2018 will be the Year of the Regulator

January 11, 2018

Almost exactly two years I proclaimed that 2016 would be the Year of the European Entrepreneur.

At least two other geopolitical earthquakes — in the UK and the US of course — garnered most of the attention in 2016, and understandably so. Still, I submit that a case could be made that several European startups demonstrated domain leadership on the global stage, notably in the areas of fintech, e-commerce, and health care. Moreover, now with a bit of distance it looks as though the aforementioned geopolitical shockers are further uniting continental Europe.

It is in continuing the spirit of making audacious proclamations that I’d like to suggest that 2018 will be the Year of the Regulator.

What a great time to be a regulator

“What a great time to be a regulator,” my friend exclaimed to me the other day. The friend in question happens to be an experienced operator in the tech sector, not a dyed-in-the-wool socialist by any stretch. His enthusiasm reminded me of author Robert Stanek’s description of living in Germany during the fall of the Berlin wall, “So much potential unrest yet everywhere everyone was so excited. What a great time to be alive.”

Never before in my lifetime have the societal challenges brought forth by technology ever felt so daunting.

Increasingly powerful tech giants like Facebook and Google appear to have found a way to cheat the Innovator’s Dilemma. They simply deploy their vast war chests to stifle, copy, or acquire any whiff of disruptive innovation on the horizon. Facebook’s dominance of our social graphs merits a reconsideration of antitrust regulations in my opinion. Whereas back in the day it was the disruption of the O/S by the web browser — not antitrust lawsuits — which curtailed Microsoft, Facebook can clone Snapchat’s Stories and leverage their heft in user base to quickly eclipse it. I’ve said many times (with the benefit of hindsight) that Facebook should have not been allowed to acquire Instagram. Absent legislation requiring some kind of unbundling or portability of the social graphs, fresh innovation and hence power shifts in this space seem impossible. Scary stuff for a company whose influence over our thought processes has demonstrated a real-world impact on democracy.

The current debate over whether Facebook should play a more active role in censoring advertisers on its network is intellectually stimulating. I mean that sincerely. There are well-reasoned and thoughtful arguments on both sides. Vetting terrorists and nefarious advertisers sounds obvious, but could there be unintended consequences of granting Facebook a pass to start taking sides ? Next week more Senate Commerce Committee hearings take place with Facebook (alongside Google and Twitter). I wish officials all the best in judgement and wisdom on these complicated questions.

The era of decentralization ?

I had concluded my 2016 piece in stating that, “Companies are no longer defined by national boundaries.” If 2017 was the year that the masses woke up to blockchain, it also gave us a glimpse into the fragility of national governments. I’m not referring to the rise of populism in many so-called “Western” countries — which is a different cause for alarm — but rather to the fundamental notion of the nation-state. Are we heading into a world in which citizens become sovereign individuals who cherry-pick à la carte the government services they require based on the most competitive jurisdiction for each ?

Then we have the question of cryptocurrencies, their regulation and their taxation. Many governments are sending mixed messages, some are criminalizing them, while others are leading the way (notably in this last category: Japan, as I’ve explained in my book, Japan Bitcoin #1).

Data protection

The European Union appears to be leading the way when it comes to data protection. In May of this year the EU GDPR directive takes effect. The General Data Protection Regulation is designed to enable individuals to better control their personal data. It will hopefully provide some harmonization of data rules and provide substantially-reinforced guarantees over the usage of consumer data. The legislation encompasses requirements regarding consent, notification of breaches, data portability, profiling, and the right to be forgotten.

(As a side note: I’m fascinated with the conundrum of reconciling the right to be forgotten with the fundamental immutability principle of blockchain technology).

While the regulation is European, it’s remit will be far-reaching. Organizations outside the EU that collect data concerning an EU resident are subject to the jurisdiction. Penalties could reach up to 4% of the violator’s global gross revenue. The implementation and enforcement will present interesting challenges, but it would be hard for any reasonable person to disagree that something needs to be done.

Machines as arbiters

Of course no regulator’s checklist of items requiring urgent attention would be complete without the topic of artificial intelligence. Machine learning algorithms can score a borrower’s credit worthiness, evaluate a candidate’s job eligibility, or diagnose a patient’s risk of prostate cancer far more efficiently than a human process. However, sometimes these algorithms are so effective on such complex problems that their very inventors cannot re-engineer or troubleshoot them. Fail-safes need to be constructed to detect and handle the occasions that technology makes the wrong call. Establishing the mechanisms for recourse when the machine gets it wrong will require a thoughtful regulatory framework. Could an AI ultimately replace the regulator as final arbiter ?

Hope to see ya later, regulator !

You’ve probably figured out by now that my point of this piece is not to criticize regulators’ actions (admittedly I often do that), but rather to suggest that the job of regulators has never felt as important as it does now.

2018 predictions from insightful international investors

December 21, 2017

Years ago I started publishing an annual list of technology predictions from global venture capitalists. By design, I deliberately chose VCs beyond the usual American household names, whose voices were not necessarily heard on the world stage.

Last year all of the tech prognostications came from women VCs. Even (especially?) by Silicon Valley standards, this felt quite unique and I’m proud of that.

For this season’s set of predictions, I am again pleased to be able to give the floor to an all-female cast of investors, this time a collection of insightful VCs from Asia. I’ve had the honour of interacting with each of these individuals and encourage all readers to take note of them. Their already noteworthy accomplishments will likely continue to grow.

May 2018 bring us further enlightenment.


Kanako Honda — DCM Ventures, Japan

From a high-level perspective, data analytics combined with delivering value proposition that will ultimately result in monetization will become even more important in 2018. In the recent 1-2 years, startups were able to gather large funds from VCs and concentrated on growing the user base by putting short term economics aside. As these startups, such as Uber, LimeBike, Wework etc, successfully built sizable audience and became a platform, there will be companies that will utilize big startup’s network effect and deliver various values to each touchpoint and create monetization model that doesn’t require large funding.

From a geopolitical view, edtech in Japan will start to rise as education is becoming one of the hottest topic of national policy. Although edtech has been considered as a niche, slow and unprofitable market for startups to jump in for quite a while, companies are starting to learn from the past and coming up with ways to build sustainable business within this sector. I hope 2018 will be the dawn of edtech era in Japan.


Vorawan “Michelle” Wangpanitkul — Digital Ventures, Thailand

I recall 2016 being at the height of the blockchain buzz. Blockchain pretty much intercepted every use case in and out of fintech. While I am a big believer in blockchain, I believe there will only be a few blockchain-powered use cases that survive to commercialization, ones that require an immutable distributed ledger to tackle its pain point (and there aren’t many!). Beyond payments & remittance, the next one should be KYC. Identity is at the foundation of banking, and getting it right is crucial and win-win for everyone. I personally think blockchain-powered KYC is an agenda that regulators need to push forward, and with Singapore and India’s regulators already testing this, 2018 might be the year blockchain-KYC gets adopted mainstream, and other regulators follow in.

Geographically speaking, I think there will be a lot of interesting things coming out of India. RBI has pushed forward e-KYC and successfully captured biometrics data in 99% of its adult population. With a 1.3billion population, fragmented market, huge engineering talent pool, and a lot of financial & infrastructural barriers being tackled at a state level, India is the country ripe for innovation and transformation. My 2018 prediction – lots of capital flooding into India.


Joanna Cheung, HBCC Investment and TUS International, China

The paradigm will continue to shift from ‘made in China’ to ‘created in China’. The giants of innovative technology that are emerging today are original Chinese innovations. Increasingly, we will see these original and successful companies expand abroad, notably to the U.S., Europe, and Japan. Innovations in deep tech, such as artificial intelligence, clean technology, robotics, RPA, are areas we’re particularly excited about.



Mayu Morishima, Beyond Next Ventures, Japan

In Japan, tech startups, especially from universities, are receiving increasing attention partly due to government initiatives, and biotech/medical companies occupy the majority of this space. The trend of precision medicine is also a major target for the development of startups, which typically have smaller-scale R&D capability. Large companies from other fields are also increasingly entering the healthcare sector, and M&A activity by these companies to secure innovative technology is becoming popular. Therefore, it is clear that biotech, healthcare, and medical startups will be hot in 2018.

Attractive fields include 1) regenerative medicine driven by induced pluripotent stem cell biology as well as a favorable regulatory environment; 2) digital heath, with the first smartphone application to be registered as a medical device and validated by clinical evidence about to launch; and 3) telemedicine, which is expected to be boosted by the medical fee structure revision coming in 2018. In addition to these attractive fields; however, I believe that a crucial part of VC investment should also include envisioning and creating new fields by investing in promising technologies that fall outside of established trends. I will keep looking for such pioneering innovations in 2018 as well!


Bitcoin forecasting

December 15, 2017

Would somebody please build a blockchain which immutably tracks the forecasts for the year-end bitcoin price from all these self-annointed pundits ?

2017 Startup holiday gift guide

December 11, 2017

Back by popular request, I’ve compiled a holiday gift guide featuring companies and projects in which I’ve invested or have been involved in some form.

  1. La Belle Assiette. Host your family and/or friends to a delicious dinner party prepared by a professional chef at your home with La Belle Assiette. Here are some free credit vouchers for France, Belgium, and the UK.
  2. Ledger wallet. Now that your cryptocurrency has appreciated into more than pocket money, be sure to store it securely. Ledger offers one of the most elegant hardware cryptowallets on the market. You can order a Ledger wallet online or directly in person at La Maison du Bitcoin if you’re in Paris.
  3. Revolut. Speaking of cryptocurrency, London-based fintech startup Revolut has recently introduced simple transactions in bitcoin, ether, and litecoin. Join the beta with this referral link.
  4. TransferWise. For those with a need to send or receive international money transfers in fiat currency, I cannot praise enough TransferWise‘s new Borderless Account. Here’s a referral link for a free transfer.
  5. Keyyo. The Keyyo Smartstation (designed by Invoxia) is a sleek IP phone console whose user experience exceeds every other desk phone I’ve ever tried. It also doubles as a high-fidelity bluetooth speaker.
  6. Kang. Give someone the gift of a logo, website, custom video, or other creative digital arts service from the Kang marketplace.
  7. Japan: Bitcoin #1. Last but not least, help me surpass 1000 copies sold by purchasing my book about cryptocurrency in Japan. You might be surprised to discover how Japan has become the bitcoin leader. At minimum, you’ll support a good cause, as profits are directed to Japan’s Tohoku region.

I wish everyone an enjoyable holiday season !

State of European Tech 2017 (spoiler: it’s male)

December 5, 2017

If you haven’t had an opportunity to review Atomico’s annual report on the State of European Tech, I encourage you to take a look. The brief is loaded with valuable insight into Europe’s innovation ecosystem, a sector no longer overlooked by entrepreneurs and investors globally.

Two incontrovertible conclusions leapt out at me from this analysis:

  1. Europe’s innovation ecosystem is booming. This has not been a secret among European insiders, but now global investors from the U.S., China, and even Japan are waking up to this opportunity.
  2. Europe’s innovation ecosystem is mostly male.

I’ll circle back to elaborate more on point 1 later. However, it is the second point which I suggest warrants more immediate attention.

Frankly, gender diversity in Europe’s tech startups and VC funds is abysmal. Furthermore, the perception and the reality around gender diversity in European tech are not aligned. Props to Chris O’Brien for pointing out this disparity among European startups.

I submit that the gender gap in European startups correlates closely with the gender gap within European VC funds. Atomico’s report depicts the under-representation of women in the UK’s venture capital industry, indicating that a mere 13% of VC decision-makers are women.

The situation in France’s VC sector is similarly depressing, and readers of my blog know that I’ve been railing about this problem for a while now. Here’s a reprint of an infographic on the topic I had published in 2016 (granted this needs an update but not much has changed).

In a separate section on macro events, the Atomico report observes how French insecurity seemingly vanished overnight into a “burst of positivity” upon President Macron’s election. People resist change yet are also capable of changing quickly when it matters. Gender diversity in innovation matters.

A closer look at the Howey Test, and what it might mean for your ICO ambitions

November 30, 2017

So you’re thinking of launching an ICO ?

Although the regulatory framework governing ICOs varies by country and is still emerging, the U.S. Government has indicated that it will apply the Howey Test in determining whether your token is a security or not. If your intent is to avoid running afoul of the U.S. Federal Securities Laws, you’ll probably want to determine with a reasonable degree of comfort whether they apply to your project.

A number of aspiring ICO issuers who have approached me say they’ll simply steer clear of U.S. investors in their coin offering in order to avoid problems. I typically urge them to reconsider because i) many developed countries may follow the U.S. government’s treatment of tokens, and ii) even the U.S. government’s reach can extend beyond its borders. Japan, for example, which is thus far succeeding in providing constructive regulation around cryptocurrency, is looking closely at the security aspect of token sales.

This post represents a gross oversimplification purely to explain some basic concepts of the U.S. government’s position on ICOs and should not be construed as legal advice.

First, it’s important to understand the jurisdiction of the U.S. Securities Exchange Commission (SEC). Simply speaking, the SEC’s remit of governance is limited to:

  1. Securities (i.e. if it’s not a security, it falls outside the SEC’s mandate)
  2. U.S. investors (though with some exceptions)

As a result, if your token qualifies as a security and is offered for sale to U.S. investors, your token sale will need to be registered as a security with the SEC, or obtain an exemption. Other developed countries of course provide different regulatory frameworks governing ICOs, if any — after all, these are still early days. Since many seem to be drawing inspiration from the SEC’s approach, even if your project intends to circumvent U.S. investors entirely, the determination of whether your token is a security will probably interest you.

So how does the SEC determine whether your token is a security ? As per its ruling in the case of DAO, the SEC signaled that it will apply the Howey Test to make this determination.

Who is Howey ?

Referred to by legal scholars as the “Howey Test” or simply “Howey,” it’s shorthand for a 1946 legal case brought by the U.S. Securities and Exchange Commission against two Florida corporations: W. J. Howey Co. and Howey-in-the-Hills Service, Inc. W.J. Howey owned large tracts of citrus groves in Florida and sold real estate contracts for half of the land to out-of-state investors inexperienced in agriculture and lacking the skill or equipment to tend to the land by themselves. The SEC sought to block Howey from selling these contracts, claiming that they constituted investment contracts and hence required registration as a security with the SEC.

The U.S. Supreme Court agreed with the SEC, claiming that such real estate contracts did in fact constitute investment contracts. The Court’s ruling established a precedent, thereafter becoming known as the Howey Test, which employed four criteria to determine whether an instrument offered for sale qualifies as a security.

Specifically, the Howey Test defines a security as “an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”

4 Components of Howey

Let’s break out the four components of the Howey Test:

  1. an investment of funds — self-explanatory
  2. in a common enterprise — i.e. is there a pooling of investors’ money in a common venture
  3. with a reasonable expectation of profits — i.e. do the the individuals investing the funds expect a financial gain? Note that the SEC focuses its assessment on the expectation of the investors, not the expectation of the ICO issuer.
  4. to be derived from the entrepreneurial or managerial efforts of others — i.e. are the individuals advancing the funds considered passive or active investors ?

Note that all of the above ignores whether actual shares are issued, whether the endeavour is speculative or non-speculative, and whether the underlying asset has any intrinsic value (so “the token is just a currency” argument probably wouldn’t hold).

Since the 1946 ruling, the Howey Test has been applied to numerous cases — earthworm farming, anyone? — and now apparently could encompass many initial coin offerings. Just a few days ago a former SEC commissioner suggested that, “ICOs represent the most pervasive, open and notorious violation of federal securities laws since the Code of Hammurabi.

I strongly encourage anyone thinking about launching an ICO, in any jurisdiction, to solicit legal council.


Harumafuji, you will be missed

November 29, 2017

It’s a sad moment for sumo that one of the greatest yokozuna was forced into early retirement today. Perhaps this represents the only honourable conclusion to an unfortunate incident. Nonetheless, your agile style of sumo will be sorely missed, Harumafuji. Peace be with you.

This year I’m thankful for… Lawyers (seriously)

November 23, 2017

I know this reads like a headline out of The Onion, but I’m not being sarcastic (for once!).

Over recent weeks I’ve experienced working with some incredible attorneys who have gone the extra mile in challenging situations.

For anyone who needs a referral to extraordinary legal minds in the VC/corporate finance/startup universe, I will be happy to share my top picks in:

  • France
  • Holland
  • Italy
  • Japan
  • Turkey
  • U.S.

I am long overdue for publicly acknowledging a group whom I’ve occasionally made fun of. To the lawyers with whom I’ve worked over the years: Thank you !

Consider unintended consequences to reduce confirmation bias

November 10, 2017

The CEO of one of my previous portfolio companies and I held a vigorous debate a while back about an acquisition he wanted to make.

This incident occurred a long time ago, but it lately returned to top of mind for me as I witness the hand-wringing over Facebook’s role in supporting fake Russian profiles which may have influenced the 2016 U.S. elections.

It was an unusual change of roles for us. Often with this company, I had become the VC voice of aggressive growth while he was usually the more cautious one.

In this case, however, this CEO badly wanted to move quickly on an acquisition target, while I was the one slowing the process. He was predicting that his existing business activity was flattening and was eager to keep company growth on track. He interpreted every piece of ambiguous new information about the prospective target as supporting the case for acquisition.

Fundamentally, this CEO was right. When growth starts to falter in a tech startup, it’s often a sign that either the existing business has found its ceiling or that the market has changed. Startups who do not take action may stagnate, and stagnation can be the first step toward irrelevance.

So directionally, the CEO and I agreed that something needed to be done. We differed in our enthusiasm for acting hastily on the particular target in question.

Two circumstantial issues gave me pause: i) the target had already been on the market for over a year; and ii) i had heard a casual comment from another VC in the space which raised doubt on the quality of the asset.

One particular exchange encapsulated our diverging perspectives:

CEO: “Look, we’re not perfect either, and we can’t wait for a pristine, flawless acquisition target to come along at a price we can afford.”

Me: “Agreed, but let’s at least take a moment to consider what can go wrong so that we go into this with our eyes wide open.”

I see this danger of ignoring unintended consequences playing out again in the present Facebook controversy… on both sides of the debate.

On the one hand, Mark Zuckerberg displays a seemingly unshakeable conviction that by building great technology, nothing but good will come to world. I’m sorry but no; technological progress impacts society in a range of ways, many good, but also some less beneficial.

On the other hand, the voices demanding regulation and editorial censorship controls on Facebook also miss an analysis of the potential adverse ramifications of such controls. To imagine just one example, might imposing more “KYC overhead” on FB advertisers hurt the little startup more than the deep-pocketed incumbent ?

I’m not advocating analysis-paralysis. Entrepreneurs wouldn’t get out of bed in the morning if they dwelled on everything that could go wrong. However, I do submit that seeking disconfirming evidence and considering the unintended consequences of our actions will increase our collective ability to guard against worst-case scenario outcomes.

Back on my original anecdote, in the end, the CEO (who was a fantastic manager I might add) came around and agreed on the importance of uncovering the bad news and performing the mental exercise of thinking through the potential pitfalls. There were indeed a handful of blemishes and concerns, but not any deal-breakers with the target, so we proceeded with the acquisition.


Japanese government statement on ICOs

November 4, 2017

Almost as if reinforcing the point about constructive regulation, Japan’s Financial Services Authority published a statement yesterday on ICOs.

The brief statement (full statement in english here) warns interested investors of the risks of ICOs: price volatility and fraud potential. The FSA helpfully invites inquires via email.

“A certain token issued in an ICO falls under the virtual currency on the Payment Services Act, therefore the businesses which provide exchange services of virtual currencies on a regular basis must be registered with each Local Finance Bureau that is the delegated authority to the Prime Minister,”

In other words, cryptocurrency exchanges in Japan must be registered. On September 29, the Japanese authorities approved registration applications for 11 cryptocurrency exchanges. Barring a notorious scandal, I believe that the Japanese government will continue on its constructive path of measured regulation.

Japan: Bitcoin #1 now in paperback

October 28, 2017

For those of you who prefer paperbacks over e-books (like me), Japan: Bitcoin #1 is now available on Amazon in paperback form in most major markets. Profits from the sale of this book are directed to rebuilding efforts in Japan’s Tohoku region. I’d like to reiterate my appreciation to the numerous people who helped make this book a reality, from our graphic designer, the myriad blockchain experts interviewed, veterans of Japan’s business sector, and most importantly my co-author Nai Tsu Chen who is a rising star in the venture capital world.



Here’s an infographic excerpt from Japan: Bitcoin #1 which depicts Japan’s blockchain startup landscape.



Self-doubt about self-driving

October 21, 2017

Perhaps inspired by some discussions at last week’s Innovative City Forum as well as the prior AI Summit, I’ve been reflecting on the impact on our cities of all this exciting innovation in driverless vehicles.

We speak a lot about the virtues of self-driving cars, and there are many. As evidenced by this recent test city near Pittsburgh, the dream of autonomous vehicles operating safely within an urban environment is approaching reality.

Source: CBInsights, The State of Auto Tech, May 2017

It’s not hard to imagine that self-driving cars will usher in a disruption in transport on the order of what the internet did to print journalism. We’re now realizing how much the interwebs have fundamentally changed human behavior. We read news on news apps and social media feeds. We no longer buy CDs but rather subscribe to Spotify. We binge-watch whole TV series’ seasons on Netflix. We rarely spend a day without checking Facebook1.

So if we’re willing to accept the premise that self-driving vehicles could prove fundamentally disruptive, I submit that it’s worth considering some of the potential unintended consequences arising from the widespread adoption of self-driving cars.

One is the risk of increased sprawl of suburbs. I fear that self-driving cars will encourage suburban living by making long commutes more palatable. I’m not a big fan of suburbs. I view them as sidewalk-devoid, culturally bankrupt plots gridded with McMansions, malls, and Macaroni Grills2. A primary residence in a cosmopolitan city center with an escape dwelling in the countryside in the middle of nowhere makes me happiest. Of course, this is my personal preference, and I mean no offense to suburb dwellers. Some of my best friends are suburb dwellers.

The worst part of suburbs in my opinion are their segregating tendencies. Suburbs isolate people into homogeneous, economic and cultural enclaves, robbing them of the benefits of diversity and communal interaction necessary to a functioning society.

I could also imagine that self-driving cars (and more aptly, autonomous drones), will dramatically reduce the delivery cost of physical goods. This is arguably a benefit; however, my concern is that negligible shipping costs will alter human behavior for better and for worse. One consequence is that consumers may shift from owning physical goods to simply renting them. Why own a vacuum when you can simply have one dropped off and picked up for an hour every week seamlessly? Freeing closet space and pantries of clutter sounds wonderful.

However, another consequence is that consumers may laze into expecting everything on demand. Why cycle to the produce store or local farmers market for a fresh tomato when you can order one delivered on-demand for only a few cents? Eliminate the weekly banter with the local cheese merchant or fishmonger, and we eliminate a piece of our soul.

Finally, if the demand for delivery of physical objects increases, and the pain of commuting diminishes, what will limit our threshold for traffic congestion?

Will our roads be clogged around the clock? Will the epic traffic jams of places like Sao Paulo and Beijing become commonplace in all large cities? Will our pleasant sunny days be shaded by overhead clutter?

1 Disclosure: I quit Facebook years ago for precisely this reason.

2 I chose this U.S. restaurant chain for alliterative purposes; in France it might be Hippopotamus or Buffalo Grill. Every country has some equivalent.