January 2016

Today’s schedule  Morning: Financing
Innovation − 9:00 to 10:30 Lecture  Michal Gromek, PhD SSE, FundedByMe, Lendico, Rocket Internet − 10:30 to 11:30 Groupwork: Funding your Startup − 11:30 to 12:00 Group presentations  Afternoon: FinTech and Industry Transformation? − 13:00 to 15:00 Lecture − 15:00 to 17:00 Discussion: Disruptor vs Industry Incumbent  Anna Felländer, Digital and Futuring Economist, Swedbank  Henrik Rosvall, CEO and Founder, Dreams

Groupwork: Funding your startup 
Prepare a max 5 minute presentation − How much funding do you need to get your idea off the ground? − Which form(s) of financing will you go after? And When? − What will you give in return for financing? E.g., equity, reward, nothing − How long will it take for you to provide the return for your “investors”? − What do you need to do to prepare for raising financing?

If the rate of change
on the outside exceeds the rate of change on the inside, the end is near.... -Jack Welch

What triggers industry transformation? Johnson
& Scholes 1997 Politics and government Environment Technology Legal structure Social and demographic structure International/ national economy Industry structure

Two dimensions of transformation 
Core activities – Recurring actions a company performs that attract and retain suppliers and buyers (profit-making activities)  Core assets – Durable resources, including intangibles, that make a company more efficient at performing core activities McGahan, HBR, 2004

Trajectories of industry transformation McGahan,
HBR, 2004

1980-1999 US Industries’ Share of
Transformation McGahan, HBR, 2004

Industry transformation
Picture: http://andrewkarpie.com/wordpress/?p=469

Number of firms in industry
over transformation Economies of scale

What trajectory is the financial
services industry on? McGahan, HBR, 2004

Digitization of the banking industry

Further changes…

Screenshot from Factom.org

Banking is essential, but banks
are not. Bill Gates

What is FinTech? Accenture/CB Insights
Technologies for banking and corporate finance, capital markets, financial data analytics, payments, and personal financial management Finance TechnologyFinTech

What is Fintech?

FinTech World Personal Finance Payments
Bitcoin & Blockchain Currency Currency Remittance & FX Lending Crowdfunding Robo-investing & Asset Management Tech Consumer Banking & Saving The Wharton FinTech Club What is FinTech?

FinTech Overview

http://www.slideshare.net/eteigland

1950 1960 1970 1980 1990
2000 2010 1959, Bankgirot founded 1985, Swedish financial and credit markets deregulated 1968, World’s first online ATM in Sweden First wave of electronic trading software companies emerges 2003, First BankID issued in Sweden 1990s, Sweden invests in Internet infrastructure, today country with 3rd highest Internet penetration 2010, iZettle founded 2010, Neonet $160M exit 2014, iZettle raises $55M 2014, Klarna raises $125M in PE 1967, First ATM installed in Sweden 1984, Optionsmäklarna (OM) opens in Stockholm, Sweden’s first stock option market, electronic trading introduced 2012, TriOptima, $160M exit 2005, Klarna founded 1998, Merger between Stockholm’s Stock Exchange and OM Stockholm 2007, NASDAQ acquires OMX Group Unicorns such as Skype, King, Spotify and Mojang founded 2014, FinTech Funding in Stockholm Explodes Long history of “FinTech” in Stockholm http://www.slideshare.net/eteigland/stockholm-49722748

In just the past few
years in Stockholm… Company Founded Business Klarna 2005 E-commerce payment services MyLoan 2006 Loan broker Trustly 2008 Online payments iZettle 2010 Mobile payments FundedByMe 2011 Crowdfunding, crowd equity Kivra 2011 Digital mailbox Tink 2012 Personal finance Safello 2013 Cryptocurrency exchange KnCMiner 2013 Cryptocurrency mining equipment Toborrow 2013 P2P lending for companies Cryex 2014 Cryptocurrency clearing house

Stockholm #2 FinTech city in
EU 2010-2014 investment ● $532 Mln 2014 investment ● $266 Mln Top 2014 Investments in Stockholm FinTech Companies (USD Mln) Klarna $125 iZettle $55 Trustly 29 Bima Mobile $22 KNC Miner $14 http://www.slideshare.net/eteigland/stockholm-49722748

”Innovative Lending & Investing” emerging
2013 Stockholm FinTech revenue Cryptocurrency 0% Transfers 2% Innovative Lending 5% Wealth Management 9% Other FinTech 12% Payments 33% Trading & Banking Tech 39% & Investing Our report: http://www.slideshare.net/eteigland/stockholm-49722748

Crowdfunding rapidly growing in Europe

Crowdfunding growth 2012-2015 USD 34
bln E

But in China alone in
2015… http://www.crowdfundinsider.com/2016/01/79612-report-china-p2p-lending-topped-150-billion-in-2015/

Four forms of crowdfunding Form
Benefits for funders Donation- based Donation Intangible benefits. Reward- based Donation or pre- purchase Rewards in addition to intangible benefits. Equity-based Investment Return on investment if company does well. Rewards sometimes also offered and intangible benefits may motivate too. Loan-based Loan Repayment of loan with interest. Alternatively intangible benefits if loan given interest-

Democratizing innovation and investment? 
Women in USA  <30% of business owners  <15% of angel investors  <10% of venture capitalists Marom, Robb and Sade 2014  Women on Kickstarter  35% of project leaders  44% of investors  Women invested in women project leaders (>40% of projects) VS

Competing for investment?

Crowd equity

New forms of ownership…crowd equity

One step in the financing
chain

Using the crowd to identify
investment opportunities Nesta

zopa

P2B lending in Sweden

Enabling local community?

http://www.fundable.com/blog/crowdfunding-infographic---the-jobs-act-explained

Emerging forms of collaborative investing
Crowdsourced hedge fund Activist hedge fund +

Developing investment skills online
https://www.quantopian.com/hom

Enabling financial inclusion

Cryptocurrency mining equipment
http://techcrunch.com/2014/09/04/kncminer-raises-14-million-to-take-bitcoin-mining-to-the-moon/

Transforming insurance

What is a cryptocurrency? 
Digital  Decentralized, peer-to-peer (P2P), i.e., no central, third party  Uses cryptography to validate/secure transactions  Also uses cryptography to generate currency itself  Non-technical explanation of Bitcoin − https://www.youtube.com/watch?v=t5JGQXCTe3c

Within 6 years: Challenging the
fiat money system? Bitcoin – An emergent phenomenon • Open source project on SourceForge in Jan 2009 • Original source code by “Satoshi Nakamoto” – pseudonym? • Developed by self-organizing community of thousands of strangers across globe • Approx USD 6.5 bln market cap and approx 180,000 daily transaction volume of USD 101 mln • 1 BTC = USD 431 (Jan 14, 2016) Teigland, Yetis, Larsson 2013 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263707

How does Bitcoin work? Screenclip
from: How Bitcoin Works under the hood, by “Curious Inventor” Blockchain • Shared public ledger • All transactions ever made logged • Chronology and integrity enforced by cryptography

Enabling records, oversight Image from
the FT

Screenshot from the Economist

But also Vendor Transparency AML
and KYC Features…

IoT and smart contracts 
Ownership attached to asset/property (e.g., real estate, shares) and can be verified  Run on Bitcoin ledger, execute legal rules between two entities: people, organizations, machines  Trustless because no center, no one in middle – the network is the middleman  Example: I run a private weather station using neighbors’ sensors. Smart contracts enable payment to neighbors for data sent from their sensors to my weather station.  But time will tell… uses we cannot imagine today. https://www.youtube.com/watch?v=JsC4ptn2Aik

IBM + Samsung

From “trusted”, centralized human authorities
to trustless, decentralized networks IBM Institute for Business Value (PDF)

La’Zooz – Decentralized transportsharing
http://lazooz.org/

FinTech World Personal Finance Payments
Bitcoin & Blockchain Currency Currency Remittance & FX Lending Crowdfunding Robo-investing & Asset Management Tech Consumer Banking & Saving The Wharton FinTech Club What is FinTech?

FinTech – An increasingly crowded
space • Growing number of entrepreneurs with experience from established finance industry • Increasing number of FinTech incubators • Collaboration among established banks • Open innovation through open APIs • Other big non-banking entrants

Industry transformation
Picture: http://andrewkarpie.com/wordpress/?p=469

Trajectories of industry change McGahan,
HBR, 2004

Responses to disruptive strategic innovation
Charitou, C. D., & Markides, C. C. (2012). Responses to disruptive strategic innovation. MIT Sloan Management Review

Why not embrace disruption? Charitou
& Markides, 2003

Incumbents running incubators Actor Incubator
Location Citi Mobile Challenge Americas, EMEA, Asia Pacific DBS & Nest Investment Accelerator Hong Kong Wells Fargo Startup Accelerator USA Accenture and Bank of America, Merrill Lynch, Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, UBS Innovation Lab NY, London, Hong Kong “Innovation labs are a sign that banks are taking the FinTech threat seriously as they recognize that we’re coming to eat their lunch.” -FinTech Entrepreneur

Opening up innovation… Citigroup Capital
One BBVA Compass Silicon Valley Bank Bank of America

P2p industyry incumbents

Betting on the Blockchain -
Together Goldman Sachs, JPMorgan, Credit Suisse, Barclays, Commonwealth Bank of Australia, State Street, RBS, BBVA, UBS, Nordea, SEB, + …… +

FinTech challenges  Regulation 
Privacy  Security  Untested in periods of high interest rates, increased risk, and reduced investment

Previously…  In the eight-year
period between the Netscape IPO and the acquisition of PayPal (one of the winners of this era) by eBay, more than 450 attackers – new digital currencies, wallets, networks, etc. – attempted to challenge incumbents.  Fewer than five of these survive as stand-alone entities today. McKinsey, 2015

Underperformers vs outperformers

Two models of industry transformation
McGahan, HBR, 2004

Thomas Jefferson (1816) “Laws and
institutions must go hand in hand with the progress of the human mind.” The problem is that the human mind itself can’t keep pace with the advances that computers are enabling. http://wadhwa.com/2014/04/15/mit-technology-review-laws-and-ethics-cant-keep-pace-with-technology/

The future is already here,
it’s just not very evenly distributed. - William Gibson

Robin Teigland robin.teigland@hhs.se www.slideshare.net/eteigland @robin.teigland
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