What is Blockchain Technology? A Comprehensive Guide For Beginners

When Satoshi Nakamoto first created the cryptocurrency Bitcoin in 2008, it was viewed with immense distrust, still is to a considerable extent, with Central Banks and Regulatory Agencies remaining sceptical and refusing to adopt it. However, the underlying technology, blockchain has become one of the most talked about topics Worldwide. Nearly every major player in every industry is exploring the use of blockchain technology. It is finding use cases in several areas including financial services, retail, trading, legal, healthcare, and pretty much any business that involves record keeping and is also expected to unleash a new wave of financial products and services generating new avenues for greater revenue for banks.

Blockchain, also known as “distributed ledger technology” was originally created as a tracking database for Bitcoin transactions. It was designed to process transactions without the need for a central bank or intermediary, using complex algorithms and consensus among its peer-to-peer network to verify transactions. In the past couple of years, banks and financial institutions have been betting on blockchain to provide a reliable alternative to systems that depend on intermediaries and third-party validation of transactions. Their goal is to leverage blockchain distributed ledger approach to create a system that decentralizes trust to significantly reduce all types of transaction fees along with shorter processing timelines. The disruptive potential of this technology is widely claimed to equal that of the early commercial Internet. A crucial difference, however, is that while the Internet enables the exchange of data, this technology could enable the exchange of value; that is, it could enable users to carry out trade and commerce across the globe without the need for payment processors, custodians and settlement and reconciliation entities.

According to Forbes, blockchain technology is being viewed as a platform which could bring about stupendous changes in financial transactions, due to:

  1. As a public ledger system, blockchain records and validate each transaction made, which makes it secure and reliable.
  2. All the transactions made are authorized by miners, which makes the transactions immutable and prevent it from the threat of hacking.
  3. Blockchain technology discards the need for any third-party or central authority for peer-to-peer transactions.
  4. Decentralization of the technology.

Governments, world’s largest financial institutions, global banks and other financial organizations are investing in proof-of-concept projects internally, using trial and error deployments within limited parameters to create efficiencies. The full potential of blockchain can only unravel when institutions partner together to set industry standards and protocols that enable interoperability. The underlying principles of blockchain i.e. decentralization, consensus based system and use of unique digital signature will reinforce the financial system which was recently found to be increasingly vulnerable to online frauds. Startups, established financial institutions and fin-tech companies have found the below applications of blockchain technology and are investing in the development of application and products based on the same:

  1. Payments: Blockchain can transform the world of digital payments to near real-time transactions with real time settlements, without intermediaries. Development of new payments products, based on blockchain technology such as self-executing smart contracts are the next step.
  2. KYC/AML and Records Management: A decentralized, network-defined registry makes KYC processes streamlined and helps in AML checks and controls during client onboarding.
  3. Capital Markets: A distributed and consolidated data repository built on blockchain technology gives users a unified and real-time view of all trade-related information, thus reducing the scope for error or disagreement and accelerating the settlement process.
  4. Trade Finance: The complex network of players with manual processes and paper work is transformed into efficient and innovative trade finance services
  5. Syndicated Lending: Blockchain in syndicated lending envisages to reduce the settlement process on the sell-side and buy-side, thus saving time and cost worth millions.
  6. Regulatory reporting: Easy access to transaction reporting data for regulators will reduce cost of regulatory reporting of market participants.
Image Source: Mermelab

The use of blockchain, when applied to legacy processes of the banking and financial services firms, has potentially transformative effects in the space. However, it is essential to bolster the technology infrastructure even before banks start testing the waters. Blockchain has exceptionally high impact and it leads to:

  • Lower operational costs
  • Seamless global trade
  • Reduced risk in clearing
  • Increased trust
  • Distributed Identity

Decoding the Term Sheet – Types of Funding

17523087_744383109058231_4495477876887442779_n

For many founders, one of the most important stages in the life-cycle of a startup is to produce and validate a commercially viable product or service – a much advanced stage than just an idea. The next and probably the toughest stage is - how to arrange initial capital to support the development of the company further. Lack of early stage financing is why 94% of startups fail in India. If you have a great startup idea or even if you have progressed further, in this blog, we will walk you through the diverse types of funding available for the startups. 

Moneybags is an Indian startup founded by Aditya Bansal, an engineer who is looking to build a credit scoring model. Through his startup, he envisions, he will be able to provide loans to those who are not found eligible by banks and other formal lending institutions. Moneybags will determine creditworthiness based on Aadhar based authentication and credit history of customer along with a few other predictive variables.

Aditya quit his job and is now looking to fund his idea. It is imperative that he chooses the right form of funding based on the type of his business and his future goals. Let’s consider the types of funding available to him:

BOOTSTRAPPING

Personal finance or bootstrapping is not funding in the strictest sense, but a means to survive before receiving Seed Funding – often considered as the first round of funding in the start-up world. Aditya can utilize his personal savings to build a working model or prototype (commonly known as a MVP- Minimum Viable Product) of his solution. He can utilize earnings from this to streamline his business plan and develop the full-fledged features of his product. For Aditya, this can be a basis to prepare for more formal funding sources.

Crowdfunding is another way of funding which is raising a storm online. If Aditya believes his business idea is rock solid and is ready to campaign online for funds, competing with other businesses and grabbing the attention of consumers who could give him money, he can garner funds through this route. Successful crowdfunding campaigns have been very few in recent history and most businesses remain unfunded despite campaigning aggressively. It has different models – incentive based or equity based.

Companies like Kickstarter and Indiegogo provide a platform to creative startups to raise money from the crowd in lieu of incentives or recognitions. For many companies, such campaigns also play out to be a great early sales route and/ or Public Relations (PR) stories. Smart watch company Pebble is one such example where it started a campaign to raise $100,000 and ended up raising $10 million in the first campaign and $20 million in second campaign. It was the third highest funded project on Kickstarter.

Companies like CrowdCube in the UK provide platform to raise money from crowd in exchange for equity (shares) of the companies. There are many companies including CrowdCube itself which have raised money through this model; the biggest success story being BrewDog which raised £10,000,000 via a bond issue. Equity based crowdfunding is not permitted in India yet, but government is looking into this matter actively.

EQUITY INVESTMENT

In common parlance, equity represents ownership or stake in a venture. Aditya can receive funding in exchange for issuing shares of his stock. The only difference is that Aditya would own common stock while his investors may receive a different class of stock with or without some preferred rights, these stocks/ shares are commonly known as preferred stock. Preferred stockholders have preferential rights in terms of protection of their investment, higher returns and control. ¬¬¬¬¬¬In the event of liquidation of a company, preferred shareholders may be paid before the latter based upon the preferences associated to their class of shares. Equity funding may consist of several rounds:

SEED FUNDING

Since his business is still in the concept stage, Aditya could raise a small amount of capital required to cover his expenses till he starts earning revenue. This is called the Seed funding stage where funds are raised from 3Fs or Angel Investors. 3Fs are Friends, Family or Fools – as they will invest in Aditya and may not necessarily understand his idea, product or business – but would like to support him. Next seed round comes from Angel investors who are successful entrepreneurs, high net-worth individuals or HNIs who are willing to invest in many companies to build a decent portfolio for future returns. They are motivated by joining initial rounds of the companies so they can get a better value for the money they invest.

SERIES A

This is the first stage of financing where stock is offered to investors and usually intended to aid a company build its business from product development to building a team. Investors could be Angel investors or Venture Capitalists(VCs). VCs are professional investors or investment companies that offer investment and become part of the Board of Directors. Subsequent rounds after this are designated incrementally with the letters B, C etc. and so on. Series A, B, C etc. differ from each other in terms of the life-stage of the business and the purpose for which funds are being raised. Later stage funding involves more sophisticated investors like VCs. A, B or C also differ in the value of the investment but interestingly, in every region, these numbers differ as well – so what is considered as an A round in India may be the equivalent of a seed round in the UK.

DEBT INVESTMENT


Aditya is wondering if he could just borrow some cash i.e. take a loan. A loan is, to put it simply, a transfer of funds with the obligation to repay in equated instalments and periodic intervals. Typically, there is a rate of interest and some collateral associated with the loan. In the startup world, debt funding from banks or lending institutions is not very common due to obvious uncertainty and lack of collateral. In countries like the United Kingdom, the government offers loans that are given to the startups on the guarantees of the founders – In India such schemes are either non-existent or not popular.

Convertible debt is a widely-used instrument in early stage rounds which Aditya may find useful. It simply means that the debt can be exchanged for equity upon the lenders’ decision or the borrower’s offer. The lender may receive a discount on the price of the future round. The primary reason, why many investors go for convertible debt is because at an early stage, it is difficult to determine the value of a company based on just an idea, product or prototype. Deferring the valuation for a later round when it has grown further and more investors are involved, is more likely to result in a fair valuation. Founders can take this route to save time, money and a lot of heartburn of arriving at a valuation number with investors at an early stage. So by the way of convertible note – investors and founders agree that a decent and realistic equity will be allocated to the investor (often on a discount) when a big equity round will take place in future.

Consider this example:


Moneybags receives seed funding from an Angel investor (Angel) worth Rs. 4,00,000 for 20% discount on future round with 2 years’ timeline and 20,00,000 valuation cap – this means any conversion on 20% discount should not have a valuation more than Rs. 20,00,000. Now in Series A, he raises Rs. 10,00,000 at post money valuation of Rs.20,00,000 – where the new investor will get 50% of the company for his 10,00,000 investment at 20,00,000 valuation – Angel investors investment will be converted to the equity of 20% discount i.e. 16,00,000. So, the Angel will get 25% of the company for his investment of the company for his 4,00,000 investment at 16,00,000 (20% discounted from 20,00,000) post money valuation.

Convertible debentures are a type of debt which are mostly unsecured by collateral or physical assets. In the event of liquidation, they are paid before anyone as a creditor (based on their priority ranking), before common stockholders and are a hybrid of equity and debt. Investors are usually willing to accept a lower rate of interest in exchange for the liberty to convert to equity.

Debt funding is exceedingly becoming the instrument of choice for investors since it is cheaper than equity, especially in India. Indian investors are often found to be inclined towards debt funding where they see short term return via interest payments than waiting for long for a higher return, albeit risky, through equity financing. With a lower risk appetite, Indian markets therefore, act very different from their global counterparts.

Now that Aditya is aware of the many ways he can fund his business, he starts identifying the developmental milestones for his company. Based on the nature of his business and the requisite milestones, Aditya is now able to calculate the amount of money he would need and the most suitable funding type. Armed with this knowledge and his Business Plan, he sets out to solicit funding for Moneybags.

Authors:

Atal Malviya


Atal Malviya is the Chief Executive Officer of Spark10.com – India’s first European Accelerator. Atal is a successful entrepreneur and an angel investor based out of London. He has founded and exited VC funded technology startups and invested in handful of technology startups in Europe and India. He writes and speaks about Tech Startups, Startups investment, Accelerators and Incubators, Tech innovations and Big data analytics.

Swati Suramya

She is Content Manager at Spark10.com. Swati has joined Spark10 Blore last month from Goldman Sachs.

PS: This article is for information purposes only and meant for tech startup founders or aspiring entrepreneurs. Examples used are fictitious. Please take professional advice when you make your funding decisions and Spark10 will not be responsible for any decision that you take or conclusion you draw from, based on this article.

Announcing the Applications for Cohort 2017-A

blogimgsss
A good accelerator program can boost your business.

It’s been an awesome ride so far. From planning for Cohort 2016-A to setting it up and finally to running the program, the last 8 months have been a roller-coaster. And just like any roller-coaster ride, one time is never enough. You just want to go again and again (till perhaps your tummy shouts out, “Enough you moron!”)

Well, I have always loved roller-coasters, but this is not really about a ride, now is it? It’s about another interest of mine (passion is always such an abused word) and that’s to run a program that really helps founders like you and startups like yours. Having been a trainer and coach at heart (always), I really enjoy seeing fledglings take flight. And I did see some really good ones from the last one.

Today, I announce the opening of the applications for our second cohort (un-cryptically called C17-A). We have made it bigger, better and much more awesome this time around. And I can’t wait to see your applications and even see you at the end of this application process.

Here are some quick links for you:

  • Download brochure from our website.
  • Read the most frequently asked questions here.
  • Want to know the difference between accelerators and incubators? Read this.
  • Did you know that there are different species of accelerators? Nope? Read about them here.
  • What can you expect in an acceleration program?
  • And what are my tips on making your application stand out? (hidden blog post here… no, not really)

 

And finally, the most important link of all:

Apply for C17-A by clicking here.

See you on the other side, amigo! All the best.

 

Ravi (@raviwarrier)

5 Biggest challenges that Startups face

Source: Shutterstock.com

Challenges are everywhere. Startups are no exception in facing this myriad of challenges on a daily basis. Millions of startups are launching all over the world every year and it’s a common notion that only 10 – 20 % of the startups are tasting the success. Let’s look into what hinders the startups from that sweet success.

Competitors

With millions of startups pouring in, any industry niche is flooded with fierce competition. It’s a crowded marketplace shared with giants. The competitive environment keeps the startups on edge and one needs to be laser focused as there is no margin of error for setbacks. Not every market/customer is forgiving enough while startups try different strategies. Both B2B and B2C organizations feel this heat of the fierce competition and building customer loyalty against the giants is a hard rock to crack. To survive this cut-throat business environment, startups need to play strategically and punch above their weight to gain the needed recognition amongst the cluster of businesses and against industry giants.

However, there’s a silver lining for every challenge we face. Startups must take a step ahead, strategize and turn the tables. Instead of fearing the competitors, be aware of what the competitors are doing and use that knowledge to be more innovative, disruptive, adaptive and unique.

Simple steps to beat the competition:

  • Think of competition as one of the many ways to learn more about the industry and educate oneself.
  • Find out what customers don’t like about the competitors, try to avoid making the same mistake.
  • Find out what customers do like about the competitors and try to implement the same in an innovative way.
  • Be focused and pay attention to the competitors and current trends in technology, economics, and finance.

Unrealistic expectations and being adaptive with limited resources:

Startups tend to set ‘unrealistic expectations’ that can backfire. Success is short-lived and expectations never end. Startups have to be realistic and should thrive for sustainability. One needs agility to sustain in this ecosystem. Have high but controlled expectations by keeping the view of the resources available and the extent of growth potential.

Being adaptive makes all the difference when it comes to success. There is no right path and a fixed business model to follow in uncertain business environments. Businesses need to adapt themselves to uncertainty and embrace it. They should keep an eye for new trends, and rivals may have altered their proposition in no time. One needs to be flexible enough while keeping the core values that define them. 

Hiring

One of the most important factors that define a winning culture within an organization is the synergy of the team. As the adage says, “A chain is as weak as its weakest link.”

This is one of the biggest challenges startups face. Finding the skill sets, cultural fit, and the right attitude in one package is for most times, almost impossible. Companies need to be very patient and maintain a good network in order to find the best fit.

Partnership

In this flickering and expanding digital era, where everyone is actively looking for their own individuality, businesses face difficulty in finding a trustworthy partner. Stakes are high especially for tech startups.

Before partnering with another company we need to consider a variety of factors like opportunity potential, business model alignment, vision and core value alignment and much more. To reap effective mutual benefits out of a partnership, businesses should look for companies that embrace a sound presence within the market and a good reputation amongst the industry giants.

Investments

Money begets money. It is a fact that small startups rely heavily on financial backups from the potential investors especially in their early stages. Currently, investors are wary about the success of startups and being very cautious before and after funding.

Managing the finances while adapting to constant change might bog down startups against the pressure. It’s always the best choice to take all the help one needs and can get.

  • Identify the right investor, check whether the companies’ core values and vision align with the investor’s vision.
  • Do research and take a course on financial management and investments.
  • Do a precise business valuation and don’t shy off from asking big numbers when it’s absolutely needed.
Top
team
×

ăn dặm kiểu NhậtResponsive WordPress Themenhà cấp 4 nông thônthời trang trẻ emgiày cao gótshop giày nữdownload wordpress pluginsmẫu biệt thự đẹpepichouseáo sơ mi nữhouse beautiful