Sir Richard Branson has selected Nathan Spataro’s SecureVote as a finalist for the Talent Unleashed Awards’ “One to Watch” category in Melbourne this year, where he’ll pitch his business to Apple Co-Founder Steve Wozniak. It nearly didn’t happen. I interviewed Spataro to discover why.
SecureVote is a start up in the blockchain sector run by Nathan Spataro and Max Kaye. Earlier this year Spataro approached me searching for funding. Since then SecureVote has seen a major market pivot, acquired their first customer, won the “Cyber Security Award” at the Australian Technology Competition 2017 and been recognised by global entrepreneur, Sir Richard Branson. So how did this all happen in six months?
How would you describe what you do?
We provide secure, scalable and reliable governance solutions for decentralised autonomous organisations (DAOs).
That’s quite a mouthful but it’s an important shift in the way organisations will be run in the future.
Let me take a few minutes to explain exactly what I mean, and you’ll understand why DAOs are coming and why Bitcoin (the predecessor for all DAOs today) has a real challenge embedded in its technology.
DAOs are the opposite of practically all the familiar structures that we know. Governments, banks, and companies are all controlled from a central point which holds all the authority.
In theory the central authority runs the organisations for the benefit of the owners. But how do those few people with the power know what the owners require? For governments we have three to six yearly elections (depending which country you live in) where the owners are supposed to have the chance to indicate how they wish the central authority to work. For companies there are annual share holders’ meetings.
In fact, you could argue that the reason people get involved with civil disobedience and share holders’ revolts is because they don’t feel they are getting their message to those in authority. It is their way of making their voice heard but it often falls on deaf ears.
DAOs are completely different from traditional organisations. DAO’s do away with central authorities, instead decentralising power amongst users and stakeholders.
DAOs typically raise capital via a token sale or “Initial Coin Offering” (ICO) to raise capital. According to CoinSchedule, CB Insights and Goldman Sachs Global Investment Research, over $1.25 billion had been raised in 92 ICOs by August 2017 surpassing Angel and Seed stage Internet VC funding globally.
The technology used to create these organisations is based on blockchain. Blockchain technology is freely available. Blockchain is primarily a ledger technology not a governance technology.
This is where the problem lies. It means that there is no standard way to govern these blockchain-based, decentralised ecosystems once they have been created.
It is a bit of a “wild west” where everyone cuts code to provide a make-shift governance solution. And with billions of dollars riding on this, you can imagine the potential for a massive, public failure.
You may have heard about the recent argument in the Bitcoin community (called “SegWit2x fork”) – the argument was over the size of the blockchain and had major implications for the future management of the cryptocurrency. The impact was such that when it was resolved (over six months later) the currency surged to over $8000 on Bitfinex, an all-time high.
Bitcoin sits in that uncomfortable position of having no governance process – not even the authority of those who own Bitcoin have any power of governance. That means owners of Bitcoin are subject to forces they have no power to control, unless they take the time of running their own Bitcoin node, a process which requires a non-trivial amount investment of time, effort, and resources.
Our software empowers users and owners of these ecosystems to take part in the governance of those systems. This allows all stakeholders to become involved in the ecosystem’s future quickly and cheaply, by deciding on necessary updates and changes.
For the first time, there will be an easy, simple way for anyone creating a new cryptocurrency (such as Bitcoin) or ICO to integrate a robust way of managing their creation in the future.
If Bitcoin had our governance system in place from the start, there would have been a powerful tool in place to help solve problems rather than a public fight which impacts perceptions of the cryptocurrency, ICOs and blockchain in general.
Delaying the need for investment
We put our first pitch together ourselves and had a nagging feeling that we were missing something, but we didn’t know what. In our first session with Brian Dorricott, we went through his pitch structure and realised we had a lot of work to do in order create a proposition with an impact. We also realised just how much work is involved in a successful capital raise and I began to feel that it would take most of my time which could be better spent.
But Dorricott’s questions highlighted a much deeper issue.
Were we speaking to the right people? Could they be our customers? Had we made too many assumptions right from the start?
With Dorricott’s help, we asked different questions of lots more people. That led to a pivot away from our technology focus to a “solving problem” focus. Now we had identified a real problem and had the ability to solve it. There are very few people in the world who could write the code to solve the ICO and cryptocurrency governance problem – it is technically a complex challenge. Fortunately, those people are on our team.
Even better, we were now in an area where there are few, if any, credible competitors.
We had found the holey-grail: “clear water” with customers!
I believe this was recognised by the Cyber Security Award at the Australian Technologies Competition last month. And, of course, this puts us in the position of a company that both Richard Branson and Steve Wozniak are looking for.
After our research we had several potential customers. The next question was how much to charge?
Dorricott challenged us: first he added a zero to our proposed price; and second he said we should charge upfront rather than on the successful capital raise by our potential client. It was a tough meeting. Dorricott pointed out that we had a unique solution to a serious problem that our client had right now and that while the concept of solving the problem look easy, technically it was hard. What was the real value to the customer? Could they solve it? Could they hire someone to write the code? If they could, how long would it take and what confidence would they have in the results?
The value to the customer was much higher than we realised. By charging too little we were trivialising our significant expertise and doing both us and our solution a dis-service. Further, by delaying our income until our customer was successful in raising funds added a large amount of uncertainty into the deal which we had zero control over. We would be effectively risking our company on the ability of our customer to raise funds.
We debated an offering along the following lines to give the customer options:
- Pay up front for the solution.
- Pay 20% cost up front and 1% of their capital raise and 1% of ICO raised.
There were two key benefits of these options:
By providing a higher price than originally planned we signalled to the customers that blockchain governance was difficult to get right. This meant that customer immediately took the problem more seriously rather than thinking of it as a “bolt-on” solution. They understood that we needed to have world-class experts to solve the problem and that they are difficult to find and hire.
Incentive to pay now
Secondly, we incentivised customers to pay up front rather than on raise. For a typical raise of $20M the client has a choice of the full solution cost up front or a minimum of 20% cost plus $200K plus 1% ICO. That means that the post-raise cost is considerably higher (that covers our risk). However, customers didn’t want to pay us so much when there was a cheaper alternative: pay up front. Cash up front means that SecureVote no longer needs to find money to fund the solution for the customer plus it dramatically reduces our risk profile.
As we expected, our first customer chose the first option and has elected to pay up front for the whole governance solution. Further, with our prior research and their introductions we have a strong pipeline of new customers. Now we don’t need to look for investment and may never need to do so in the future.
What’s Brian Dorricott’s secret?
I believe that the reason, so much impact was made so quickly was that Dorricott had an immediate and deep understanding of our company and goals. His immediate empathy allowed us to progress quickly and effectively. Dorricott’s experience and pragmatism helped us understand options where there was no “right” or “wrong” answer but only shades of grey. Further, all feedback and discussions were directly relevant to our company rather than a hypothetical example.
What one bit of advice you would you have given yourself a year ago?
SecureVote was designed to handle large scale voting. As a result, we reasoned that government should be our first customer, having a clear need for cost effective and reliable mass elections. I spent a lot of time searching for the right pitch and person for engagement. During each meeting I’d present our ideas but often I felt that we were seen as an esoteric, fringe, unconvincing company and that they were just humouring us. I should have heard the message earlier!
After meeting with some key decision makers and understanding our customers’ true perspective on our technology and its applications today, we discovered that our market focus needed to shift to attract our first customers.
My advice to myself a year ago would be to listen to our feelings about those early meetings and pivot earlier. As it turned out, the blockchain governance space is a natural fit for us to market a blockchain based voting solution!
How can anyone reading this help you?
We want to help DAO developers build the best ecosystems possible and avoid the challenges faced by Bitcoin and other early decentralised projects.
It’s complex work, so if you’re familiar with someone engaging in such a project, please put us in touch! We are also looking to grow, and we’re looking for multi-talented team members with experience in operations management, marketing, and SaaS sales.
Oh, and if you see that Richard Branson and Steve Wozniak select us as one to watch at the Talent Unleashed Awards, please let the world know!
Read more about SecureVote on their website at https://www.secure.vote/ (what a cool URL – ed).