Kasia Pieniądz interviews Kamil Rafał Gancarz - Polish financier, entrepreneur, inventor, owner of the Invest Management consulting company, president and founder of the Blockchain Development Foundation.
Mr. Gancarz, you are an experienced blockchain entrepreneur and Chairman of the Board at Blockchain Development Foundation. How do you evaluate the current situation of blockchain startups during the coronavirus outbreak? We have heard already very pessimistic forecasts, according to which even well-established blockchain ecosystems like Swiss Crypto Valley may shrink by 90 %. How about polish blockchain environment? Have you already observed problems with fundraising or/and bad sentiment on the market?
First of all, I would like to point out that almost every startup is experiencing problems with fundraising, maybe excluding startups related to logistics and remote workplace solutions. Blockchain space is no exception, we need to understand that we are actually a completely new ecosystem and apart from specialized investors in this field we need to educate our potential shareholders - and this lack of knowledge adds additional elements to perceived risks.
So being in a quite new economic situation, where most of the world economy is closed, where Goldman Sachs’ Global Investment Research predicts US GDP to decline by 24% just in Q2 2020, the economy itself is imposing many threats that haven’t been known before COVID-19 outbreak. Those risks sum up and therefore we need to put even more emphasis on education and building long-term relations with our potential investors. Only proper communication and great startup involvement can bring some degree of certainty, which could end up in signing a deal.
I believe that there are 4 major risk areas for an investor. First - uncertainty. Do I know people involved in a startup and do I trust them? Second - do I understand the field of business, in which startup is engaged? Third is related to the jurisdiction of the company under consideration - does this country ensure my investment safety? And the last factor is what will happen in the future with this sector and generally the economy as a whole? So those uncertainties obviously cumulate.
So, what can a startup do? It needs to educate and help mitigate perception of risk by education and building strong relationships with investors. Polish blockchain environment is way smaller and I don’t particularly feel a lot more pessimism, compared to the whole startup space. In Poland we don’t have many investors specialized in blockchain angel, VC investing, therefore only general risk related with the Polish and World economy increased. I think that it was always hard to fundraise in Poland for a blockchain business, therefore we are trained to work hard, and we know it's never easy. Of course, it would be way easier to sign new investors without those outside risk factors. But I believe there is a bright future ahead when the economy opens and there could be two things happening. First of all, people after lockdown would like to start their economic activity, especially those specializing in venture investment would like to acquire new portfolio companies. We need to understand that investment sometimes brings very big risks, but not having any new deals for sure is a loss, especially nowadays in times of huge debasement of currencies and this brings us to a second factor: velocity of money. During COVID-19 pandemic many governments employed crazy levels of quantitative easing, which created staggering levels of money supply. When the economy opens and velocity of money increases, according to Fisher’s Quantity Theory of Money it will bring huge inflation which will destroy the value of wealth stored in cash. Therefore, investing is the only way to protect funds. And startup investing can be one of the building blocks of a well-balanced portfolio.
We can expect that potential problems with raising funds will hit mostly very young startups, at the beginning of their projects. How do you evaluate chances of more mature startups, with advanced technologies, supported already by venture capitals - is it possible that they will survive the pandemic and come back to the business, or they are at high risk too?
Yes, I believe that young start-ups are especially endangered right now. Startups without enough funding to support their existence for a period of 6 to 9 months can be on verge of bankruptcy. Especially if they don’t employ contingency plans to reduce the level of burn rate to sustain its operation for this hard period, until they will be able to secure more funding, to proceed with their product development or expanding their client base. More mature startups need to do the same. If they can cover their cost based on income generated that is great and they just need to be very prudent with expanding and growing, until they have proper net profit or funding to sustain their growth with this shaken economy.
Definitely having venture capital already onboard is a big positive factor, especially when VC can provide additional funding. So, one more time proper relations with investors are crucial. Nevertheless, we need to bear in mind that investing in times of crisis prepares us better to succeed in the next economic cycle, because when everybody fears we can be prepared to offer value to clients when they will be ready to buy, while most of our competitors are waiting on sidelines to see economy recover before they will tackle the market. To sum up the level of risk for more mature startups depends on their liquidity, cash flow and ability to secure more funding, and also what is very important is the proper management of company finances and business operation.
Do you have any advice for blockchain startups? How can they reach investors and present their projects in times without conferences, fairs and symposiums which always created great networking opportunities?
Apart from what I mentioned answering the first question, I think it is essential to use platforms like Crunchbase, LinkedIn and also Facebook to reach potential investors, but we need to find unorthodox methods of connecting with potential shareholders. There are also online conferences that startups can attend to. But also I think that a good way to look for future investors that are not usually in a venture space, because if we really can offer a value, we can limit risks related with our business, possibly deliver high gains to investor and we have a breakthrough technology, I believe we can inspire high-net-worth Individuals to join our journey to provide great value to the World together. This is how we are building our technology at Blockchain Development Foundation.
On the other hand - as we all remember, blockchain technology emerged during the financial crisis in 2008. Can blockchain be helpful to combat the effects of the current pandemic crisis? Any ideas to make this technology useful in these difficult times?
Definitely, I believe so. In times like these, with limited human interactions due to quarantine, we need ways to confirm truth and process important governing decisions over the Internet. There is no better way than using blockchain or other distributed ledger technologies. Moreover, where almost every brick and mortar shop is closed or can only sell food, people transfer their consumption to the Internet.
But this is creating problems with usability of cash, which cannot be transferred online. Of course, people always can use banks, credit or debit cards and payment processors, but if we pay a lot of attention to individual freedoms, we cannot forfeit the anonymity, which cash can deliver. So, what can replace cash in those highly digitized times?
The answer is simple: cryptocurrencies. For sure not always cryptocurrencies are providing the same level of anonymity as cash, but definitely they are alternative to a traditional banking system and they are more adapted to this technology shift, we are now observing, than physical cash.
Going back to governing I see the future where policy makers are voting using blockchain based technologies, where people vote using similar tools. What’s even more profound I deeply believe that blockchain can help all people, especially living in western democracies, to participate even further in the process of governing and policy making. I imagine that in the near future a citizen commuting to work in the morning can co-decide on important issues for the whole country, his family and neighborhood and everything will be happening on his personal, blockchain-powered hardware device with his personal ID directly connected to this device.
Moreover, the whole process will be way more secure compared to anything we know right now, and the system simultaneously will ensure anonymity of every single citizen. I can only say that the Blockchain Development Foundation is creating a small building block for this future.
Thank you very much for the great pleasure of discussing those subjects and the possibility to share my thoughts.
Kamil Rafał Gancarz – Polish financier, entrepreneur, inventor, owner of the Invest Management consulting company, president and founder of the Blockchain Development Foundation.
A member of the Crypto Valley Association, and Mensa Poland society. As a financial and business consultant, he stays up to date with the latest methods of using international banking mechanisms and blockchain technology in enterprises and among high-net-worth individuals. Speaker at the 3rd edition of Congress 590 organized under the honorary patronage of the President of the Republic of Poland. In 2018, Kamil Gancarz received the Business Pegasus award for the Foundation's activities.