Google And Goldman Back Bitcoin Startup For Small Businesses
Marwan Forzely has come a long way since
his days at Western Union. The serial entrepreneur, who sold his
previous company to Western Union to help the money-transfer giant
directly connect to customer bank accounts, has raised $25 million to
cut intermediary banks out of the payment process altogether.
Instead
of relying on a series of correspondents to move money between
different jurisdictions around the world, Marwan’s latest venture, Veem,
uses bitcoin to directly connect its clients’ bank accounts with
suppliers and customers.
While neither counterparty is required to
directly hold bitcoin, and an algorithm automatically routes
transactions along the most efficient payment rails, more than half the
transactions processed by Veem rely on the cryptocurrency as a
replacement for correspondents.
Led
by banking giant Goldman Sachs, with GV (formally Google Ventures),
Kleiner Perkins, Silicon Valley Bank, Trend Forward Capital, and Pantera
Capital also participating, the investment in enterprise-payments
startup Veem is primarily a move to accelerate the firm’s exponential
growth.
Central to the investors’ interest in Veem is the built-in
stickiness of the model, which has proved to be adept at turning
recipients of Veem payments into Veem users. Since the San
Francisco-based company raised its first round of venture capital in May
2015, it has grown from a mere 590 customers to more than 80,000 today.
As the price of bitcoin hovers around $6,500, compared with $300
when Veem raised its first round, the company is helping blaze the
trail for next-generation bitcoin startups that give customers access to
bitcoin’s speed and traceability without their even knowing it.
“What’s
important about this round is the acknowledgement of the size of the
opportunity, the size of the market, the size of the pain point that
we’re solving for,” said Forzley. “And it’s an endorsement of the growth
that we’re experiencing.”
This latest strategic investment
follows on a $24 million Series B raised in March 2017 and brings the
total amount raised to $69.3 million. Lead investor Goldman Sachs made
the strategic investment via its Principal Strategic Investment Group,
which has been increasingly active
in the blockchain space. As part of the investment, Goldman Sachs
managing director Rana Yared will join Veem as a nonvoting board
observer.
While Veem is not disclosing the terms of the investment
or the valuation, Marwan says revenue has grown four times since the
same time last year. Nondisclosure agreements prevent Veem from sharing a
specific breakdown of the revenue sources, but according to Marwan a
significant percentage of the company’s revenue comes from integration
with online accounting services like Quickbooks, Xero and Netsuite.
To
maintain the exponential growth that has seen the company increase its
customer base by 13,000% over the past three years, Veem has opted to
focus spending from this latest round on building out new partner
integrations. Meanwhile, the onboarding process itself will rely on
increased automation, including built-in anti-money-laundering and
know-your-customer compliance.
Increasingly, Goldman Sachs’
Principal Strategic Investment Group is strategically backing blockchain
companies that have the potential to improve service for the bank’s
clients, including enterprise software developer Digital Asset Holdings,
payments startup Circle and infrastructure provider Axoni. But fellow
Veem investor GV—with Google parent company Alphabet as the sole limited
partner—has a much more profit-driven motive. With investments
including commodities trader LedgerX and central bank alternative Basis,
GV general partner Karim Faris believes Veem could be the first bitcoin
startup to go public.
“We’re not a strategic investor,” said
Faris, who also sits on Veem’s board of directors. “It’s definitely not a
strategic thing. It’s an opportunity to create a stand-alone company
and in the process make a financial return on a good exit or an IPO down
the line.”
While Forzley has so far remained quiet about the
possibility of going public, this wouldn’t be his first time with an
exit for a payments startup. Shortly after obtaining a bachelor's degree
in computer science from the University of Ottawa, Forzley developed an
interest in financial payments, eventually founding early online
payments startup eBillme.
In October 2011 Western Union bought
eBillme for an undisclosed amount and Forzely joined as general manager
in charge of strategic partnerships, helping to integrate his technology
into Western Union for what would eventually be called WuPay. The
reason for his career-long interest in payments is simple:
“Whatever
you do in life, at the end of the day there’s a payment,” said Forzley.
“Payment technology is at the core of what people do and their
livelihood.” If that early experiment with payments focused on making
debit cards unnecessary, Veem is significantly more ambitious in
targeting the massive correspondent banking industry.
To give an idea of how big the industry really is, a 2017 report from
the Financial Stability Board that looks at the resilience of financial
infrastructures found that there were 470,000 correspondents using the
Swift bank messaging platform alone. Since 2011 however, that number has
dropped by 8%, perhaps as a result correspondent mergers, lost licenses
or the movement of business to Swift competitors, according to the
report.
This
graphic from a 2017 Financial Stability Board report shows that even as
the total number of correspondents decreases on the Swift platform, the
total transaction volume is getting higher.FSB
Ironically
though, even as correspondent banks face increasing competition, Swift
has seen an increase in total transactions, according to the same
report. Vying for that ever growing market are startups like
Nairobi-based BitPesa and
Veem, which seek to cut out those middlemen by replacing them with a
mix of faster, more transparent bitcoin and other alternatives.
“When
you reconfigure the way money moves, when you use it with a different
infrastructure, you simplify the cost structure and you turn money back
to the business owner, the end user,” said Forzley.
See more at: Morisberacha.com
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