Launched when George W. Bush was president, Facebook this week unveiled an effort to start a digital currency. JPMorgan Chase & Co. and Goldman Sachs were among financial institutions exploring digital currency well before Facebook started its Libra project, with  JPMorgan’s roots going back to when John Adams was in office.

Besides the early start in digital currency, they are established financial institutions with combined centuries of experience in handling clients’ money.

“I’m far more interested in what JPMorgan and other financial institutions have in mind in terms of looking deeper into digital currency market than Facebook,” said David Garrity, co-founder of Blockchain consulting firm BTblock. “On the surface, Facebook looks compelling, but based on the past, this makes it a non-starter.”

JPMorgan, which processes more than $6 trillion in payments every day, in February became the first U.S. bank to create and test a digital coin, based in Blockchain-technology and enabling instant transfer of payments between institutional clients.

Called the JPM Coin, the cryptocurrency has a value equivalent to one U.S. dollar.

In May, the company rebooted Quorum, the Blockchain software which runs the  energy commodity trading platform Vakt, trade finance Blockchain Komgo and now the token coins.

“We’ve tried making Blockchain ledgers into a reality and we started three years ago,” Christine Moy, JPMorgan Chase’s new Blockchain lead, said during Fortune Magazine’s Brainstorm Finance panel on Thursday.

While the JPMorgan Coin enables customers to efficiently transfer assets in their accounts, Facebook is seeking the wider audience of the global unbanked and banked consumers online.

“Facebook certainly has the audience reach to kickstart something like this. If they succeed, the real losers will be retail and central banks,” Aseem Sood, entrepreneur and former Product Lead at Google and Dropbox, said. “Central banks will likely raise even more commotion, as this totally removes them from the equation.”

JPMorgan reportedly is developing a digital banking project as a response to “Marcus,” the digital bank launched by Goldman Sachs two years ago, according to TechCrunch.

“We’re currently going after wholesale clients, and soon we hope all consumers will have access to using this digitally transferred banking system,” Moy told the panel.  

Regulatory Questions

While Facebook’s announcement sparked debate about its potential success and true goals, some analysts believe that financial institutions may be more trustworthy and better suited to carry forth a digital currency and banking process.

“I think Facebook is biting off a bit too much. They have some smart people but Facebook is basically trying to turn into a bank,” John D’Agostino, a managing director in investor engagement at DMS Governance, a professional fund governance firm. “Historically that hasn’t worked for non-banks.”

Germany’s Central Bank, the Bundesbank, claimed that the Blockchain tests by financial institutions haven’t yielded encouraging results, and that they’re slower and more expensive than traditional banking methods. Still, Moy claims that JPMorgan has been patient in moving its digital banking system for consumers because the company is focusing on doing it “the right, and safe way.”

“We spend most of our time thinking about how to do this safely in the regulated industry that we are familiar with,” Moy says.

Facebook, looking to create an ecosystem independent of a central entity, lacks trust from   regulators who will examine its plans and consumers who would use the currency, because of recent privacy scandals, according to D’Agostino.

“I trust the banks to enter the digital coin market more than Facebook,” D’Agostino says. “Firstly, I trust these banks with my money already, and I know they will do it properly. ”

Central banks are stepping into making cryptocurrency and digital banking transactions available for their users.

Russia’s Central Bank announced on Wednesday it’s considering its own cryptocurrency in the near future. Chairwoman Elvira Nabiullina, the head of the bank, at a student conference, stated that development is still in its initial stages and that they want to prioritize the “reliability and continuity” of it before releasing the digital currency.

The United Arab Emirates Central Bank said in December it was working with the Saudi Arabian Monetary Authority to issue a cryptocurrency for cross-border transactions. While still in its early stages, the digital bank is supposed to be used only between the two nations.

On the other hand, Goldman Sachs had initially decided to create a crypto-focused unit in mid-2018, but by the end of last year, stated that “we have not reached a conclusion on the scope of our digital asset offering,” according to Goldman Sachs spokesperson Michael DuVally.

Citibank Chief Executive Officer Michael Corbat said today at a Fortune magazine conference that Facebook didn’t approach Citi or any other big bank for Libra. Still, he said, Citi would consider joining, Bloomberg News reported.

With many unanswered questions about its plan and regulatory issues, Facebook still has a lot to show on how it plans to take on the digital currency market led by other financial institutions.

The post Facebook’s Libra Will Have to Take On JPM Coin, Banking Giants to Succeed appeared first on Karma Impact.

Wall Street analysts exalted that Libra, also the name of Ancient Rome’s pioneering currency, brings financial services to 1.7 billion bankless individuals, while it democratizes the institution of money.

Well, Facebook, as we well know, has always been a “closed book”, so what’s the company plotting now? How does Libra differ from the 1,600 other altcoins out there? And can Facebook, with its tremendous resources, really bring cryptocurrency to the masses, where others have failed?

To the extreme, top Blockchain influencer, Andreas M. Antonopoulos, insisted that Facebook’s Libra flies in the face of all that is cryptocurrency and, in fact, is the very antithesis of an open, censorship-free platform:

“Libra breaks all five pillars that define Blockchain: They’re not censorship resistant, they’re not borderless, they’re not neutral and they can’t be public either.”

Antonopoulos elaborated on each of these conditions and concluded:

So, I’ll hold what I have because to me this is not about … access to a two billion user base. This is about being able to be free … to not have anyone freeze my money, censor it, tell me who I can transact with or when I can transact or how I can transact… That freedom is at the core of cryptocurrency and that freedom is the one thing that you can’t do with Libra.

So what’s the truth? Is Libra really a watershed moment for cryptocurrency, or is it just one more way for Facebook to expand its control?

To find out, Karma analyzed Project Libra’s technical documents.

Libra is not a decentralized Blockchain

A decentralized system, like Ethereum or Bitcoin, appeals precisely because it is independent and transparent, as well as open to the public for censorship-resistant contributions.

Libra’s white paper tells us its platform will be governed by its 28 Founding Members that include Facebook and Calibra (Facebook’s new subsidiary). This “collection of validators [will] work together to process transactions and maintain the state of the Blockchain.” Users can access the Libra testnet, but they won’t get a node and can run their transactions only through already validated nodes.

Facebook calls its project “open source”, but open-source software is published transparently, and developed by and for the community rather than by and for a particular number of entities.

Indeed, Libra’s Overview confirms that Project Libra is a permissioned ledger where “only a defined set of entities can shape consensus and governance”. This executive paper adds that:

As of today we do not believe that there is a proven solution that can deliver the scale, stability, and security needed to support billions of people and transactions across the globe through a permissionless network.

While Facebook does say it aims to transition to the public within five years, its white paper shows no such milestones beyond consultation with the community.  

If Facebook would ever commit to such a step – that would mean the end of Facebook.

Facebook can’t become a decentralized platform

If Facebook’s so-called Blockchain Libra were to become open source or permissionless, Facebook would lose its clients and be sued again and again. This is because the company would break various laws that apply to secrecy of financial information. By making its platform transparent to the global public — which is open-source — Facebook divulges its users’ finance information, handing access to all private transactions that cross its platform to Libra’s billions of internal and external members worldwide.

Imagine the holler!

Facebook can’t create public APIs, nor can they release any aspects of their clients’ data without their permission, among other aspects. There’s no way Facebook can allow this data to leak to viewers outside its platform. So, Facebook and Calibra and Libra’s 26 other “validators” have to sit in the middle and control each transaction. In this way, Project Libra becomes nothing more than a megalithic global bank. Just like J.P.Morgan’s “digital” JPM Coin, which is also just an internal payment system rather than a cryptocurrency.

So Libra can never succeed as a truly open public Blockchain. Nor can Facebook help the world’s unbanked population.

Rather, the words of David Marcus seem closer to the truth.

“If more commerce [through Project Libra] happens,” Facebook’s vice president told Techcrunch, “then more small businesses will sell more on and off platform, and they’ll want to buy more ads on the platform so it will be good for our ads business.”

In other words, by monopolizing the global economy, Facebook attracts more consumers, all ready bait for advertisers, which, in turn, means more moola for Facebook.

So we’re back to more of Facebook’s shenanigans under the guise of social justice. This time with a digital coin that shares its name with the astrological sign of the scales — justice itself.

The post Is Facebook’s Libra a Real Blockchain? No. appeared first on Karma Impact.

While Facebook’s 2.4 billion strong global network gives it a reach like no other company on the globe, its proposed crypto offering is a laggard compared with systems that have been in place for years at Amazon and Apple. Those companies also don’t face the privacy and other concerns that consistently hound Facebook.

Facebook may face skeptical regulatory bodies, because of privacy issues, as it tries to implement its crypto plan. Amazon is more credible than Facebook and may not have similar problems with regulators, says David Garrity, a co-founder of blockchain consulting firm BTblock. “Facebook doesn’t play by the rules, while Amazon doesn’t have that regulatory problem.”

Last week the online retailer started a secured credit card with Synchrony Bank called Credit Builder, with no annual fees, a refundable security deposit and perks like 5% cash back on purchases.

With 11% of Americans having a 550 credit score according to a 2018 FICO survey, Amazon claims to primarily aim at customers with bad or no credit history.

Just as Facebook has faced U.S. government pushback for Libra, Amazon, too has been criticized for its financial moves. Independent U.S. Sen. Bernie Sanders of Vermont and N.Y. Democratic Rep. Alexandria Ocasio-Cortez have both targeted Amazon’s new credit card for its 28% interest rates, and are seeking to outlaw the card.

“This kind of greed makes the poor even poorer and @AOC and I intend to outlaw it” Sanders tweeted on June 12th, while Ocasio-Cortez tweeted that it was “debt trap for working people and it has to end.

Garrity disagrees with the lawmakers’, and sees the new card helping consumers build their credit.

“What Amazon is doing in this area is not predatory,” says Garrity. “They realize they have customers with high credit scores and are reaching to those who can’t purchase on Amazon.”

Amazon has also raised speculation it may move into cryptocurrencies, though officials denied the interest. Nearly two years ago it registered domains AmazonEthereum.com, AmazonCryptocurrency.com, and AmazonCryptocurrencies.com.

“Amazon may be able to find success in the digital banking sphere earlier than Facebook because of its understanding of consumers, technological advancements, and less regulatory hurdles,” says Garrity. “Amazon has greater consumer insights than Facebook given its multiple consumer-facing franchises that actually involve consumer spending as opposed to just attention engagement like Facebook.”

Apple raised eyebrows with its own steps into digital banking.

Having already a well-established mobile payment and digital wallet available for IPhone users, Apple Pay, the company announced the iPhone CryptoKit at the Worldwide Developers Conference on June 5th. Apple says CryptoKit allows users to perform common cryptographic operations.

Facebook’s promise of all sorts of social good flowing from the Libra system — bringing banking to poor people without access to the global finance system, privacy protection — may not be enough to damp regulatory skepticism. Regulators will “take a long time approving this,” Garrity said.

“Facebook has proven to not go by the rules with their privacy scandals and not abide by regulations. Until those risks are addressed, how will regulators will be able to trust that Facebook will be compliant?” Garrity says.

While Facebook has clearly taken a bold step towards digital currency, which can potentially reach out to more than 2 billion users, other tech companies are also competing to enter the financial banking world, and may even be closer to reaching their goals.

Amazon has taken its own e-commerce market steps, as Facebook promises a secure blockchain-based payment system designed for mainstream users, with the creation of Calibra, ensuring “the separation between social and financial data,” as a digital wallet to pay and send money using Libra.

Having the support to create a “secure, scalable, and reliable” system from big corporate partners like Mastercard, PayPal Holdings, and tech giants like Uber and Spotify, Facebook claims to be trying to provide financial services to half of the adults in the world that don’t have active banking accounts.

According to Garrity, these partner companies had a relatively insignificant investment of $10 million and so “I consider more as if they are purchasing an option, know that they may not need to make the investment if the regulatory approval for Libra is not forthcoming.:

While the company’s announcement yesterday brought attention to a mainstream digital currency, Facebook may not be the tech company closest to putting its foot into the digital banking space.

The post Facebook Will Square Off Against Amazon, Apple in the Race Towards Digital Banking Supremacy appeared first on Karma Impact.

Based on similar technology to that used by Bitcoin, Libra is being positioned as a more stable alternative. Though Facebook birthed the new currency, it will be governed independently by an association composed of Facebook and 27 partner companies, which includes Visa, Mastercard, Uber and Women’s World Banking.

These partners will help stabilize the currency, avoiding the volatility that has plagued Bitcoin and other cryptocurrencies, as Libra will be backed a mixture of bonds and bank deposits from “stable and reputable central banks.”

The expectation is that Libra will enable a global payments system that is both faster and more secure than existing systems – and one that doesn’t charge extortionate transaction fees too, which particularly hurts poorer customers.

Regulatory Issues

Perhaps the biggest question hanging over the currency is that of regulation. Unlike most crypto ventures, the Libra association has suggested that it is keen to work with regulators – but it remains to be seen exactly how and where regulatory scrutiny will be applied due to the unusual nature of how the currency is designed and governed.

“The main regulatory risk is money laundering,” explains Hadar Jabotinsky from Tel Aviv University, who points out the currency may run against existing laws. “Facebook will have to make sure that anyone who joins [its] Blockchain is identified face-to-face and fills out a Know-Your-Client questionnaire, as well as employ an army of anti-money laundering officers.”

While the company has yet to share full details, a Facebook profile could be potentially used to verify a person’s identity, based upon their connections and interactions, similar to how Alibaba Group’s Sesame Credit in China counts verified friends as a way to boost its user’s credibility.

Development Impact

Gina Reinhardt, who runs the Global South Academic Network, is intrigued by the prospect of Libra.

“A good and reliable cryptocurrency could help people extend their vision of the future, which means they might actually be able to save resources now to use later – the very definition of sustainability,” she explains.

This ability to plan is crucial for development. As Libra will not be affected by the whims of any given local government, and will instead be tied to a basket of stable currencies, it means there is no risk of a sudden revaluation. It also conceivably subverts the rules in countries that have closed currencies, where it is difficult to transfer money and trade with the wider world.

A stated goal of the new currency is to help the “unbanked” — people who do not currently have access to a bank account or financial tools, and all of the benefits that they bring.

“We could have a financial revolution here in Kenya,” says Will Ruddick, the director  Grassroot Economics, a non-profit foundation that seeks to empower marginalised communities with economic tools. The group is already using Blockchain to create a mutual credit system used by thousands of people in Kenya.

He foresees a future where anyone with a Facebook Group could create their own tokens of exchange, essentially micro-currencies for communities. With the Libra acting as a reference currency — something that the micro-currency is pegged to — a new fractional reserve system would be created, enabling communities to access credit more easily. His organisation already has 3,000 small businesses and schools using such micro-currencies – and connecting it to Libra would enable it to scale even further as it would mean tokens can be exchanged.

Crucially, even if Facebook did not decide to go down this specific group-based path itself, the beauty of the proposed Libra system is that such tools could be built by other developers using the Libra Blockchain.

Ruddick believes it may help fill the existing $2 trillion funding gap that the UN’s Sustainable Development Goals require if they are to be met by the 2030 target.

More Power to Facebook?

If Libra is successful, it would change the world — something that could be a good thing, but may also have unintended consequences. One only has to look back to how the introduction of Facebook to Burma may have contributed to the genocide there against the Rohingya minority.

Similarly, if Libra takes off in a big way, it would unleash a powerful new economic force that will inevitably challenge existing institutions and power dynamics in many countries. Reinhardt speculates that Libra may lead to potentially dangerous shocks in local currencies if it isn’t handled well by local central banks.

What’s certain, though, is that if Libra does take off it will further entrench Facebook into the plumbing of the internet.

Though it has committed to being only an equal member of Libra’s governing body, rather than its ruler, Facebook’s role as a virtual wallet for the new currency, as well as that of an identity provider, may hand the company even more power in the long run.

The post Facebook’s Libra Cryptocurrency May Spark Financial Revolution In the Developing World appeared first on Karma Impact.

Facebook will leverage its unparalleled global network of 2.4 billion users to deploy a new electronic currency, while pushing a narrative that it’s bringing a social good to untold millions lacking access to the global banking system.

Its Libra currency, in partnership with tech, banking and payment giants including Visa, Uber Technologies and PayPal Holdings, is expected to be available next year and immediately brings cryptocurrency to the mainstream.

• Strung by criticism for weak oversight of content, fake news and political bias in its news postings, Facebook is waving the mantle of social good as it unveils Libra. “For many people around the world, even basic financial services are still out of reach: almost half of the adults in the world don’t have an active bank account and those numbers are worse in developing countries and even worse for women.”
• Facebook says Libra, available on its Messenger and its WhatsApp messaging platform as well as standalone, takes aim at issues including banking system exclusion and migrants being screwed by exorbitant remittance fees
• Facebook also hits back in its press materials at questions about its commitment to users’ privacy: “We’ll also take steps to protect your privacy. Aside from limited cases, Calibra (the subsidiary where Libra will be housed) will not share account information or financial data with Facebook or any third party without customer consent.”
• Karma Takeaway: While many are keen that Facebook’s scale and global footprint will be a watershed moment for global cryptocurrency adoption, there are still a lot of questions about the openness of the new platform, how it will be regulated and whether it will benefit the unbanked as much as Facebook’s bottom line.

The post After a Series of Disasters, Facebook Wants to Make Things Right with Its Big Crypto Project appeared first on Karma Impact.

The world’s poorest have no way to build the credit history needed to join the global financial system, no matter how hard they work, Ashish Gadnis, BanQu’s 50-year-old co-founder, told Karma in an interview. Getting in the system is the only sustainable way out of poverty.

“If you’re a farmer in Congo, you have nothing,” said Gadnis, who grew up poor in Mumbai, but after earning an MBA in the U.S., built and then sold an accounting technology firm in 2012. “An aid organization or a microfinance group has all your data, and when a mother goes to get credit elsewhere, she has nothing.”

With no proof of selling crops to Anheuser Busch, a farmer’s access to credit is mostly blocked. For women, who were often best placed to lift their families out of poverty, the situation is worse. “You can’t prove your existence in the supply chain so you are exposed to predatory lending and your data as a farmer is compromised, so you never get to build your credit,” he added.

“Financial inclusion should not be ‘You’re poor, I give you money and technology but you stay poor,’” said Gadnis. “I think you should have equal access.”

Gadnis came up with the idea while working with the U.S. Agency for International Development in the Congo in 2014.  He realized that almost all the agricultural and economic development projects depended on the sustained role of aid organizations, leaving indigenous farmers unable to gain needed financial independence.

After leaving Africa, Gadnis took a  year off to think about a solution. The answer he found was Blockchain. “The gap is helping people build a credit history, and for me the problem to be solved was letting them own that credit history.”

The basic idea behind the project is simple: let each participant have a secure record of their transaction and a secure form of payment. The result is more cash for hard- working farmers, and a more reliable and higher quality source of supply for the brand. Tension, however, may develop as middlemen are cut out, says Gadnis.

Participants don’t need an expensive smartphone to make to make the system work. An interface developed by BanQu’s programmers in Kharkiv, Ukraine, lets all transactions be stored in an unhackable Blockchain, but makes the data easily accessible to farmers and brokers using SMS text messaging.

“When we went into bush in Zambia, I never had to mention the Blockchain or BanQu to a farmer,” said Gadnis. All the farmers needed to bring to the market was a text-capable mobile phone, which is ubiquitous in sub-Saharan Africa, and their national identity card. “The farmers have been asking for something very basic. ‘I want to know the price is fair. I want to know if there is a price incentive based on quality, and I want to proof of what I have been selling.’”

BanQu has been commercial for three and a half years, and is helping close the gender gap in earnings in sub-Saharan Africa, identified by the United Nations as one of its key Sustainable Development Goals.

With Blockchain-based proof of payment, farmers can now avoid the dangers of the cash economy – where risks involve losing earnings to bandits, extortionists or civil unrest. And women can keep their earnings to themselves. In fact, BanQu now offers three methods of payment, with all records permanently available at the end of an SMS message.

“All along the mother is building a credit history,” says Gadnis. And everyone from the brand to the farmer has a secure copy of the transaction. “We are big believers that the mother has the right to access, own, monetize and permission her data, or we are back to the old way where an NGO comes and says I’ll help you, but the day my funding ends the mother is screwed.”

The advantage for brands is that they can now prove they are locally sourcing their products, they can catch fraud and they have a direct connection to last mile. AB InBev says that by 2025 every one of their farmers will be connected through BanQu or a similar system.

Gadnis says BanQu’s goal is to make a profit while lifting people out of poverty.  He won’t discuss margins, but he runs the business as a software service, and expects the firm’s revenue to reach $100 million a year by 2023, as well.

The firm has grown from 300 farmers in one village a year ago to 3,000 participants in three countries for AB InBev at the end of last year, Gadnis says. He’s shooting for 100 million users by 2023. “It’s an adoption I don’t have to force,” said Gadnis. “If a brand is buying from 50,000 farmers, all the farmers, or laborers or miners are on BanQu.”

Competitors include dozens of nonprofits and aid groups, as well as for-profit firms like Grameen Bank, which focus on banking the unbanked and micro-lending. A 2016 study by New York University economist Jonathan Morduch found more than 1,000 microfinance institutions in sub-Saharan Africa serving almost 16 million people, but noted that loans required an average subsidy of 20 percent. When subsidies end, most of these programs collapse, leaving the poor unbanked again.

With better credit data available, farmers with a good credit history will find it easier to borrow and grow their businesses.

And BanQu’s data also helps brands prove where their goods come from. “If a coffee company tells you this $8 cup of coffee is fair trade, they can’t prove it because they cant reach the farmer,” said Gadnis. “The way we build it, if the brand and farmer agree through BanQu, you can identify the farmer who grew the coffee and trace it right back to his farm.”

The funding from ZX secures BanQu’s ability to scale quickly in 12 countries where it is already present in Africa, Asia and Latin America. Rollouts in China and the U.S. are set for later this year.

BanQu had a seed round in 2016, and in 2018 raised $2.5 million in a series A round. On May 31 it raised $1.4 million from AB InBev, according to Crunchbase.

The investment will also help AB InBev meet its own sustainable development goals, in line with a major United Nations effort. “Through this work we are helping to create a digital ledger of farmers’ transactions that will create an economic identity and enable access to financial services,” said Maisie Devine, global director for AB InBev’s 100+ Accelerator. “This will ultimately allow farmers to grow their business and improve the livelihoods of their families and communities.”

“Blockchain won’t solve all of the world’s problems,” said Gadnis. “But if we look at it as a data platform, we have a good chance of solving some of the world’s problems.”

The post Blockchain Finance Uses SMS Texts to Help African Farmers appeared first on Karma Impact.

Morgan Stanley is offering customers a handful of impact investing options as demand soars for opportunities that seek to improve social and environmental conditions.

The bank’s Wealth Management unit is offering six Impact Portfolios that include mutual funds and ETFs designed around several of the United Nations’ Social Development Goals, such as clean water, clean energy and climate action. A minimum $10,000 investment is required, and investment options include a mix of bonds and stocks and include one all-stock option.

• “The firm will seek out stock and bond investments in companies that are promoting innovation, and are seeking to reduce, reuse, and remove plastics throughout the environment,” Lily Trager, director of the wealth manager’s Investing with Impact platform, said.
• Morgan Stanley’s Investing with Impact program, started in 2012, invests more than $28 billion in client money.
• Karma Take: With a 38% increase in sustainable, responsible, impact (SRI) investing from 2016 to 2018, the new package of portfolios shows Morgan Stanley’s attempt at becoming a significant member of the trend in helping investors move closer towards positive environmental and social impact projects, according to the Investments and Wealth Institute.

The post Morgan Stanley Pushes for Progress in Social Impact Investing appeared first on Karma Impact.

Lubin highlighted the company’s investments and applications of Blockchain technology across fishing, healthcare and media sectors.

Blockchain provides banking to more people by reducing international remittance fees and by giving access to financial services for those who don’t have bank accounts. Project i2i in the Philippines, for example, serves islanders who don’t have access to traditional bank systems. Refugees will be able to access their assets and financial credits anywhere, anytime, and use them to start a new life, even if they are displaced by war or disenfranchised by their government.

Consumers can make better informed decisions as Blockchain gives them a clearer view on the environmental impact of certain products. Blockchain is now being tested in the fishing industry in Fiji, Australia and New Zealand to help stop illegal and unsustainable practices. Consumers will have the ability to trace the entire fishing process of a tuna for sale, including the boat that caught the fish, the fishing method and the labor situation involved.

Blockchain technology is also transforming the healthcare system by giving patients access and control of their health information. In addition to getting their own health data whenever they want, patients will be able to help medical research by contributing that data without revealing their identities.

Blockchain may help increase trust in the media through its Civil startup. Readers can support journalists through the platform, which Civil says will lead to more independence for journalists. About 30 newsrooms have joined the platform, so it still has a long so it still has a long way to go to regain public trust, Lubin said.

The post Joseph Lubin: Blockchain’s Social Impact Goes Way Beyond Finances appeared first on Karma Impact.

Only about 9% of venture capital flowed into companies that women entrepreneurs run; a minuscule 1% and 2%, respectively, to those of black and Hispanic founders, according to a study by RateMyInvestor and Venture VC. Almost 80% went to firms led by whites.

Ulu Ventures believes it’s found a system that enables it to pinpoint winners while supporting a higher percentage of diversity entrepreneurs. Notable wins include software powerhouse Palantir; data management platform Krux, which Salesforce acquired in 2016; and Blue River, whose artificial intelligence helps farmers reduce pesticide use by helping find and kill weeds and other unwanted plants.

The Palo Alto, California-based venture capital firm uses an objective scoring system to evaluate every potential investment, avoiding the biases about gender, ethnicity and sexual orientation that have lead other VC firms to miss opportunities, said Clint Korver, who co-founded Ulu Ventures with Miriam Rivera, a former Google executive. Korver and Rivera, who are married, established their firm in 2008 to support their belief that diversity is not only a just cause but also makes good business sense.

“I want to demonstrate that diversity is very profitable and that people are missing out when they exclude women and diverse founders from the teams they invest in,” Rivera told Karma. “I’m very public about wanting to have diverse teams in our portfolio. It’s an integral part of Ulu Ventures.”

VC investors ignore women and minority-led firms at their peril as the economic clout of these groups grow. Women comprise nearly 51% of the U.S. population and the number of Hispanics, the country’s fastest-growing demographic group, has increased roughly sixfold over the past half century. Hispanics represented about $1.4 trillion in buying power in 2016, according to a report by the Selig Center for Economic Growth at the University of Georgia. Also, the report said the Hispanic, African-American and Asian markets are expanding more quickly than the market for whites.

“Minority buying power is growing at a faster pace than the white consumer market for a number of reasons, such as demographics, increases in educational attainment and entrepreneurial activity,” wrote Jeff Humphreys, director of the Selig Center.

Women founded almost two in five of Ulu Ventures’ investment companies, minorities almost the same percentage and immigrants are also about 20% in its portfolio.

Even so, most VC-backed early stage companies remain “overwhelmingly white, male, Ivy League-educated and based in Silicon Valley,” according to the report by RateMyInvestor, whose platform allows entrepreneurs to rate investors, and DiversityVC, which promotes diversity efforts. In a February interview with Crunchbase, RateMyInvestor’s Chief Growth Officer Anthony Zhang called many VC diversity efforts “lip service.”

Still, Rivera has seen hopeful signs. In its first funds, the make-up of management teams was rarely a topic of interest for Ulu investors. Now investors are asking about management diversity in Ulu Ventures’ next fund scheduled to begin next year.

“We’re seeing people positively interested in the (diversity) thesis that we have,” Rivera said, adding that “in the last fund, it was more an appendix at the back of the deck.”

Investors aren’t necessarily doing this to make themselves feel good. It’s about strong returns. Ulu Ventures’ own success underscores the link between diversity and financial results. The company says it finished in the top quartile of Cambridge Associates’ regular surveys of venture capital performance

Rivera says Ulu Ventures makes follow-up investments at a much higher rate than its competitors, proving it is committed to its investment philosophies.

History 
Rivera and Korver have deep roots in Silicon Valley. Both arrived in the 1980s to study at Stanford; Rivera as an undergrad (she also holds a law degree and MBA from the school) and Korver for a Ph.D. in engineering economic systems. By the time they started Ulu Ventures, both were fully immersed in Silicon Valley’s tech culture. Rivera served as deputy general counsel for Google, among other positions, while Korver taught at Stanford, started four companies (one with Rivera) and advised others.

Also, Rivera co-founded the Stanford Angels and Entrepreneurs, a group that provides financial support and other resources for Stanford-alumni-led companies, and was a member of the board of trustees for five years.

In her Google role, she helped build a diverse legal department, recruiting a number of women and minorities. Korver’s expertise in individual and organizational decision making has guided the company’s methods for choosing investments. He is responsible for the grading rubric that standardizes the criteria that Ulu uses to evaluate companies.

Portfolio and Social Consciousness 
Ulu Ventures focuses on providing seed money for start-ups — usually about $500,000 — although its portfolio has included some series A rounds totaling as much as $2 million.

Rivera and Korver funded their first investments with $3.4 million in Rivera’s Google stock. They invested in 64 companies before closing the fund in 2016. A second fund, which is still active, has 59 companies with a target of 70. Ulu Ventures plans a third fund for next year.

The firm invests in edtech, enterprise IT, fintech and smart data, weighing heavily toward companies that address social responsibility and environmental concerns.

Its investments include Landed, which helps teachers buy homes in metropolitan areas where the cost of living outstrips their salaries; Populus, which provides a platform for managing bike, scooter and other shared transportation programs; Zum, a ride and activities scheduling system for families with children.

Others include Beam, whose system serves as a broker for consumers to purchase goods from brands committed to social responsibility. The brands donate a portion of sales to non-profits and other worthy causes; tEQuitable, whose platform allows employees to report bias and discrimination incidents at work; and Viridis, which provides online job training and other resources targeting blue collar workers.

Methods 
The firm works largely with Stanford alumni and Silicon Valley entrepreneurs. After initial talks with companies they may invest in, Rivera and Korver use what they call a “rubric,” rating companies in seven categories to determine if they want to continue. The categories include traditional areas of VC interest such as market potential, investment size, quality of the management team and their product.

Of course, they’re also looking at diversity.

At follow-up meetings, Ulu Ventures considers the risk of an investment and conducts what it calls market mapping, sharing its initial findings to help companies size up the potential opportunity for products and services. Ulu Ventures then decides whether to invest.

San Francisco-based Landed found the market mapping particularly helpful when it met Rivera and Korver early in its four-year history. Landed CEO Jonathan Asmis said that Ulu Ventures looked at his company’s potential market with a level of detail beyond other VCs. That included looking at Landed’s diverse management team.

“It felt like a lot of early stage VCs were following patterns,” Asmis told Karma. “They were more structured in their decision making.”

“What was interesting was their willingness to analyze the opportunity we had from the standpoint of how big the problem was and what we were doing to solve it,” he said. Ulu invested $500,000, which was the largest check that Landed had received at that point. The VC firm invested an additional $1.5 million over the ensuing 18 months and served as a sounding board for its subsequent investment strategy and on other issues. The company now has clients in four major markets and 30 employees, and is seeking Series B funding.

“They were always willing to be helpful and partner with us,” Asmis said. “They took a longer view of their investment.”

James Peter Rubin is a veteran journalist who has written and edited for CapitalWatch, ThirtyK, TheStreet.com, Forbes and the Economist Group, among other media outlets.

The post VC Firm Ulu Ventures Connects Diversity to Profitability appeared first on Karma Impact.

Sound Businesses: Profiles of companies and business models we are keeping an eye on.

Andrei Cherny is not your typical banker.

He had written speeches for President Bill Clinton, helped Elizabeth Warren launch the fight for what became the Consumer Financial Protection Bureau, advised Bank of America and other Fortune 100 companies, and prosecuted financial fraud and corporate crime.

“I saw firsthand that big banks too often put their profits ahead of what is best for people and the planet,” Cherny, founder and chief executive officer of Aspirationbank, told Karma. “We started Aspiration with the idea of building a financial partner that works for customers’ best interests and shares their values.”

And thus was born a self-described bank “with a conscience” that offers fossil fuel-free accounts, allows customers to pay what they think is fair and rewards them for shopping at do-good companies. Based in Marina del Rey, California, Aspiration has signed over a million customers and attracted celebrity investors, including actors Leonardo DiCaprio and Orlando Bloom, former eBay president Jeff Skoll and Los Angeles Clippers coach Doc Rivers.

High fees and low interest rates of traditional banks have spurred the growth of a new type of banking that reaches consumers on mobile apps and personal computers, bypassing the expense of building physical branches. Aspiration, as well as so-called neobanks like Empower, Chime, Varo Money and Simple, have joined smaller community lenders and fintech startups, seeking to reinvent and simplify the traditional banking practices.

Socially conscious Aspiration competes with lenders like Amalgamated Bank and Beneficial State Bank, who are also offering products with commitment to sustainability and community development.

With the internet leading to more transparency, younger consumers are seeking investments that align with their values and routinely inquire about the social and environmental practices of the companies they support, says Ibrahim AlHusseini, founder of FullCycle, an investment firm that finances climate-restoring technologies. He estimates that socially responsible fintech now speaks to more than 30% of the consumer market.

“Aspiration is working because it’s authentic and the people behind it are genuine,” AlHusseini, one of the investors in Aspiration, told Karma. “Who wants to do business with an institution that takes your money and lends it to industries that you fundamentally disagree with? Especially, when we finally have an alternative.”

This year Aspiration is seeking to raise $200 million, which would value it at more than $1 billion, Reuters reported in April. Cherny declined to comment on the valuation, adding that the company is focused on “growing the business and attracting more customers.”

Aspiration says clients’ deposits don’t go toward Capitol Hill lobbying or funding oil pipelines and drilling and the bank offers extra rewards for shopping at companies with strong environmental and employment practices. The bank also commits to giving 10% of its earnings to charities.

Aspiration’s new offering, the “Spend and Save” account, offers a 2% annual percentage yield on deposits and unlimited cash back on every dollar spent with its debit card. Each account is insured by the Federal Deposit Insurance Corporation to $250,000. The bank estimates that all the extra perks can save customers on average $545 per year.

Aspiration also provides clients with insights into how the businesses where they regularly shop treat their employees and affect the environment. The bank’s impact measurement scores, which are embedded into transactions data, are calculated using a “rigorous process of collecting and analyzing over 75,000 environmental, social, and governance (ESG) data points across thousands of businesses”, according to the company’s website.

“Our goal is to help consumers understand the power of their dollars and help them make a difference in the climate crisis by making sure they’re banking, investing and shopping in ways that are ethical and sustainable,” said Cherny. “We know that Americans care about climate change but they might not realize there are ways they can help in addition to voting, protesting, volunteering and donating.”

Neobanks
The Top 10 largest banks may lose up to 11% of their customers, or $344 billion in retail deposits, in the next year, amid growing frustrations over unethical practices, high fees and a lack of competitive pricing, according to a 2018 reportby a consulting firm CG42. Almost one in 10 of those customers would consider switching to an online bank with no branches.

While financial institutions are struggling to match the disruptive power of financial technology, fintech companies have been spearheading the effort to shape the future of business around a socially conscious consumer, said Naomi Rosenblum, a fintech analyst at Equitech Financial Consulting in Tel Aviv, Israel.

“We live in a time where millennials are prioritizing social responsibility and sustainability,” Rosenblum told Karma. “The banks who will survive in the digital revolution are the ones that are receptive of these new needs, and willing to adapt these ethos.”

The global neobank and challenger bank market is expected to reach $394.6 million by 2026, up from $18.6 million in 2018, according to a new report by Zion Market Research.

Aspiration’s Cherny predicts that socially-responsible fintech will go mainstream. “One challenge is educating Americans about the fact that their money in big bank accounts and investments is actually being used to fund projects that harm the planet, like the Dakota Access Pipeline — most people don’t even realize this is happening,” he said.

So far Aspiration is succeeding in getting the word out. More than 370,000 people pledged to move their deposits into sustainable accounts after the bank launched its Move To Green campaign earlier this year.

“The campaign creates a better future for our planet while simultaneously giving consumers the tools they need to learn about how individual money decisions impact the environment,” Cherny said.

The DiCaprio Factor
Aspiration has raised more than $100 million through venture capital and individual investors, including Leonardo DiCaprio, who added the bank to his portfolio of investments aimed at combating climate change and joined the advisory board in March.

“Each year, $100 billion worth of pipelines, drilling and other fossil fuel-extraction projects are funded with money deposited at traditional banks,” DiCaprio said in a statement. “To bring about long-term solutions for our planet, we need alternatives that empower everyday consumers to take action against climate change.”

Anastasia Ustinova is a freelance business writer based in Seattle with more than 10 years of experience reporting around the world. Her stories were featured in Bloomberg News, Businessweek, the San Francisco Chronicle and the Houston Chronicle.

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