July issue editorial by James Mawson, editor-in-chief
Social network Facebook’s plans to launch the Libra blockchain and native cryptocurrency, its custodial wallet and subsidiary Calibra, programming language Move and its governing body the Libra Association based in Geneva, Switzerland, certainly took most of the attention this month.
Benedict Evans at venture capital firm Andreessen Horowitz, and the Token Economy’s Stefano Bernardi and Yannick Roux picked up on the opportunities Libra could create for applications on top, while guest commentator Jalak Jopanputra covers the inside report on Libra (see comment). As Token Economy said: “[Facebook’s proposal] completely blurs the lines between finance and tech once and for all. Banks and financial institutions more generally won’t just want to be on and off-ramps to Libra. They will want to build stuff on it, or they’ll be forced to in order to stay relevant.”
This creates issues and opportunities for others, with Bitcoin’s price rising rapidly in the days after Libra’s announcement. Ripple, the startup behind the XRP cryptocurrency, has agreed to invest up to $50m in MoneyGram, a US-listed money-transfer service. Ripple agreed to buy $30m worth of shares and warrants to buy stock at $4.10 a share, for a 10% stake in the company, and additional warrants for up to $20m worth of newly issued stock, also at $4.10 a share, over the next two years at MoneyGram’s discretion.
While still relatively rare for corporate venture (CVC) deals to be into large, listed companies, such as Tencent’s purchase of Tesla stock, it does reflect the growing pattern for corporations to apply CVC techniques to a wider range of opportunities and become more porous between what is inside and outside the walled garden as well as a general trend for public and private markets to be moving closer together. That Ripple had a chance for its CVC investment in Moneygram followed the collapse last year in China-based commerce company Alibaba’s takeover plan for the money service over US authority’s concerns.
The US and China have been threatening tariffs and a trade war but the most immediate sign of worsening relations have been in the limitations on overseas venture deals by the Committee on Foreign Investment in the US that have affected other countries caught in the crossfire.
At the GCV Connect meetings in Berlin and Zurich last month, as well as repeated in May’s GCV Symposium, a host of CVCs said they were scaling back or considering avoiding US deals in future because of the obstacles put in the way by the committee and other bodies.
Naturally, this can create opportunities for other entrepreneurs. The Zurich meeting of GCV Connect, hosted by Swisscom Ventures, heard from Pascal Koenig, CEO and founder of Ava, about its technology to enable fertility and how being based in Switzerland has enabled it to sell in the US but also be perceived as relatively neutral in other jurisdictions (see innovative region). A similar message came from UIPath, a Romania-based robotic process automation developer (see special report).
Europe, led by the UK, has continued to churn out more startups than the US and is increasingly admired for the quality of its technology and entrepreneurial ambitions. However, the scale of the innovation capital economy continues to grow, with more than $1 trillion in venture capital invested this decade according to data provider Pitchbook, and creation of small and medium-sized enterprises might be insufficient in a world of well-funded platforms “blitzscaling” their way to market dominance.
The EU’s 28 member states might in aggregate have a larger market than the US – Germany is bigger than California’s gross domestic product and Spain is comparable to the economy of Texas – but with a few dozen European startups raising rounds of at least $100m last year compared with more than 100 in both the US and China, it is an uphill battle to break out, not helped by the seeming disinterest from governments and corporations in Europe (see analysis).
As CVCs drily noted in discussion at the GCV Connect meetings, held under Chatham House rules, European corporations are still allocating only a fraction of a percent to corporate venturing while US and Chinese peers are in some cases providing nearly all their free cashflow to the space because it is regarded as strategically important and complementary to other innovation tools. Entrepreneurs say breaking out as a consumer company takes more than $1bn in funding and the really ambitious entrepreneurs are coming from the US and China.
Not all, of course, these US and Chinese companies will make it and the consequences in a blow-up from a business that raised 10 or 11-figure amounts of venture capital could be significant in turning off the cash spigots for others.
But those that do make it are changing the world. And, perhaps tellingly, less than a handful of Facebook’s dozens of initial partners for Libra are based in Europe, including UK-based Vodafone and Farfetch, and Sweden’s Spotify.