Entrepreneurship, Blockchain and 4.0 economy
By José Reis Santos | 2nd of July 2019
Few will dispute that the future will be dominated by a set of new technologies that today are at their first steps. Terms like IoT (internet of things), AI (artificial intelligence) or Blockchain, exclusive to geeks and enthusiasts a few years ago, have made their way into the mainstream, and today are common knowledge for those looking to follow the great trends of digital geopolitics, the so called 4.0 Economy. Large and medium-sized companies, SME’s, Governments and international institutions, NGOs and even the European Union have dedicated time and resources in the search for the best articulation between the private and public applications of this technological trend, to understand its disruptive potential, which legal and regulatory framework to promote, and at what jurisdiction, whether national, European or international. In fact, it is enough to follow the recent debate around the allocation of licenses and conditions for the implementation of 5G, or the rebranding of Malta as a Blockchain Island to realize that this future – so distant so recently – is just around the corner, with evident consequences in the strategic placement of countries and regions. With nobody arguing that their implications deal with data, meta-data, the current processes of digitization, automation, robotization, and their control and use.
This path, that some call the fourth industrial revolution (as in the past the coal / steam was the first industrial revolution, followed by the electric, and more recently by computers and later the internet), is already inevitable and visible in the trend of megalopolization of large public spaces and cities, which today are aggregated in large continuous urban networks, housing tens of millions of human beings with their transport and traffic management systems, water and waste treatments, robotized factories, monitoring systems, garbage collection, CCTV surveillance, etc., All connected and networked. Everything interconnected and interdependent. Underlying this urban agglomeration process we find the concepts of Smart City, sustainable development, eco-tech, and digital.
Now all new disruptive technologies, such as blockchain, IoT, AI and 5G, intersect, all with geo-tracking and live monitoring capability and we intersect Blade Runner with 1984, i.e., a future / present permanently online, generating a waterfall of data, with minimal possibilities for social surveillance and control, and where issues of digital identity and sovereignty will be decisive to keep alive any wishes that these future societies be based on democratic, liberal and multi-representative assumptions. Hence the importance of thinking about these impacts today, both at national and European level, as I am sure that only under the tutelage of the European Union will it be possible to build the legal architecture that will be able to safeguard the individual freedoms and the liberal set of values we take as legacy of 1776 and 1789. Just think that the competing geopolitical spaces of the EU, USA, China and Russia all have quite different perspectives on how to approach these issues: Americans to a certain extent decentralize their decision-making processes in corporations and large multinationals with little accountability (Facebook, Amazon, Microsoft), Russians and Chinese without any GDPR concerns and with top-down intervention and implementation capabilities.
The question then is to know how the European Union, in its current framework, will manage to be competitive with the main competitors, knowing that it does not have the American financial culture (nor of its multinationals), nor the Chinese or Russian centralizing capacity. This is theme several times exposed by commissioner Carlos Moedas, when he identifies the lack of mechanisms and business culture able to effectively support European innovation and the ability to scale up projects. On the one hand, I might add, since it is also true that there are billions of euros in European funds to support projects in cutting-edge areas and technologies, but these are only available to large economic / multinational / consortium groups, and they taking their time and a lot of bureaucracy before go into the implementation phase. On the other hand, any support to small or medium-sized companies usually suffers from a slow overly bureaucratic system (which takes months and months to prepare applications, additional months for consideration and approval, and even more months for the tranches to arrive, and sometimes only as reimbursements) and are located at national levels, that is, they depends on programs framed in countries in Union (such as Portugal 2020 Horizon). Both situations, in my view, remove agility and competitiveness from the European business fabric, in particular around what has been generated around the energy of startups, because they slow down an area where speed is imperative, and prevent that a new European business fabric grow and scale as European, from the start, and from the bottom-up (as SME and not bit corpo / consortiums) and not as an mere extension of projects nationals.
Let me give a concrete example: DKJ International is a company that I recently created with two Hungarian partners. It is registered in Lisbon, although all its members live in Budapest. It was founded in mid-2018, and can be considered as a startup with equity that positions itself in the market as a consultant, mediator and supplier of content / projects for the areas of blockchain and crypto assets. Our CTO resides in Malta, and we have developed strategic partnership relationships with companies in Belgrade, Lithuania, South Africa, the United States and India, and we have just returned from China, where we have carried out an extensive technical and business analysis of an entire new blockchain ecosystem and correspondent cryptocurrency. This consultancy, with Chinese, Hungarian, French and German clients, involved not only a specialized technical appraisal of the blockchain platform that supports the aforementioned cryptocurrency, but also an appreciation of the remaining parts of its ecosystem: a FIAT-crypto exchange website, a marketplace with hundreds of products for sale and an Igaming platform. We position ourselves, since our foundation, with a global intervention perspective. A business decision today quite standardized, but unfortunately not integrated in most institutional formalities that seek to dedicate support to business projects identified as “cutting edge”, of great added value, or of a technological vanguard, as I mentioned supra.
Now see this practical example: as a company linked to the blockchain area, and considering the youth and lack of practical cases of this technology, we naturally intend to develop our own products and prototypes / MVP’s that allow us to validate concepts, and present them to potential costumers after the required testing-Beta phases. In particular, we intend to develop a solution linked to the area of logistics / supply chain, a sector where the benefits from applying blockchain are quite visible, since all parties will have full access to product traceability, allowing the consumer full confidence on the origin of a certain product and the producer a set of control mechanisms over its stock, certificates and supply line. Placing smart sensors with geotrackers on the goods could also make possible to follow the entire distribution chain live. Depending on the blockchain platform used, it is also possible to insert smart contracts, thus collecting the benefits of the set of simplifying automations of some administrative or fiscal and financial processes. With these intentions, we sought funding for developing the prototype, preparing applications for Portugal 2020, but quickly we realized that we did not fit the necessary requirements, since the program required that the developers team had to be allocated in Portugal. And since we have our pieces spread across different geographies we were not allowed to apply. Nor to the large European funds, as we have neither the dimension nor the capacity to support the application processes financially. And I am sure that our characteristics are shared by many companies and entrepreneurs who work in cutting-edge technological areas and who need highly qualified employees, with little regard for spaces defined by national borders, as doing so may mean losing competitiveness, visibility, market and the ability to assume a certain centrality in rapidly evolving areas.
With this example, I tried to demonstrate how part of the current support system for startups, especially its national base, has difficulty in relating to projects with these new characteristics, not to mention the cases of companies that start their activities in national territory but quickly move to other locations (like Zug, or Malta). On the other hand, I am not aware that there are transnational or European mechanisms that can support these initial stages of a company’s life, especially those companies that are well defined in relation to their market, equipped with the right skills, and that want support for concrete projects, and not the plot of investment rounds, VC meetings or visits to Web Summits, processes that take months to prepare, years to materialize, and the inevitable loss of equity and IP rights. There are dozens of supports for large consortia, for medium and large companies / multinationals that can afford the costs necessary to spend months and months preparing applications for several million euros. In our case, we are talking about the support of a couple of tens of thousands of euros. Additionally, there is also a clear lack of technical capacity to evaluate projects in the so-called disruptive areas, as most risk analysts still maintain a very conservative and traditional view in their analytic processes. Likewise, much of the institutional support is designed to support the internationalization of traditional sectors.
Thus, I believe, from what has been described, that it is imperative to rethink some of these formats of connection between institutional funds to support innovation and the characteristics of companies that are emerging on the market today. In my view, Europe should not seek to replicate the North American model and believe that it can build a financial ecosystem of investment support based on a culture of risk a century old (just think of the stock market and the percentage of Americans who owns shares), and where Venture Capitals or Angel Investors have been looking for opportunities since the 1960s, with billions of dollars in their portfolio. A strategy with much less sense in the post-Brexit scenario. I do believe that more cross-border mechanisms (multi and bilateral) should be supported or created to support European companies, especially in areas where mobility is essential, and not just national projects that seek to internationalize within the Union. I believe that it sould be important to rethink – in the context of the next EU budget – the relationship between the European public sector, the national public sector, and the private sector, in order to be able to build a new balance between the European public initial investment formula for R&D and the North American model private involvement and investment. Fulfilling some of these requirements, I am sure that the capacity for innovation, and the implementation of concrete projects, would be much more effective, and less dependent on large companies, thus contributing to the creation of a sustainable European matrix ecosystem, capable of competing and guaranteeing the centrality of the old continent, in the new world that we are about to build.
(Text published in AICEP magazine in April 2019 and online in Visão magazine on July 2, 2019)