you can develop and test your ideas, and connect to other like-minded people, that can work with you in tour entrepreneurial journey.
More progressive schools and universities, like Imperial or Católica create precisely that type of environment, which can be very powerful to drive forward a very successful entrepreneurial firm. On the other hand, there is also some element of myth. People have this idea that entrepreneurs are people with the 20 something college drop out because we have seen the history of Facebook and Google. Yet, what more indepth studies show is that your average entrepreneur is mid-forties, with already previous experiences, including some formal training, either on the tech or on the managerial side or both.
How do you feel education is fueling innovation nowadays and especially which skills are more important to be developed in today’s students?
I think it’s a combination of creativity, teamwork, empathy, your ability to develop yourself, to learn and to continue to be on a learning journey during your career. Moreover, the current leader is one that has to be able to orchestrate, in the sense that you have to be able to work with others in a way that is more about mobilization rather than command and control, as it has been in the past. All these skills are really, really important in a variety of ways, complementary to the more traditional technical skills that people are used to develop. This is certainly something that good universities are paying a lot of attention to.
For example, at Imperial we really worked hard to redevelop the leadership journey that we offer to our students, to make sure that they are well prepared to be leaders in today’s tech-driven environment. To be successful in today’s age, students have to work hard to make sure they are developing this set of softer skills.
Head of Listing at Euronext Lisbon
WHY YOUR AMBITION SHOULD BE IPO-DRIVEN
For a long time, stock exchanges have been looked upon as the ultimate goal and mark of achievement for successful entrepreneurs and business cases. But while representing an important milestone in a company’s lifecycle, a listing actually marks the beginning of a brand new period, much like a graduation, after which a whole new set of opportunities unfolds. Joining the capital markets will allow your company to benefit from improved access to capital, an increased global profile and a greater access to liquidity.
One can easily recall big names from established family-businesses (L’Oréal, Corticeira Amorim, Jerónimo Martins, Michelin, Peugeot) to first generation successful endeavors (Bill Gates / Microsoft; Jeff Bezos / Amazon, Pieter van der Does / Adyen) that have chosen capital markets as their route towards growth and independence.
IS THIS YOUR AMBITION?
GOING PUBLIC - A QUESTION OF MINDSET?
If going public represents a solid goal for many entrepreneurs, why then are so many companies still opting for an IPO later down the road? One possible explanation is the easy access to private capital, which following the natural course of the process, delays the decision to go public to a moment when capital needs can no longer be met by private investors, and/or when an exit strategy is sought by investors who need to get a return on their investment.
Turning to private equity can certainly prove to be the right alternative for a company, particularly at an early stage, and in the short and medium terms as an IPO will require a longer preparation. But like all possible financing roads, it comes with its own set of challenges. One of the most obvious is linked to control and decision making.
Quite frequently, founders find that when bringing private investors in they will share decision power and often concede on their vision, and to an extent, can even be pushed aside from the company’s main strategic decisions. Another sensitive point has to do with compensation, as often these deals make it harder to find a balance between remuneration and exit strategies for founders and early-stage investors.
These are but two examples that reinforce why a company can and should seriously and strategically contemplate resorting to capital
markets – whether complementary to the venture capital / private equity, as a natural successor, or the main source of financing, from the get-go.
In fact, and almost as an offset, keeping control is one of the strongest positive externalities that capital markets offer public companies. For companies with a good equity story, strong business model and powerful leadership, going public should be engrained in its mindset from day one as it allows for the fulfillment of their founders’ vision, while defending the company’s brand and culture to the core.
GOING PUBLIC - A MATTER OF TRUST?
Earlier I mentioned challenges associated to all financing routes. So without beating around the bushes, it is fair to say capital markets’ seemingly thorny path is its investors.
Capital markets investors are the most demanding and challenging ones. Investors who will grant you a onetime chance to convince them to invest in your company.
Investors that, if not pleased with your openness and clarity, regarding business and performance – positive, or otherwise, – will not hesitate to sell-down their shares.
Yet more importantly, when that trust is honored, capital markets’ investors will fully support your capital needs and growth ambitions, offering you the means to materialize your vision and growth opportunities in a very short time frame. Because they will trust your ability to identify and grab market opportunities, set up the best business model, develop the highest value product and put together a strong, experienced and independent management team.
Trust is the cornerstone of capital markets. Because unlike private investors, capital markets’ investors are not taking a role on the company’s management and decisions.
Instead, they trust management will successfully run the company, make it grow and value their investments. This trust must be conquered and kept by a clear and effective communication strategy, by being honest and reasonable about the company’s ambitions and goals, and of course, by delivering upon expectations, and if not, clearly accounting for what went wrong.
GOING PUBLIC - A MATTER OF BEST FIT?
Capital markets are flexible, both regarding the way the listing is conducted, and where it is executed.
Indeed, there are several ways to come to market, ranging from a direct listing, without capital raising, to an ‘Initial Public Offering’ (IPO), or conducting a private placement on a few institutional investors. Likewise, there are different markets, with varying sets of rules and obligations, adjusted to your type of business, its profile and capital requirements and your ambitions.
In Euronext, these markets will range from regulated markets, more demanding in terms of requirements, to Euronext Growth for top performer SMEs and Euronext Access, the perfect entry level market for early-stage companies.
GOING PUBLIC - WHY EURONEXT?
With over 1,450 listed companies and an aggregated market cap of €4.8 trillion, Euronext is the leading pan-European stock exchange, with local presence in 6 European historic exchanges to date (Amsterdam, Brussels, Dublin, Lisbon, Oslo and Paris), while acting as single player, i.e., positioning itself as a global exchange that offers a single order book, trading platform, liquidity pool and harmonized framework to European issuers and the financial community.
This unique offer is particularly relevant for smaller economies, enabling companies that more depend on international capital to grow, to tap into the leading pool of liquidity in Europe.
In fact, it is interesting to note that successful stories in capital markets are far from exclusive to large caps. On the one hand, nearly 75% of the companies listed at Euronext have a market cap below €150 million; on the other, large caps and unicorns are also able to complete € 1 billion IPOs, harnessing financing from investors from across the world.
GOING PUBLIC - A MATTER OF TIMING?
Not surprisingly, Euronext reflects the dynamics and specificities of Europe’s economy, with a community of listed companies that cover both traditional industries but also – and particularly, more recently – innovative, tech-based companies. In fact, European tech companies are increasingly choosing Euronext as their growth route. Over 480 tech companies with a global market cap of more than €530 billion, benefit from Europe’s deepest pool of liquidity and wide (+1,400) and international (47% are US-based) tech-focused institutional investor community that support their stocks’ trading and finance their growth ambitions.
A particular beauty of tech businesses is their willingness to go public, both at a later or earlier stage of their life cycle. Out of the 160 listings at Euronext since 2013, you may find plenty of recent examples of this flexibility, from Raize’s €1.5 million offer, to Adyen’s €1 billion.
A CLOSER LOOK INTO FINTECHS' RECENT IPO'S OFFERS US AN INTERESTING INSIGHT: ADYEN
Adyen, the Dutch-based global leading player on payments’ infrastructure, developed a platform that allows businesses to accept e-commerce, mobile, and point-of-sale payments. On a 100% private placement on institutional investors, Adyen successfully completed a secondary offer on Euronext regulated market of 13.5% of the company’s share capital at the valuation’s top range, raising €950 billion and achieving a €7 billion market cap at IPO, which is currently close to €20 billion.
A CLOSER LOOK INTO FINTECHS' RECENT IPO'S OFFERS US AN INTERESTING INSIGHT: RAIZE
In 2018 Raize, the first Portuguese crowdlending platform, became also the first worldwide player to go public. Raize successfully placed on Euronext Access a 100% secondary, retail investors offer of €1.5 million that enlarged the company’s shareholder base to over 1,500 investors, after a 4x oversubscribed, 3-weeks public offer. The company’s primary goal – to leverage on an Euronext listing credibility, to boost their reputation and reap benefits from that impact on business – has been successfully accomplished, with revenues growing by 75% in 2018.
GOING PUBLIC - A MATTER OF BEING READY!
Capital markets offer companies and their founders an unrivalled set of advantages that no other financing and strategic route alternatives can offer: access to capital to promote companies’ growth, diversification of the investor base to allow the company to remain independent, liquidity for their investors, and increased credibility and reputation to support their business expansion.
Because start-ups play a key role in the economy, fostering economic growth and job creation, Euronext has put together a comprehensive set of initiatives to support tech companies on their capital markets route. For nonlisted companies, Euronext launched TechShare a pre- IPO 8-months programme that helps entrepreneurs to familiarize themselves with capital markets. On its 5th edition, TechShare has already provided training to over 280 companies with the support of over 80 partners that offer valuable and expert advisory on a pro-bono basis.
Once listed, tech companies can benefit from initiatives that aim at boosting their visibility towards investors, such as Tech 40 Label, recognizing innovative European SMEs and putting them on the spotlight, Morningstar analysis, boosting tech SME’s visibility on capital markets or the Trade & Leverage programme dedicated to support foreign tech companies’ liquidity.
Getting IPO ready takes time and perseverance. If becoming public is part of your ambition, you should bear in mind what it takes and how you should prepare for it since day one. Once you go for it you need to prepare, gather a strong team and set up an effective investor relations strategy and communication. Euronext is ready to empower you and help you navigate this process - side by side, every step of the way.
Partner at Frontline Ventures
From what we know, you’ve had an entrepreneurial vein from the moment you left college and joined Ondra Partners as one of the founding employees. We’d love to know more about your path going through college.
“I would say, as a starting point, that both my parents owned their own companies, and since I was a kid, I grew up with both my parents working like 6 to 7 days a week, but both loved it. Therefore, the idea of “having a job” was, for me, having my own company and not having to report to someone else.
When I got into college I started thinking of ideas, but I didn’t have any specifics. Additionally, the feedback at the time was that you needed both money and experience to start a company. Things have changed a lot since then, however, at the time I simply thought of which job would help me understand how to start a company. Investment banking was exploding, offering amazing jobs and lots of money and basically, I applied to a bunch of different Investment Banks. I got job offer from Lehman Brothers, which I accepted and my logic at Investment Banking was good, because it would effectively make me earn some money and I could save to start a company, I would learn a lot and I would meet a lot of interesting contacts. I joined in the summer of ‘08 and it went bankrupt in September, thus I was forced to rethink my strategy. I was lucky that my boss started Ondra Partners, calling me to work alongside him the week after Lehman went bankrupt. To me it was so exciting, as I’d still learn what investment banking meant and could also be part of a ‘startup’.
I was there for two years until I realized that what I loved was taking this idea of doing something differently, pitching it to our clients, our investors, our future employees, opening up offices, thinking about branding, building a company culture. What I didn’t particularly like was investment banking, which is why I quit and got involved in the startup world.”
Did your experience in banking translate into an interest in fintech startups?
“I would say, it didn’t translate into a special interest in Fintech startups, it did give me a better baseline knowledge about how financial services work. I had to understand regulatory standards and financial plans. However, for me the interest in what I do is very heavily around the people I am investing in. Investing in early-stage is about people. If they happen to be in the fintech industry, even better, because it represents an ever-growing market opportunity.”
IF THEY HAPPEN TO BE IN THE FINTECH INDUSTRY, EVEN BETTER, BECAUSE IT REPRESENTS AN EVER-GROWING MARKET OPPORTUNITY.
What excites you the most about investing in early-stage ventures?
“One of the best things about being a venture capitalist is that you meet people who are, necessarily, a little bit crazy. The odds are stacked against you and what I mean by crazy is that you have to truly be passionate about what you are doing.
Every single day, I meet people who have taken an enormous financial and social risk by starting a company.
They are pitching to me and I am mostly absorbing knowledge from these incredibly passionate people – it is amazing. What I love is reducing the friction from what their trying to achieve.” After, we find Will naming himself as a person who executes, rather than an idealist, allowing us to understand the shift from entrepreneur to venture capitalist.
“Not everyone at Frontline thinks the same way and that’s what I like about our partnership. Some of the partners are market-focused, some are product-focused, and that brings better discussions to our Investment Committees.”
In a nutshell, what is your investment thesis?
“The reason why we focus, as a fund, on B2B is that when you look at the startup data, 40% more exit and IPO value is being created from B2B companies, versus B2C. There are 70% more B2B companies getting to an exit than B2C companies, having 40% more value created. From a data perspective B2C is a lot riskier.” Will responds, rationally, providing us with accurate data and, afterwards, with his experience.
"Additionally, while investing in early-stage companies, if you have a B2C company, you could spend a month calling a thousand consumers and it still would a tiny bit portion of the customers needed to understand if a product has a chance at success; whereas you could pitch a B2B company, I could call 8 heads of department in any technical industry and, straight away, you meet potentially large clients that can make you profitable. So, we look at B2B as a great investment area, which is both substantially safer than B2C whilst being more profitable.”
And what excites you the most about investing in specifically in seed-stage?
“The beginning of a company is always the most challenging moment. It’s something that has so much potential, and that can be directed into so many different directions. James, the Portuguese company we invested in, is a great example. They started out doing something different, and then that was just a great team that had built some really interesting technology, and they actually were able to find a very different application for that technology than what they originally thought. I love the early days, when you are still trying to figure out exactly where the potential lies and, as an investor, helping the challenges that arise during this time.” He pauses and, clearly, has a strong point to address, continuing with “I don’t want to and won’t be an investor that gives some money and says ‘call me when you exit or when you fail’. I enjoy saying ‘here are your challenges, how can we help?’ and that is what makes my job fun.
At Frontline we don’t reject people for being too early. When I was an entrepreneur, it was frustrating being told “no” because I was too early. So, we have a rule that we don’t reject people because they are too early and, if you put that in perspective, 50% of our investments are pre-product; 75% are pre-revenue; and pretty much most of those are in the ‘idea stage’.
To exemplify, I have been given two term sheets that literally said that we can’t actually invest until it is a registered the company and has openned a bank account. Literally ideas on pieces of paper.”
AT FRONTLINE, WE DON'T REJECT PEOPLE FOR BEING TOO EARLY.
That’s amazing on your part, because everyone has someone who has been through the process of being rejected a bit too early.
“And a lot of the times, saying someone they are too early is basically saying ‘Hi, I am not going to give you any feedback’, when what they should be saying is ‘Look, you guys are first time entrepreneurs, and you’ve never worked in Fintech before so we don’t believe that you can build this, we want to see you actually build this product before’ or ‘You have no technical development talent on your team yet, we don’t even know if you can build the product’ so either don’t believe in the team or don’t believe the product is differentiative enough, either way they should give that feedback. In Frontline, because we have the rule that we don’t say someone is too early, it forces us to actually give them feedback, whether or not we are right, at least it gives them a data point to base how they evolve.”
Do you have any vision for the growth and development of the European Fintech sector in the B2B space? If you feel it’s interesting, do you compare it to the B2C space? Additionally, are there any challenges that you are trying to tackle when providing them with expertise?
“I will break that apart.
Firstly, I am incredibly bullish on Fintech in Europe, and the reason why is because actually when we started Frontline we started thinking what sectors could Europe produce better companies in than the US.
There are regulations, as the PSD2, coming out across the EU which have lowered the barriers enormously for new challengers. If you want to build a new banking software tool in the US, you must get regulated in every single state, which makes it incredibly complicated to expand. So, in general, I am very bullish on European Fintech.
Secondly, in the B2B space for the same reasons. Fintech is the sexy partner because banking and financial services are such a core part of someone’s life that they get a lot of attention. Moreover, I think banks have done very little innovation for many years and now
you are seeing a very big wave of it being enabled. But, in the B2B space what people also don’t think of or hear about as much because it is probably a little less sexy, is that all companies need all of those things too, and even further and in an even more differentiated way – and all of those are being disrupted and altered and changed thanks to the technology wave we are seeing as well. So to me, as bullish as I am on the Fintech space, I am even more bullish on the B2B Fintech space because there are just so many opportunities there to build companies.
And regarding the second part of the question, if there are any challenges I try to tackle when providing them with expertise, I wouldn’t say there are more challenges than other companies. So, a lot of the times with Fintech, there are regulatory approvals needed, but actually for B2B Fintech it is often less regulatory approval needed than B2C so, I think it is just about assembling the right team and the right investor base.”
And how do you see the relationship with incumbents evolving within this ecosystem that is growing?
“I would say that most, not all, but most of the large incumbents are now at the point where they realize that they are being, or that their customers are being taken away from them, and I think that banks initially didn’t realize it because it was death by a thousand cuts. No startup was saying ‘I am going to replace HSBC or Santander’ because nobody could do that, but what was happening was every different business line was being affected, so I think that it took them a bit longer to realize this. You now have examples like Barclays, which is a big sponsor of Tech Stars that is very much looking for fintech innovation. Also, one of our investors is Allied Irish Bank, one of the largest banks in Ireland. Banks are specifically looking for one of the new potential Fintech areas that could either disrupt them or be added to them to provide better services and products to their customers.”
THE CHALLENGE WITH ANY LARGE INCUMBENT IS ALWAYS THAT ALL OF THESE BANKS ARE SO LARGE, THAT YOU REALLY NEED TO KNOW WHO ARE THE RIGHT DECISION MAKERS.
“The challenge with any large incumbent is always that all of these banks are so large, that you really need to know who are the right decision makers, and who is going to champion you internally but once you start to be able to do that it can open up a lot of doors and we definitely are of the view that it’s often better to work with these big large players. Banks are so much infrastructure-built that I don’t think they’re going anywhere, and I think that actually figuring out ways to work with them to build better products on both sides is the better route for Fintech, definitely in B2B.”
You’ve referred your investment in the Portuguese Fintech James. Have you found any specific characteristic of Portuguese entrepreneurs that differ from others, and is there any advice that you could give them when approaching international investors, as yourself?
“I don’t think that there’s anything specifically to Portuguese founders. We’ve invested in one company, so I don’t want to over-generalize, but we believe we can build big companies from anywhere.
WE BELIEVE WE CAN BUILD BIG COMPANIES FROM ANYWHERE.
As an advice, I would say in general most European founders undersell themselves. Particularly because a lot of what we do is help our companies expand into the US and you need to be able to sell the company and pitch it in a more polished way, and I think a lot of the times the founders are too humble because culturally in Europe overly-selling is not appreciated. I would say many European companies don’t pitch hard enough.
My advice to entrepreneurs many times is ‘you need to take it up the level, don’t pitch just what you know you can accomplish, pitch what’s possible’.”
When advising startups, is expanding to Portugal a recommendation that you give, and if not why so? Additionally, I am going to ask you about Brexit.
“Let me first answer the question without talking about Brexit.
Realistically, we don’t advise our companies specifically to move to Portugal and that is because we feel that, as B2B focused, they can target their clients from the geographies they are based in. In the same way that if we had a Portuguese company, I wouldn’t advise them to open up an office in Spain and Germany and the Netherlands, from a sales perspective, that’s not an advice we give. However, opening up in Lisbon, Oporto, or other Hubs can be a good opportunity to lower the developer cost base. In that sense, we don’t actively advise ‘You have to move to Portugal, it is the only place to go to’ but I think it is on the list of probably five to six places where we recommend our portfolio to open up secondary operations in Europe due to the potential of lower cost base without risking
Moving to the second part to your question, I think the effects of Brexit are very negative for our portfolio companies, and we have been observing three trends: (i) a lot of our bigger UK companies are now finding it much harder to hire European talent, and it will be difficult until we figure out what Brexit really, even if in a post-Brexit the talent pool flow will go back to where it was, in London it has reduced a lot; (ii) we are seeing this kind of a bifurcation of investors in Europe between those who focus in Europe and maybe not UK now, and those who are UK-focused and that’s a pity, I mean, having more pan-European investors will build bigger companies; and (iii) we are seeing more entrepreneurs choosing other Hubs as the place to start their company, such as Copenhagen, Lisbon, Paris, Berlin, instead of London, to the UK’s loss.
Nevertheless, it honestly doesn’t make me recommend Portugal more or less.”
Lastly, if you were asked to give a general piece of advice to entrepreneurs out there in a single sentence, what would it be?
“This is an absolutely ridiculous question, because there are so many many things you can say. So, I think maybe what I’ll say is also what I don’t hear many people talking about, because there are lots of generic ones like ‘be ambitious’. In a single sentence: I don’t think founders should forget about developing themselves and their team in the early days. That’s the sentence, and the context on that is that it is so easy to forget about developing yourself as a person and as a worker in the company and what you often see is that founders were doing everything in the early on, so that when they passport into Series A or Series B they haven’t or grown with the company.”
I DON'T THINK FOUNDERS SHOULD FORGET ABOUT DEVELOPING THEMSELVES AND THEIR TEAM IN THE EARLY DAYS
Co-founder and President of Anchorage
An interview with Diogo Mónica, Co-Founder and President of Anchorage, an innovative cryptocurrency custody service startup. Diogo agreed to share with us a little bit of his background, as well as his insights into the crypto world; how to navigate the rapid seas of security fintechs; and the future of money.
We know that you started in fintech at Square. Could you tell us a bit more about your path?
I’ve been working in security one way or another for the past twenty years.
My dad was in the field and he taught me how to program at twelve. I had an interest from very early on in understanding security, which led me to focus on network security specifically.
Then I went to get an engineering degree in Técnico. I did my bachelor’s, then my master’s and ended up doing a Ph.D. in computer science in the distributed systems space.
It was during my Ph.D. that I decided to join Square, about ten years ago. I had been in the process of interviewing at Google and Facebook, and I realized that I wanted to work at a smaller company - Square was still under 30 people at the time. One of the reasons why I joined Square instead of joining one of those big companies was because Square only had one other person on the security team at that point, so I would be working on everything security related, at a payments company - and there’s nothing that requires more security than money.
I also really liked the combination between hardware and software security, because it was such a wide scopespanning everything from securing the manufacturing supply chain for the card reader device, to securing our cloud architecture. Obviously, another big reason was the opportunity to work with Jack Dorsey. He had just founded his company, and I knew I wanted to create my own thing later in life, so I definitely saw an opportunity to learn from the best.
I joined Square in early 2011 and led the platform security team. I worked there from the early stage – series A - and watched the company grow to 1.300 people.
When I left, it was essentially a publicly traded company and is now worth $30 billion. My code at Square, and all the security infrastructure that I built, now moves over $100 billion per year.
I met my co-founder Nathan McCauley at Square - we joined the same week. After a few years of collaborating at Square, we began considering whether we should leave to create our own company. We decided we wanted to maximize impact and learning in a new industry, so we joined forces and decided to sell ourselves as a unit to Docker. Docker was completely exploding in terms of impact - over half of the servers on the cloud run on the Docker platform, and my code was used for all the security aspects of it. So, from an engineer’s perspective, having an impact in hundreds of millions, if not billions of servers was a no-brainer next step.
Did you always know you would circle back to fintech?
The reason why Anchorage comes about is because, while I was at Docker, the prices of crypto assets started exploding. In 2017, a lot of ICOs were raising funds and a lot of projects were coming to the space, so a lot of the crypto funds that wanted to invest in the protocols started reaching out to me personally to consult for them. They were asking, ‘Hey Diogo, you’ve been in key management for ten years, can you help us with the security of these bitcoin keys?’
The first client that came to me had lost the passphrase to a $1.5 million bitfund wallet and they were offering 20% if I could break into it. So, that was my introduction to the business. I started consulting for the funds until I realized that I didn’t have enough hours in my day - I had a full-time job at Docker.
That’s when Nathan and I decided that building a platform was the right decision. The conversation went something like: “Hey, this is the perfect Venn diagram of our skillset, right? I have a PhD in computer science and distributed systems, we have fintech experience building payments infrastructure for billions
of dollars, and doing security at scale.” If you do the Venn diagram of all these skillsets, Anchorage is at the intersection: a custodian for private keys that are worth hundreds of millions of dollars.
So, we decided to create this together. We saw that there was a massive opportunity and that’s when we decided to raise our series A, $17 million from Andreessen Horowitz and a bunch of other folks. More recently, we raised $40 million of venture capital from Blockchain Capital and Visa; we became a Founding Member of the Libra Association; we have some of the largest cryptocurrency funds as clients; and the company is over 40 people now. It’s been a fun progression.
Did I know I was going to come back to fintech? I think the answer is invariably yes, one way or another.
Again, my career goal has always been completely laser focused on security and there has never been anything else that has been more important than protecting money.
DID I KNOW I WAS GOING TO COME BACK TO FINTECH? I THINK THE ANSWER IS INVARIABLY YES, ONE WAY OR ANOTHER.
It’s definitely a great story to tell. Can you go a little into Anchorage, what it is and how it works? How would you describe the way Anchorage crypto custody works in comparison to, say, having all assets stored in a vault under a Swiss mountain?
Anchorage is, in its essence, an institutional custodian for crypto assets. What that means is that we allow institutions to invest in this space and we hold the assets for them, much like a normal custodian in traditional finance would, someone like BNY Mellon or State Street.
In the traditional world, a custodian is a record and a database, or else is responsible for the safekeeping of gold in a vault, or the safekeeping of a treasury certificate. Anchorage was created because digital assets are fundamentally different. You
need a different DNA to protect digital assets that are completely irrecoverable if stolen: an actual tech company that has the information security DNA to build this, versus a traditional player coming into this space.
When I was consulting for these funds, I realized that the status quo for this new category of “digital asset custody” was something called cold storage. I like to call cold storage “pirate custody,” because the technology is no more advanced than what pirates did to store gold coins in the 1700s. Pirates would take their gold coins, put them in a treasure chest, bury these treasure chests somewhere in an island, and then they created treasure maps so they’d be able to find the treasure later.
When we created Anchorage, the status quo was effectively the same, but instead of gold coins, people were storing wallets with bitcoin private keys; instead of treasure chests they used safety deposit boxes or vaults; instead of islands it was mountains in Switzerland; and instead of a treasure map, you have a checklist that people are following to collect the keys and access their resources.
This is absolute nonsense. There is no way that we’ve created the most sophisticated digital assets ever, since humankind has existed on this earth, and what we’re doing with them is using the same technology that pirates used for gold.
So, we created Anchorage to do better, by taking the best of what we knew how to build from our experiences at Square and Docker, and applying modern security engineering to this new crypto custody use case. We can have better security than burying these assets in mountains, and we can also make them more accessible.
Which means that you can use these keys if you want access to your bitcoin today. It shouldn’t take 48 hours or be limited by how fast a human can run to a safety deposit box. We need a system that is digital, that has better safety properties, and that supports the level of participation that blockchain networks increasingly require.
So, in the process of having this vision to put in place, how did you go about making it real? What did you think was important at that stage?
The best way I can describe my fundraising experience with Anchorage is that there was and is an absolutely perfect founder-market fit. There are very few people that had academic experience, that had years of scale at a fast growing start up protecting money and then experience with security at scale, that had worked with hardware security models, worked with the regulators, built a lot of the building blocks needed for Anchorage.
This founder-market fit really is unique and I do think that the best companies come from some kind of serendipity of the universe putting the right people at the right places at the right time.
THIS FOUNDER-MARKET FIT REALLY IS UNIQUE AND I DO THINK THAT THE BEST COMPANIES COME FROM SOME KIND OF SERENDIPITY OF THE UNIVERSE PUTTING TOGETHER THE RIGHT PEOPLE AT THE RIGHT PLACES AT THE RIGHT TIME
We’re now seeing some big players entering this market as well. How do you see their role and especially their positioning in a field that, not that long ago, didn’t have the same level of credibility it does now?
First and foremost, they legitimize the space - it’s actually good for the space that we have banks like Fidelity, and institutions like ICE, that are helping institutional investors participate in crypto.
It has become an alternative asset, as any of the other thousands of alternative assets. Crypto is becoming a commodity in which there’s futures, there’s the ability of having liquidity, you have access to market participants, insurance and good grants behind it. So, if anything, it’s incredibly good for the space that big players are joining more and more.
And what does this mean for Anchorage?
Regarding Anchorage, we’re a digital asset custodian; Anchorage supports all assets.
In fact, what Anchorage believes is that your custodian shouldn’t dictate your investment strategy. We have exactly zero clients that only have one cryptocurrency and what clients want is a service that supports all their needs.
In that perspective, Anchorage provides something that is not even in the same category as these players that are coming to the market.
What do you think we’ll see develop in the future, beyond these current crypto assets?
Today’s global financial system is incredibly complex: what we call “money” includes precious metals like gold, 180 different fiat currencies, stocks, bonds, credit, contracts, derivatives, and many other kinds of financial instruments.
Over the last ten years we’ve seen several proven use cases emerge so far: the first is using assets like Bitcoin, Zcash, and Monero as stores of value - as a kind of digital gold. The next is stable assets like Dai and Libra, which are meant to function more like the dollar or the euro. And lastly, we’ve seen decentralized computing platforms like Ethereum and Tezos develop their own tokens, which are used as currency within the platform.
I believe that’s just the beginning, and that like the traditional financial system, the crypto financial system will be made up of many different currencies, many different stores of value, and many more complex financial instruments as well-and that new wave of growth will only accelerate as more institutional investors enter the space.
With Anchorage being a Founding Member of the Libra Association, how do you see your role in it and what do you believe the future of Libra will be?
Anchorage has been part of Libra since the beginning.
We were one of the first ones to engage with Facebook and to participate, back when it didn’t even have a name and it was only two people. Anchorage has deep domain expertise in information security and distributed systems and blockchain and cryptography, so, as Libra developed, we really have been able to advise them on the path forward.
We’re very convinced that Libra will launch. The technology has been evolving very well, regulatory pieces are currently being debated, and a lot of the people that we have on board are very big companies. There’s another Portuguese company involved, Farfetch, so there are at least two Portuguese related companies in there.
I’m very optimistic that Libra has all of the pieces in place to be the largest digital asset that we’ve had.
So, we have Libra and Telegram coming in; we’ve seen the Chinese announcing some initiatives; then we heard established players, like JP Morgan, saying they’ll launch their own coin. Do you see a currency war brewing here?
I think there will be many cryptocurrencies in existence.
I don’t think there is a winner take all scenario. In fact, what I think we’re going to see is cryptocurrencies that have regions. Potentially, you can see a Chinese cryptocurrency; Libra being adopted in different pockets of the world; some cryptocurrencies are having a lot of success in Europe; and others with a lot of success in Africa…
In a way, I see all these crypto assets sort of like programming languages. Technically all programming languages do the same thing (all of them are turing complete), yet you have dozens of programming languages that have different frameworks and different specialties.
You’ll have cryptocurrencies that store value; others that will be world computer tokens; cryptocurrencies that will be a mechanism for maintaining intangible tokens; or ones that will be stable assets.
In terms of the future of money, there’s no question in my mind that there will be digital asset proliferation in the future, and that blockchain systems will allow you to transfer value. If you look at the status quo, it makes no sense that it takes me five days to transfer from the United States, which is a first world country, to my mother in Portugal, which is another first world country, plus that it takes a percentage of the value in fees on top of it.
I can send a selfie to my mother right now, but I can’t send money - both these things are digital representations of value
that can be encoded in bits exactly like each other - there is no difference between them on a technical perspective, yet one has more regulatory pressure.
I have no doubt in my mind that there will be digital currencies that will be cross border and worldwide in the near future.
Looking back, what was or what has been the hardest part of the journey and, what excites you more about the future?
I think the hardest part of the journey has been focus.
There are so many interesting things happening. You can move 100 million dollars across borders with 12 words memorized in your head. We’ve never had this kind of asset or this kind of facility.
If you think about all the applications of blockchain as well as all of the applications of crypto assets, they’re just mind boggling in terms of potential applications. So there’s a million ways that Anchorage can go, and use cases to which we can apply our technology.At the end of the day, we protect private keys. Yes, right now they’re digital assets that might be commodities; in the future they might be securities, it could be anything. It could be the representation of a domain name, it could be the representation of a deed, it could be the representation of a car, a house, whatever it is…
The thing I’m really most excited about is this concept that Anchorage has the potential of being the bank of the internet. As more value accrues to private keys we have the potential of being the new foundational infrastructure that can move value around in a safe manner and store all these different types of value.
On a different note, did you ever consider starting Anchorage’s business in Europe through Portugal? Was it ever a possibility for you given the current ecosystem here?
I’ve been thinking about engineering offices in Portugal, that’s a model that has been working well and one we’ve seen a lot in companies that are coming to the States.
There’s a lot of talent, there’s deep tech, a really good culture, and incredible life quality. I lived there for the majority of my life, but I do think that you couldn’t have started this company in Portugal. The reasons are very simple: there’s still no critical mass of talent that has the experience with infrastructures to move a hundred million dollars a year nor as much critical mass for venture capital for firms.
Through my tenure at Docker and Square, combined with a lot of the angel investments and co-investments I’ve made, I’ve developed a very local network. So, this critical mass of engineering, and critical mass of money, as well as the risk-taking attitude is important.
Those are the three main components to success in a fastgrowing company like this and this didn’t exist in Portugal ten years ago. This reality has changed dramatically but you want to be on a stage that’s a world stage and I do think there’s a lot of headwinds against a company starting a fintech
business in Portugal to this day. So, the candid answer is that Portugal is making really great progress on all three of deciding factors but we’re not there yet.
Perhaps an option would be to have that first critical moment in the US or somewhere where you have access to those key points you mentioned but if you’re considering expanding to Europe, maybe start through Portugal. Would that already be an option you would consider if you had enough support?
If I were starting my next company, I do think that it would be a lot more likely that I would consider Portugal as a place to start. I do think there’s starting to be a critical mass from an engineering perspective, but I would still be coming to the US to fundraise and it would be a bicoastal thing from day one. It’s a lot easier to sell if you are headquartered in Silicon Valley and San Francisco. There’s a lot of venture firms that still don’t want to invest outside of the United States, some of them won‘t even invest outside of Silicon Valley in companies like in Chicago, which is a big city in the United States, but they are still “no, it’s not my focus, I don’t want to invest there”.