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.

Will Japan ban ICOs ? Constructive regulation more likely.

October 14, 2017

A lot of people have been asking my opinion on whether Japan will ban ICOs.

China and South Korea have essentially implemented full-on bans of cryptocurrency and ICOs. A Siberian winter for cryptocurrencies also appears imminent in Russia.

So will Japan follow suit ?

The short answer is: I really don’t know, but I think a categorical outright ban is unlikely.

Make no mistake, a ban on ICOs in Japan is not impossible. The truth is that it is still early days for ICOs in Japan. As I discussed in my book, only a handful of ICOs in Japan are currently in the works.

  • Payments enabler Omise boasts a largely Japanese team but is based in Thailand.
  • Alis represented the first thoroughly Japanese ICO, successfully completed last month.
  • Tokyo-based Telcoin will offer their upcoming ICO in Singapore.
  • The ICOs of Japan’s Comsa and Synchrolife are currently underway.
  • Tokyo-based bitcoin prediction platform Phantom AI also recently announced its upcoming ICO.

Thus far, all of the ICOs linked to Japan appear to encompass legitimate projects run by credible founding teams. Whether or not you believe in the respective projects, brilliant minds generally reside behind each one. Furthermore, some foreign startups are eyeing Japan for their ICO launches, notably Bread from Switzerland and Drivezy from India.

The Japanese government is thus taking a methodical approach to regulating the sector. Theoretically, it may decide on a blanket ban.

Constructive regulation more likely

However, my sense based on empirical observation and some informal conversations with key actors in the ecosystem and in government, is that a blanket ban on token offerings in Japan is unlikely. Quite the contrary, at the end of September Japan’s Financial Services Agency approved license applications for 11 cryptocurrency exchanges. Barring a high-stakes scandal (which could understandably trigger drastic action), I believe that the Japanese authorities will continue on their measured path of constructive regulation.

Perhaps partly motivated by the country’s historical ceding of ground to other Asian financial hubs like Hong Kong and Singapore, Japan has much to gain by sustaining its healthy environment for the development of cryptocurrency. Less visible but happening behind the scenes is the government’s encouragement of incumbent players, such as the mega-banks, large institutional investors, and certain retailers, to embrace cryptocurrency.

Japan arguably stands at the forefront of the global cryptocurrency market today. I’ll be paying close attention to how the environment here evolves.

Finally, I’d like to thank everyone who has purchased Japan: Bitcoin #1. The sales in the first two weeks have already far surpassed expectations. As a reminder, profits from the sale of this book go to Japan’s Tohoku region, still rebuilding from March 2011.


Japan: Bitcoin #1

October 7, 2017

Despite Japan’s accounting for half of the worldwide bitcoin trading volume daily (yes, half !), I could not locate any substantial research on this fascinating phenomenon. Frustrated by this absence, I decided to write a book about it.

A primer on the world’s leading country for bitcoin and blockchain adoption

Japan, the world’s third largest economy, has emerged as one of the key players in the cryptocurrency market space. Establishing a clear regulatory framework has fostered an atmosphere of legitimacy in which consumers and businesses alike feel increasingly comfortable to operate. In April 2017, the Japanese government defined bitcoin as a legitimate means of payment, leading to dramatically accelerated adoption of cryptocurrency.

Japan: Bitcoin #1 explores the primary drivers for adoption of cryptocurrency, predominantly bitcoin, in Japan. It explains why Japan surpasses every other developed nation in cryptocurrency. All of the blockchain actors are discussed, including startups, investors, associations, and regulatory bodies. Furthermore, we explore how Japan possesses the key ingredients to remain a global leader in crypto-assets and blockchain innovation. Special thanks to Nai Tsu Chen for helping with much of the heavy lifting on this effort.

Profits from the sale of this book are directed to Japan’s Tohoku region, still rebuilding from the 2011 tsunami.

Station F is real, and it’s spectacular

September 30, 2017

On a brief trip to Paris last week I finally found an opportunity to visit the freshly opened Station F.

In a former railway depot which spans the entire length of Tokyo Tower* on its side, Station F bills itself as the world’s largest startup campus. The facility opened its doors in July.

Many people in Japan and other parts of Asia of varying organizations have asked my opinion about Station F. Now I finally feel qualified to give it.

I’ll start off with a blanket endorsement:

  1. If you are an Asian startup, VC, or innovation-seeking corporation with global ambitions that encompass Europe, Station F could be the perfect beachhead for you.
  2. If you are in one of the three above categories but for whom Europe is in your blind spot, Station F is a perfect way to enhance your vision.
  3. If you are an Asian startup, VC, or innovation-seeking corporation who is ignorant of the plethora of innovation taking place in Europe these days, read this, this, this, and this. Then return to step 1.

In other words, Europe should be on your radar if it isn’t already. And Station F makes it easy for you.

Granted, the construction dust was still settling when I visited, and the startup section seemed a bit empty. However, the ambition is there. You can smell it. Station F is not just another one of those provincial, franco-French initiatives. I deliberately wrote a piece back in 2016 (Free, unsolicited advice for Station F) in hopes they would not fall into this trap. They didn’t.

Quite the opposite. Station F endeavors to become an entire international ecosystem, hosting 1,000 startups, as well as investors, business service providers, public services (e.g visa assistance), event space, a food court, and soon even a housing extension for 600 entrepreneurs.

Concretely, here are some of the most relevant opportunities Station F currently has on offer:

  • For foreign startups — Station F offers over 25 different incubation and acceleration programs for which you may be eligible. Find out more here.
  • For foreign VCs — Station F was offering for a limited time an access package of 5 – 10 days per month (fee of under $1k/mo) for tier-1 foreign funds. I understand this opportunity may be oversubscribed, but feel free to ping me for a direct introduction.
  • For foreign corporations — Station F will soon introduce a one-day summit package, which would involve a custom-tailored session and startup introductions relevant to the corporation’s specific needs. I understand this package is not quite ready but will be happy to connect you to the appropriate person if you’re interested.

On a final note and to address a frequent inquiry: Station F is not a co-working space, nor is it a service for company domiciliation (both such services are already widely available throughout Paris).

I’m bullish on Station F

Yes, it’s still early days. It remains to be seen whether the reality in execution fulfills the ambition. But I’m bullish on Station F and am encouraging all of my foreign portfolio companies to give it a serious look. You should too.

Sincere thanks to Roxanne and Cédric for the personal guided tour !

* Tokyo Tower is 13 meters taller than the Eiffel Tower, yet only half the weight.

Hooray for Harumafuji

September 25, 2017

This month’s aki basho sumo tournament in Tokyo looked as though it would be an underwhelming yawner in the early days. Three of the four grand champion yokozuna pulled themselves out due to injury, followed shortly thereafter by two of the three ozeki (Takayasu and Terunofuji).

With yokozuna Harumafuji and ozeki has-been Goeido as the only championship-caliber rikishi standing, some fans placed hopes that some of the younger up-and-comers would enter the limelight. A few youngsters did indicate signs of potential — notably Takakeisho, Onosho, and Asanoyama — but also underscored the value of experience.

Experienced Harumafuji revealed that he was not at 100%, dropping three of the first five matches to junior wrestlers. Despite clearly ailing, this honorable yokozuna admirably committed himself to play out the tournament in an effort to keep it remotely interesting for the fans.

Harumafuji over-delivered on his promise. He won just enough bouts to remain mathematically in the trophy hunt, keeping pressure on the nearly undefeated Goeido into the final stretch. Then, what do you know, Goeido stumbles a bit, and suddenly we find ourselves in the final day of the tournament with Goeido facing Harumafuji and the championship still up for grabs.

Harumafuji beats Goeido with typical yokozuna dominance in the final regulation match, thus tying their records and forcing a playoff tie-breaker.

The playoff match left even less doubt. Harumafuji pushed out Goeido with a quick yorikiri and climbed through a back window into his 9th sumo championship.

I’ve been a fan of Harumafuji since way back in the early days when he was known as Ama. In many ways he strikes me as one of the most entrepreneurial sumo wrestlers. As one of the lightest, he must leverage his agility and resourcefulness to overcome his weight disadvantage. His back-to-back victories over Goeido on the final day also relied on a strong tachi-ai, the initial charge in a sumo bout, must like a startup needs to hit the ground running.

Hooray for Harumafuji ! よくできました。

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