Estonian by birth, Julian Kaljuvee has lived a culturally varied life across the States and Europe. He is a Harvard graduate and ex-Goldman Quant turned FinTech consultant and company director, investing in the Crypto space. Here are his insights on the future of our economy and financial systems.
What does Founders Capital do and how does it help both existing and potential entrepreneurs?
We match hungry, focused entrepreneurs to technology (often software that is 80% ready to go), while providing what I would call ‘first-mile’ capital. That is, just enough to build the minimum viable product. We only invest as the first investors and do something similar to what VCs used to do decades ago. We do not take many inbound pitches from start-ups but often find what I would call ‘Zuckerbergs’ and work with them to achieve a product market fit from a pre-conceived idea we have, to solve a particular problem.
How does an ICO differ from an IPO?
In terms of financial innovation and to use an analogy from music, an IPO would be a 1920s mechanical gramophone, whereas an ICO would be Spotify.
Initial Coin Offerings, or more accurately Token Generating Events (TGEs), provide start-ups with a new innovative way to raise capital; often in pre-revenue or seed stage. Advantage of ICOs are that they automate the fundraising process and encode term sheets and shareholder agreements as Blockchain smart contracts, thereby taking lawyers and other paper-work generating parties out of the equation.
The other big innovation is that ICOs provide immediate liquidity to early stage investors, which is not possible with traditional startup investing. I actually believe that traditional angel investing as we know it is dead with the advent of ICOs.
What is your advice when it comes to investing in an ICO?
In some ways, it is exactly the same criteria for investing in a Start-up. You must evaluate all of the key dimensions – valuation, team, tech, market size and product-market fit. The main red flag in today’s ICO market is the so-called hard cap (the amount they are raising). If it’s above typical seed round figures (500k in Europe, 1M in the US), do not invest as the token will trade down after listing, even if the ICO manages to raise that money.
The current valuation levels, or more correctly termed, ‘the money many groups are asking for’ at the moment, are what I would call science fiction levels. I would invest when they return to fiction or preferably non-fiction levels and hopefully we will begin seeing that increasingly in 2018.
What regulatory changes do you see emerging within that time-frame?
With regards to ICOs and crypto assets in general, I think regulators in the US, Switzerland and Gibraltar are some of the most progressive; I would see these regulators as early adaptors.
I would hope that China, Russia and Korea will also come out with new ICO and crypto regulations, as those are important markets for crypto. The UK FCA will probably come up with a sensible principle-based regulation after consulting the industry, as we have seen in other areas of financial innovation such as peer-to-peer lending and crowdfunding.
What I like about the UK regulators is that they avoid knee-jerk reactions and engage the market participants rather than conceiving laws in a vacuum. As a result, the FCA usually comes up with one of the most progressive and sensibly regulated frameworks worldwide.
What do you predict with regards to the future of Bitcoin?
As long as the governments and central banks keep printing money via quantitative easing and bond buying programmes faster than bitcoin gets mined as they have done so far, Bitcoin will keep going up. Not saying that it should go up as fast as it is going now, but the long-term future is bright in my opinion.
You will not see an outright ban on bitcoin but you will see governments launching competing versions of blockchain-based digital currencies, such as CryptoRuble in Russia. Of course, they will have the disadvantage of being controlled by a single entity – the country’s central bank but at least customers will have more choice.
What resources do you find most useful in staying up to date with such a dynamic field?
I would recommend CB Insights, the Autonomous NEXT blog, TokenEconomy newsletter and the Ether Review and NeoCash podcasts. There are of course many others, but these are my personal favourites.
Countries such as Russia and China have already sought to ban ICOs and BTC. How do you envisage the Blockchain technology affecting governments within the next few decades?
Eventually, I think we will see almost all governments launching their own blockchain-based currencies, which will allow them to collect taxes and monitor citizens more efficiently due to better automation and more integrated systems. This will be less pronounced in countries with strong cultural tendencies against loss of privacy such as the UK or Germany, but more pronounced in others as we are already witnessing today.
Do you think any sector is safe from automation?
From a technological point of view, rather than looking at vertical sectors, I would look at two horizontal cross sections in each sector – let’s call them ‘Search’ and ‘Building’ sectors.
A ‘Search’ example would be variations of anything that is a marketplace: either one-sided like Amazon or two-sided like Uber, Airbnb and Tinder. The common theme is either a matching problem or a classification problem within a narrow domain. In these categories, we will keep seeing a lot of disruption and new business models emerging; especially given the recent advances in artificial intelligence and machine learning.
The ‘Build’ domain, which deals with the messy multi-dimensional world, will be relatively safe from disruption. So for instance, in property development, I would be worried if I were an estate agent but less worried if I were a property developer. In medicine, I would be more worried if I were a radiologist (clearly a domain-specific classification problem) but less worried if I were building and engineering the medical equipment or surgical robots, as an example.
What is your opinion on a UBI?
I think it is a great idea because as technology displaces people into unemployment, it will provide them with a safety net and help them re-orientate and up-skill themselves. The alternative today is quite tragic, resulting in a lot of social suffering in the form of anything from broken families (there are often economic reasons for these), to Opioid addiction and alcoholism. The social cost of not having a UBI is far greater than having one.
What inspired the vision for your business?
I was fortunate enough to play a very small part in the founding of the Estonian equivalent of e-Bay, known as Osta.ee and learn first hand how it was put together.
The next idea we had with a group of people was essentially an ‘e-Bay for loans’, which became one of the first peer-to-peer marketplaces in the Eurozone called Bondora.com. Having a foundation to build on helped and I was also lucky to meet the right team to pull it off.
The other influential moment was seeing TransferWise.com launched from a bedroom (or bedrooms), as we overlapped with one of the Estonian co-founders in Zurich for a year or so.
How important is it to have a mentor?
I have had a few mentors in my life, some of them very successful entrepreneurs and it was hugely helpful. In addition, it is important to have a very diverse group of friends. If you only hang out with people from your own social status who went to similar schools, you will limit your learning about the world and as an entrepreneur you need to have a very multi-dimensional view.
If you were my age, what would you be doing differently?
I got involved with entrepreneurship at a relatively late stage in my life after doing my time in financial services and this had its pros and cons. One of the cons is that I did not start any companies in my 20s but the pros are that when you start later, you will make fewer mistakes and the failures are less heart-breaking.
Which industries will see the most change in the next 5 years?
We definitely need a lot of changes in health care and medicine, especially with regards to the administration and legalities. A lot of my friends who are in medicine and law are quite unhappy, so there seem to be many unsolved problems that entrepreneurs could tackle.
Is there anything you would revisit and alter on your career path?
I had an opportunity to intern with a management consulting firm before my final year in the US and had a choice between New York and Silicon Valley. I chose New York. In hindsight and given my interests now, Silicon Valley would have probably been a better choice and life could have taken a very different path.
What is your favourite interview question?
It would be ‘what would you really be doing in life, if there were no economic constraints’. The reality is that we live in an economic world where we have to make compromises and very few us get to do what we really want to.
Entrepreneurs often speak of grit – but how do you know when to stop and to quit?
When they turn off the electricity and heating or they start repossessing your assets. I do not care to have many physical assets but it would still be rather traumatic.
How have you changed as a person?
I think I have mostly developed my EQ and meeting new people and having two daughters has definitely helped in this respect.
What are some top books or blogs from your reading list?
They tend to reside mainly in my main areas of interest i.e. Start-ups in general and FinTech / Crypto: a16z.com, avc.com, LendAcademy.com
What draws you to London, and would you live anywhere else?
London is like Rome some 2000 years ago, a true metropolis with enormous creative energy. If I did not live here, I would live in Andalusia Spain, with my family.
What is your attitude to starting over?
I am very American in this sense, since I spent parts of my youth there playing basketball. If you get knocked down, you jump up, shake it off and get going again, until you finish the game.