All posts in “Entrepreneurship”

Mnuchin Sounds Alarm Over Facebook’s Money-Minting Plan

By John P. Mello Jr.
Jul 17, 2019 2:51 AM PT

The U.S. Treasury Department has “very serious concerns” about Facebook’s new Libra cryptocurrency, according to Secretary Steve Mnuchin.

“Libra could be misused by money launderers and terrorist financiers,” he told reporters at a White House press conference Monday.

“Cryptocurrencies, such as Bitcoin, have been exploited to support billions of dollars of illicit activity, like cybercrime, tax evasion, extortion, ransomware, illicit drugs, human trafficking,” Mnuchin continued. “Many players have attempted to use cryptocurrencies to fund their malign behavior. This is indeed a national security issue.”

The United States has been in the forefront of regulating entities that mint cryptocurrencies, he added.

“We will not allow digital asset service providers to operate in the shadows,” Mnuchin declared, “and will not tolerate the use of the cryptocurrencies in support of illicit activities.”

A Lot of Work to Do

Facebook and other providers of digital financial services have been put on notice that they have to implement the same rigorous safeguards against money laundering and terrorist financing as traditional financial institutions, Mnuchin noted.

“To the extent that Facebook can do this correctly, with proper AML (anti money laundering), that’s fine,” he said. “They and others have a lot of work to do before they get us comfortable.”

Asked if the administration’s attitude toward social media, which it says is biased against conservatives, will color how Facebook’s cryptocurrency will be treated by Treasury, Mnuchin offered this reply: “The president does have concerns as it relates to Bitcoin and cryptocurrencies, and those are legitimate concerns that we’ve been working on for a long period of time. But, no, we’re not going to target any one entity.

“To be clear, the U.S. welcomes responsible innovation, including new technologies that may improve the efficiency of the financial system and expand access to financial services,” he continued. “That being said, with respect to Facebook’s Libra and other developments in cryptocurrency, our overriding goal is to maintain the integrity of our financial system and protect it from abuse.”

Taking Time to Get It Right

Facebook pledged to cooperate with regulators at a Tuesday hearing before the Banking, Housing and Urban Affairs Committee of the U.S. Senate.

“The time between now and launch is designed to be an open process and subject to regulatory oversight and review,” said David Marcus, head of Calibra, the Facebook subsidiary that will make a digital wallet for storing and spending Libra.

“In fact, I expect that this will be the broadest, most extensive, and most careful pre-launch oversight by regulators and central banks in FinTech’s history,” he continued. “We know we need to take the time to get this right, and I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”

The Libra Association is committed to supporting efforts by regulators, central banks and lawmakers to ensure that Libra contributes to the fight against money laundering and terrorism financing, Marcus said.

Moving cash transactions to a digital network that combines regulated on- and off-ramps and proper know-your-customer practices with the ability of law enforcement and regulators to conduct their own analyses of on-chain activity will present an opportunity to increase the efficacy of financial crimes monitoring and enforcement, he maintained.

“Libra should improve detection and enforcement, not set them back,” Marcus added.

Privacy a Top Priority

Protecting consumers and ensuring people’s privacy is one of the Libra Association’s top priorities, Marcus told the Senate panel.

Privacy on the Libra blockchain will be similar to the blockchains used by other cryptocurrencies, he explained. Transaction information is limited to the sender’s and receiver’s public address, transaction amount and timestamp. No other information will be visible. The Libra Association won’t collect data on people who use the blockchain or run any of its infrastructure.

“As a result, the association can not, and will not, monetize data on the blockchain,” Marcus said.

The goal of Libra is a straightforward one: create a digital currency built on a secure and stable open source blockchain, backed by a reserve of real assets and governed by an independent association, he noted.

“We recognize that the road to reaching that goal will be long, and it will not be achieved in isolation,” Marcus said.

“That is why we have begun publicizing the vision for Libra, and why we have been discussing, and will continue to discuss, how best to achieve that goal with businesses, nonprofit and multilateral organizations, and academic institutions from around the world, as well as with policymakers, central banks and regulators,” he added.

“We recognize the authority of financial regulators and support their oversight of this project,” Marcus said.

Trumping Trump

Because it’s backed by a basket of bonds and fiat currencies — that is, currencies with values set by the state that issues them — Libra isn’t likely to have an impact on the value of a currency, observed Bill Xing, president of Panda Analytics, a maker of cryptocurrency investment software in New York City.

However, that’s not the case with something like Bitcoin.

“Bitcoin provides an independent monetary policy in its nature, and it’s competing with fiats,” Xing told the E-Commerce Times.

“In the end, technology trumps even Trump,” quipped Steven Eliscu, senior vice president of corporate development at DMG, a blockchain and cryptocurrency company in Vancouver, British Columbia, Canada.

“The bitcoin network has grown to represent hundreds of billions of dollars of value despite governments attempting to limit its use,” he told the E-Commerce Times.

“Going forward, Libra could ultimately become a meaningful global medium-of-exchange platform that greatly benefits consumers, especially the unbanked, even as some government officials have already balked,” Eliscu continued.

“As technology often advances far faster than public policy,” he said, “we expect governments to have limited impact on the development of Bitcoin and Libra in the near term, as Twitter feeds don’t legislate nor regulate.”

John P. Mello Jr. has been an ECT News Network reporter since 2003. His areas of focus include cybersecurity, IT issues, privacy, e-commerce, social media, artificial intelligence, big data and consumer electronics. He has written and edited for numerous publications, including the Boston Business Journal, the Boston Phoenix, Megapixel.Net and Government Security News. Email John.

What seed-stage dilution tells us about changing investor expectations

A little-noticed startup financing trend has big implications for how VC firms evaluate companies raising Series A and B rounds

Round sizes are up. Valuations are up. There are more investors than ever hunting unicorns around the globe. But for all the talk about the abundance of venture funding, there is a lot less being said about what it all means for entrepreneurs raising their early funding rounds.

Take for instance Seed-stage dilution. Since 2014, enterprise-focused tech companies have given up significantly more ownership during Seed rounds. What gives?

Scale is an investor in early-in-revenue enterprise technology companies, so we wanted to better understand how this trend in Seed-stage dilution impacts companies raising Series A and Series B rounds.

Using our Scale Studio dataset of performance metrics on nearly 800 cloud and SaaS companies as well as Pitchbook fundraising records covering B2B software startups, we started connecting the dots between trends in valuations, round sizes, and winner-take-all markets.

Bottom line for founders: Don’t let all the capital in venture mislead you. There’s an important connection between higher Seed-stage dilution and increased investor expectations during Series A and Series B rounds.

These days, successful startups are growing up faster than ever.

Founders face an important trade-off decision

The Online Grocery Shopping Comeback

Do you enjoy grocery shopping? Some shoppers love walking up and down the aisles, seeing what’s new, looking for what’s on sale, and getting new ideas. They often pick up things that weren’t on their list. However, while many shoppers love that experience, others don’t. They would rather run in and out as quickly as possible.

That’s where online grocery shopping comes into play. Simply log on to your favorite store’s site, select the items you want, pay online, then make a quick run to the store to pick up your bags.

But wait — there’s more. Many stores are setting aside prime parking spaces, allowing them to sit empty most of the day so they can be available for the few people who pull up and wait for their groceries to be brought out to them. Those customers don’t even have to leave the driver’s seat.

There’s even more. Many stores actually deliver to your home. That way you don’t have to do anything other than answer your doorbell.

In fact, there are several new online grocery businesses that have started up. You pay a fee, select the groceries you want, and they deliver. There is no store to shop in. They are strictly online.

Not a New Idea

Ordering groceries through e-commerce websites or mobile apps may seem like a brand new idea that should be very successful, appealing at least to some of us. However several companies tried this idea in the late 1990s, but it didn’t catch on in a big way.

Do you remember a company called “Webvan”? I tried it — it was an interesting idea. I got what I ordered, but there was no walking the aisles and finding other interesting things.

Webvan shut down in 2001, at a time when many other Web ideas went bust.

However, the grocery business in general has become very different in the intervening years and now is at the top of its game.

Wild West

The grocery industry is going online again. It got a big boost when Amazon acquired Whole Foods. Kroger, Publix and many others have been pushing online shopping to remain competitive.

There are many new competitors in the field, large and small. Walmart, Target, Trader Joe’s, Sprouts and others offer some form of online shopping. Some let you pay for your groceries with your iPhone or Android smartphone. Others have self-checkout aisles. There is all sorts of innovation in this sector.

In fact, Amazon has opened a handful of checkout-free stores that let you check in automatically as you enter the store with your smartphone, shop, put items in your bags, then simply walk out while strolling through scanners that automatically charge your credit card.

Online grocery shopping is easy for the customer when it works the way it was designed. It more than likely will eliminate shoplifting as well.

In some ways, the grocery industry has returned to a wild wild west state of uncertainty — sort of the same feeling when e-commerce was just getting off the ground in the 1990s. It’s impossible to predict the innovations to come or which players will emerge as winners.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of ECT News Network.

Jeff Kagan has been an ECT News Network columnist since 2010. His focus is on the wireless and telecom industries. He is an independent analyst, consultant and speaker. Email Jeff.

Isn’t It Time to Buy Cyber Insurance?

Every day we read stories about data breaches and cyberattacks on business and government websites, and the resulting the loss of personally identifiable information (PII). Cybercrime is on the rise, and given the ever-evolving methods of attack, meaningful relief and reliable measures to fend off cybercriminals are unlikely in the foreseeable future.

It would seem obvious that companies need to insure against cybertheft, but amazingly enough it appears that many businesses, likely the majority, do not have any cyber insurance.

It is hard to determine the exact number of companies that currently have some form of a cyber insurance policy, since there is no centralized reporting repository. However, PWC estimates only about 30 percent of companies have cyber risk insurance or cyber liability insurance coverage (CLIC). If correct, that figure seems shockingly low, given today’s environment.

Industry-Specific Risks

Most businesses apparently do not believe they are at risk of losing one of their most valuable assets — customer data — to cybercriminals. Anyone who reads the daily news knows that is a foolish gamble to make. It is common, if not mandatory, for U.S. companies to purchase a variety of insurance policies, including commercial general liability (CGL), directors’ & officers’ (D&O), and errors & omissions (E&O).

Not all CGL, D&O, and E&O policies are identical; often they are industry-specific. For example, a company building and selling bicycles is radically different that an e-commerce retail business (like Target) that collects PII and credit card data (regulated by the payment card industry (PCI). Cyber risk for bicycles may not exist, but bicycle manufactures and sellers would need insurance for faulty design. On the other hand, an e-commerce retail business surely would need cyber nsurance.

New companies should invest the time to investigate cyber insurance needs for their industry, and understand the risks of being sued by customers for loss of PII, PCI data, or personal health information (PHI).

How Are Insurance Premiums Set?

Insurance companies use historical data to set premiums based on business and industry categories. In the foregoing example, an insurance company would have no problem offering traditional insurance policies to the bicycle manufacturer, given the long history of manufacturing and selling bicycles in the U.S.

The same cannot be said for CLIC policies, since cybercrime is relatively new and cyber risks change frequently. Even the most sophisticated companies have difficulty keeping up with the ever-evolving and prolific number of cyber risks.

Nowadays, once a chief information security officer (CISO) fixes a potential cybersecurity risk, the cybercriminals unleash a new form of cybercrime. This makes the underwriters’ job of identifying and quantifying risks tricky.

The limited data available to underwriters further compounds the issue. All 50 states now require some form of reporting for cyber intrusions when PII is compromised, and many insurance policies provide those impacted individuals with credit protection (think Lifelock) for 12 months. Oftentimes, however, organizations fail to report the full impact of breaches in order to avoid negative publicity that could damage the trust of customers.

Since quantifying and identifying specific cybercrime threats is so challenging, insurance companies tend to focus on types of losses — which are more fixed in nature (e.g., first-party losses and third-party claims) — when determining premiums.

In addition to a company’s industry, insurers look at the type of services that company provides, data risks and exposures (e.g., does the company store and maintain sensitive customer PII, PCI data or PHI?), security protocols in place (if any), policies, and annual gross revenue.

What Happens When a Cyber Insurance Claim Is Filed?

Insurance companies study every claim to see if there will be insurance coverage irrespective of the type of business — be it the bicycle manufacturer or e-commerce business. Because there is more historical data for the bicycle industry, the insurance company generally can make a decision pretty easily.

In the e-commerce world it is not so simple. Sometimes a particular type of cyber incident has never happened before so the insurance company will reject the claim.

Today some insurance companies are rejecting cyber insurance claims when the criminals are outside the U.S. and state that the cyber incident was an act of war.

Peter VogelPeter Vogel has been an ECT News Network columnist since 2010. His focus is on technology and the law. Vogel is Of Counsel at Foley Gardere, Foley & Lardner LLP, and focuses on cybersecurity, privacy and information management. He tries lawsuits and negotiates cloud contracts dealing with e-commerce, ERP and the Internet. Before practicing law, he received a master’s in computer science and was a mainframe programmer. His blog covers IT and Internet topics. Email Peter.

Chelsea HilliardChelsea Hilliard has been an ECT News Network columnist since 2019. As an associate at Foley Gardere, Foley & Lardner LLP, she focuses her business litigation practice on trade secret noncompetition and securities enforcement. She also helps clients with complex electronic discovery disputes and has been recognized as Texas Rising Star attorney by Texas Monthly, and a Top Lawyer under 40 by D Magazine. Email Chelsea.

The Subscription Model: The Shining Star of E-Commerce

Subscription sales have become a strong part of e-commerce. Everything from razors to dog toys to movies is being sold on the subscription model, and subscriptions don’t show any signs of letting up.

“Our customers tell us that opening their BarkBox with their dog is one of the best experiences they share every month,” said Allison Stadd, vice president of marketing at Bark, about its monthly dog supply box.

“Typically by the second or third month, most dogs will recognize that box and go crazy when they see it. Nothing makes true dog people happier than seeing their dog go nuts with excitement,” she told the E-Commerce Times.

Bark Box

Subscriptions can be beneficial both for companies, which get a dedicated customer base and steady income stream, and for customers, who get convenience and curated novelty.

“For merchants, recurring revenue is great for business,” said Brent Shepherd, subscriptions team lead at WooCommerce.

“It can increase revenue and revenue growth rates, as well as provide more predictability on future revenues,” he told the E-Commerce Times. “For customers, if you find a consumable good or service you love, it’s far more convenient to subscribe than to purchase it manually each week or month.”

Look for Opportunities

Companies increasingly have been looking for anything at all that might work if offered as a subscription, even if it’s a product that once would have been bought as needed in brick-and-mortar stores.

“Businesses I see enjoying success with WooCommerce subscriptions started with a good or service already consumed regularly — like food, beverage, cosmetics, clothing, media or education,” said Shepherd. “They then added a unique experience on top of that. Only after that do they introduce the subscription model to provide a layer of convenience for accessing their unique offering.”

The combination of offering a regularly purchased product enhanced by thoughtful curation seems to be the winning model in the subscription marketplace.

“Some big successes have been realized by simply looking at long-established business models and reworking them as subscription businesses,” said Darryl Hall, president of Big Innovations.

“For example, not so long ago, consumers purchased mainstream products like razors in single transactions,” he told the E-Commerce Times.

“Unless you are pretty young, you’ve probably purchased them the same way your dad did, and his dad before him,” Hall continued. “Products like that may have generations of customers thoroughly accustomed to a single business model association. Entities like Dollar Shave Club and similar [offer] an alternative. Now a market of razor users subscribe to purchase this kind of product.”

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Innovative Thinking

In the case of Bark, the company looked at a market that it saw as underserved — and could be served perhaps best with a subscription.

“Before Bark launched BarkBox, there was very limited innovation in the pet space,” noted Stadd. “No one was catering to the modern dog person mindset that dogs are members of the family and therefore deserve to have their needs taken seriously. No one in pets was talking to dog-obsessed millennials the way that kid brands talk to parents.”

Bark Bike

That kind of innovative thinking led the company to target an emerging market and adopt a business model that could shape and serve it.

“Bark boomed as unashamed dog obsession in America boomed,” said Stadd.

“When dogs were kept outside in the doghouse, our business might have been different. We also owe much of our rise to a shareworthy product and smart organic social media strategy, which is and always has been all about ridiculously silly dog content that entertains vs. sells,” she continued.

“Without the Internet, Bark wouldn’t exist today,” Stadd acknowledged. “Digital platforms and algorithms have changed, which means the game today has bigger and more expensive barriers, but dog obsession continues to scale and we don’t see that changing any time soon.”

Making Subscriptions Work

One key to a successful subscription model is making the price competitive. The subscription must offer value to consumers, both in terms of the products themselves and the curation of those products.

“A new online subscription model must be competitive,” said Big Innovations’ Hall. “If the market is already accustomed to a price for a kind of product or service you want to introduce, but you want to roll yours out at a much higher price, what about your offering is going to justify your price? Every time a popular, well-established business like Netflix tries to raise pricing by a dollar or two, the marketplace for that kind of service tends to freak out — over a dollar.”

Perhaps more than any other kind of sales, subscription sales are about building relationships between consumers and the companies that serve them.

“Unlike traditional buyer/seller models, subscription models really are relationship sales,” said Hall.

“They are probably the form of selling that must max out the concept. After you jump through what can be many hoops to win a new subscriber, a dominating task becomes keeping them,” he pointed out. “In subscription models you can’t sell them and forget them. The sales job is not done when money first changes hands. Instead, you must then strive to bond with them. Nurturing programs are about building and strengthening such bonds.”

Another key is to think of the value that will be released over time, since unlike a one-time purchase, a subscription is ideally spread over time and into the future.

“Fundamentally, the most important variable is based in how it delivers its value,” said Hall. “The most successful online subscription models will release their value in a relatively steady stream over time. We borrow a term from big pharma when exploring such models with clients. Whatever they are thinking about as seeds for their own subscription model is strengthened as a concept if it has ‘time-release’ value. If those seeds deliver the bulk of their value in one big deliverable, there’s little motivation for subscribers to persist their subscription.”

With all of the benefits of the subscription model, it’s likely to remain a vital part of the e-commerce ecosystem, as consumers come to expect subscription options for many of the products they want and need.

“We’re seeing increasing demand from consumers for the convenience of the subscription model,” said WooCommerce’s Shepherd. “This demand may evolve into an expectation from consumers that a subscription will be available for things not traditionally offered on subscription but well suited to them, like groceries. This expectation creates new opportunities for existing businesses and startups alike.”

Vivian Wagner has been an ECT News Network reporter since 2008. Her main areas of focus are technology, business, CRM, e-commerce, privacy, security, arts, culture and diversity. She has extensive experience reporting on business and technology for a variety of outlets, including The Atlantic, The Establishment and O, The Oprah Magazine. She holds a PhD in English with a specialty in modern American literature and culture. She received a first-place feature reporting award from the Ohio Society of Professional Journalists. Email Vivian.