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REVITALISING THE TOKEN MARKET

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By Gavin Smith, CEO at Panxora

 

With interest rates near zero and fears that whipsawing stock markets are set for further plunges, many investors are turning to alternative markets in the search for returns. Money flowing into cryptocurrency hedge funds and trusts like Grayscale is at all-time highs and the large cap coins seem to be entering a bull phase, but that capital is not trickling down into new token projects. Why are blockchain token projects struggling to attract funding?

 

Seed investor scepticism

Setting aside the reputational issues with mainstream investors, even those educated in blockchain tech are not signing on the dotted line. This is certainly due in part to the hangover from the early token market.

During the heady days of 2016/17, investors could buy tokens during the token sale, and if the project was legitimate – even if the business case wasn’t particularly strong – prices would soar based on market enthusiasm. Early investors purchased at a discount and cashed out almost immediately for a handsome profit – and then repeated the process again. The token sale allowed founders to amass a war chest large enough to finance the entire token project – without having to give up a large chunk of company equity. Everyone got what they needed out of the deal.

Running a token sale is far more expensive today than it was during the boom. Getting the attention of the token buying public in a market where advertorial has replaced editorial is expensive. This coupled with a regulatory framework that requires the advice of accountants, solicitors and information gathering of KYC details for investors all comes with an escalating price tag.

To accommodate the change in cost structure, tokens now need to acquire funding in two rounds. Frequently there is a first round where capital is raised from a few, large investors. This cash is then used to finance setup and marketing the main token sale. The token sale, in turn, provides the capital needed to run the entire business project.

 

Bridging the gap between token projects’ needs and early stage investors

To successfully get a token through the capital raising process, founders must acknowledge the risk assumed by those very early investors and reward them appropriately. And given that tokens may stagnate or fall in price post token sale means that a deep discount in token price is not necessarily attractive enough to get investors to commit.

Many tokens have turned to offering equity in the business in the effort to raise that first tranche of capital. If you look at the number of successfully concluded token sales, the downward trend has continued since Q2 2018, so offering equity is not sufficiently stimulating the market.

 

Two sides of the coin

So, what is the answer? It’s a complex question but one thing is certain. Any solution must be rooted in a deep understanding of what both parties need to successfully conclude the deal.

On the one hand, token founders’ needs are clear: they need enough capital to get the token ready for and through a successful liquidity event that will provide sufficient funds to build the project. The challenge lies in striking the right balance between accruing that capital and making sure not to offer so much project equity that give up either the control or the incentive founders need to drive the project forward.

On the other hand, while the needs of the seed capital investors are more complex, there are two areas of key concern: transparency and profit incentives.

 

Transparency can mean many things, but almost always includes providing more informative cost and profit projections, as well as answers to a whole range of questions, not least the following:

  • What happens to investor capital if the token sale event fails? Token founders must be transparent from the outset. The token market is highly speculative and early investors run the risk of losing their money should the project fail. Therefore, investors require a well-established fund governance process in place throughout the fundraising so they can make informed decisions on whether the project is worthwhile. 
  • How are the assets for the entire project managed? Investors need to know that their money is in good hands and that proper treasury management techniques are being used to manage cryptocurrency volatility risk. Ideally, an independent custodian will be used to hold the funds and limit founders’ ability to draw down the capital – releasing funds to an agreed-upon schedule of milestones.
  • How are the rights of investors protected, for instance in the case of a trade sale? Investors need to know what happens if the company they are investing in is sold. What impact could this have on the value of their stake? Would a separate governance framework need to be established? These are critical questions and investors aren’t likely to settle for any ambiguity in the answers.

Profit incentives are important when it comes to encouraging early participation in a project. Investors need convincing that the proposition will keep risks to a minimum and focus on providing a strong probability of a return. This means that founders need to be able to defend the case for the increase in the value of their token.

But this isn’t the only incentive that matters. Investors can also be incentivised by preferential offerings such as early access to projects and services that might help their own business.

Let’s not forget that investors don’t support just any project. What really matters is that there is something special and unique about the business being underwritten by the token. Preferably something that could be shared upfront and directly benefit the investor – proof that the investment is really worth it.

And that’s what it all comes down to. Ultimately, while token projects are having a hard time finding funds at the moment, if they can prove their worth and provide full transparency and clear profit incentives to ease investors’ concerns, the money is out there. And deals can be done.

 

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Business

STREAMLINE YOUR BUSINESS FINANCES AND SIGNIFICANTLY INCREASE PROFITABILITY

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Every successful and professional business owner knows and truly understands that there is nothing more important and worthy of investing significant time in than the state of their company finances.

Continue reading to discover how to streamline your business’s finances and subsequently significantly increase profitability and cash flow.

 

Invest In Employee Training Courses and Business Mentors

The initial monetary outlay required to invest in employee training courses and even an in-house business mentor scheme will be quickly absorbed by the overall improvement in employee efficiency and productivity. Training courses will bond your teams, improve their morale and sense of belonging to your company. They should also make every individual worker feel significantly more valued and will open up opportunities for individual progression, promotion and advancement. Both quantity and quality of performance are proven to increase within a business that offers employee training courses and business mentorship.

 

Conduct A Thorough Business Energy Audit

As a business professional, you will be all too aware of the sheer amount of money spent every month on your energy bills. To counteract this and potentially significantly reduce the amount you are paying, you should conduct a thorough energy audit throughout the entirety of your business. Water rates for businesses are far more competitive than one may believe and employing the services of an established and experienced company who can compare and consolidate your energy bills would be exceedingly prudent.

 

Outsource Your IT Operations

Contrary to several business ‘experts’ beliefs, there is never the exact right time to outsource your information technology operations and whenever you make the move you will inevitably need to deal with several unexpected issues. However, the benefits of doing so far outweigh any minor inconveniences you may or may not experience.

There are several crucial questions and polite demands you must make to your supplier and, naturally, your soon-to-be business partner, and it is vital to set out clear goals and targets before you begin. It would be extremely pertinent to source an IT business associate who has as few intermediaries as possible to insure a smooth and problem-free collaboration as well as ensuring your new collaborator is up to date with the very latest in technology that is specific to your industry.

 

Use Payroll Software

There are a multitude of benefits to investing in a company payroll system which include, but are in no way limited to:

  1. Fewer, if any, mistakes regarding paperwork
  2. Ensuring your year-end is as stress-free and unproblematic as possible
  3. Fulfilling your moral and ethical responsibilities to your hardworking employees
  4. Simplifying the overall payroll process from start to finish
  5. Saving significant time and subsequent money
  6. Ensuring you are fulfilling your legal obligations to the government

As your business goes from strength to strength, naturally you will gain a significant increase in the number of employees on your payroll and if your payroll is currently done in-house, there is an increase in the risk of human error the higher the employee count.

 

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Business

HOW SMEs CAN EMBRACE CONTACTLESS, WITHOUT DITCHING CASH

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By Tsuyoshi Notani, Managing Director, JCB International (Europe) Ltd.

 

Already popular, the past year has accelerated the usage of contactless payments in lieu of cash transactions – even for very small purchases. As well as using cards with contactless abilities, the ease of using digital wallets such as Apple Pay has increased take-up across the UK, representing 32 % of online payments[1]. Digital payments have the advantage over notes and coins at point of sale because it facilitates a more hygienic experience and speedier transaction.

Meanwhile, in the UK, the contactless cost limit has been raised from £ 45 to £ 100 for a single ‘tap and go’ transaction, compounding moves by consumers to rely on contactless as the payment mechanism of choice. In fact, Link Scheme Holdings Ltd, which oversees the UK cash machine network reported that the number of visits to ATMs dropped by 43 % for the year to March 2021 on the previous year[2], although it does note that some ATMs may have been inaccessible due to pandemic restrictions.

The appetite for paying without cash is huge – and we know that a large proportion of cashless payments are also contactless. For SMEs this can present a challenge. Providing multiple ways to pay can be an administrative obstacle, and often SMEs prefer to operate with cash only, to avoid incurring additional fees and costs. However, there is good reason to offer digital payment methods alongside cash.

Business benefits to offering contactless payment solutions include reduced costs associated with cash handling, and the convenience for customers in offering multiple ways to pay for goods or services. It is also a very secure way to receive payment. A simple and fast way to transact, contactless is the ultimate convenience for customers. For retailers competing in today’s landscape, it is essential to ensure that customers have access to their preferred payment method.

However, this must not come at the total exclusion of cash until a solution has been found for the ‘unbanked’ – those without access to digital payments for one reason or another. For now, solutions are nascent, and SMEs looking to reach all potential customers would do well to offer cash payments but also enable cashless and contactless. For SMEs who increasingly find themselves faced with competition from mega entities, focusing on a convenient and frictionless customer experience is paramount.

At JCB, we take financial inclusion seriously, recognising our role as a key player in the global financial ecosystem to ensure nobody is left behind by the digitisation of payments. We, for example, partnered with FE Credit, to launch two credit cards in Vietnam that are packed with benefits to meet the needs of the unbanked. A few examples of these unique offerings are the Oi Plus Program – a flagship loyalty program that rewards cardmembers on their everyday spending, and EasyPay – one of Vietnam’s largest 0% retail installment programs, and Selfie PLUS – one-click mobile-to-card image upload solution[3].

Luckily, the ‘how’ in enabling contactless and cashless payments is very simple. When picking a card reader, ensure you choose one created by a company which enables multiple cards, as this will enable your business to accept a wide spectrum of payments – and means no sale is lost because of an issue around how to pay. From a JCB acceptance point of view – Lloyds Bank plc, Barclays plc, and Zettle all accept JCB Cards in the UK. Viva Wallet, which supports around 80,000 merchants in Greece, more than 3,000 merchants in Belgium, and more than 6,000 merchants in the United Kingdom and beyond also accepts JCB Card payments[4].

Losing out on customers who do not carry cash is a no-go for SMEs looking to build back business after a difficult year. Enabling card and contactless payments is a surefire way to appeal to customers looking for convenience, removing one big obstacle to purchase for the on-the-go shopper. That is why at JCB, we encourage SMEs to both enable contactless, and accept cash – for the biggest opportunity to enable purchases and to ensure nobody is left behind.

 

[1] WorldPay, The Global Payments Report February 2021 https://worldpay.globalpaymentsreport.com/en/

[2] BBC, ATM withdrawals drop by £37bn during year of Covid 17 March 2021 https://www.bbc.co.uk/news/business-56413993

[3] FE Credit to Issue JCB Card in Vietnam, 19 November 2020, https://www.global.jcb/en/press/2020/202011180001_alliance.html

[4] JCB and Viva Wallet’s Expanded Collaboration Across Europe, 25 August 2020, https://www.global.jcb/en/press/2020/202008240001_alliance.html

 

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