What seed-stage dilution tells us about changing investor expectations

Round sizes are up. Valuations are up. There are more investors than ever hunting unicorns around the globe. But for all the talk about the abundance of venture funding, there is a lot less being said about what it all means for entrepreneurs raising their early funding rounds.

Take for instance Seed-stage dilution. Since 2014, enterprise-focused tech companies have given up significantly more ownership during Seed rounds. What gives?

Scale is an investor in early-in-revenue enterprise technology companies, so we wanted to better understand how this trend in Seed-stage dilution impacts companies raising Series A and Series B rounds.

Using our Scale Studio dataset of performance metrics on nearly 800 cloud and SaaS companies as well as Pitchbook fundraising records covering B2B software startups, we started connecting the dots between trends in valuations, round sizes, and winner-take-all markets.

Bottom line for founders: Don’t let all the capital in venture mislead you. There’s an important connection between higher Seed-stage dilution and increased investor expectations during Series A and Series B rounds.

These days, successful startups are growing up faster than ever.

Founders face an important trade-off decision

Learn how to change banking one dollar at a time at Disrupt SF

Fintech startups are the hot new thing. Everybody wants to reinvent the way you manage money, invest and pay for things. That’s why we’re inviting three fintech experts to TechCrunch Disrupt SF to help you learn everything about the space.

They know that the bank of the future is not necessarily a bank and that the payment method of the future is not necessarily a card. And they’re going to tell you all about it.

First up is Chris Britt, the founder and CEO of Chime. While there are plenty of challenger banks in Europe, Chime is a rare success in the U.S. market.

The company has managed to attract over 3 million customers and $300 million in funding with a simple value proposition — a better user experience, an automatic way to save money and no fees for basic features. But Chime isn’t an overnight success. Britt has amassed a ton of experience in retail banking as Chief Product Officer at Green Dot and as a senior product leader at Visa.

We also invited Angela Strange, a general partner at VC firm Andreessen Horowitz . As a founder of a fintech startup, you might want to know what investors are looking for. And Strange is an expert on this front.

She focuses on financial services of all sorts, including insurance, real estate and increasing inclusivity. She’s a board observer at Branch, Earnin, HealthIQ, Mayvenn, PeerStreet and Point. As you can see, it’s an impressive portfolio and she has encountered a ton of different situations in the fintech industry.

And finally, Omer Ismail from Goldman Sachs has seen both sides of the banking coin. After many years working in private equity investing and investment banking, he was asked to lead an unusual team — the consumer business of Goldman Sachs.

Goldman Sachs hasn’t been a powerful brand when it comes to consumer products — until very recently. The company successfully launched Marcus, a banking product focused on personal loans and online savings with high interest rates, and Clarity Money, a mobile app that acts as a financial dashboard.

More recently, Ismail was in charge of the surprising partnership with Apple for the Apple Card. It’s clear that he knows where the industry is heading, so you’ll want to learn a few tips from Ismail.

Buy your ticket to Disrupt SF to listen to this discussion and many others. The conference will take place on October 2-4 at the Moscone Center in San Francisco.

In addition to fireside chats and panels, like this one, new startups will participate in the Startup Battlefield to compete for the highly coveted Battlefield Cup.


Flybits nabs $35M to build consumer recommendation engines for the financial sector

Financial service companies like banks have seen some of their business cannibalised over the years with the rise of digital-based alternatives — often in the form of apps — that provide lower fees, faster responsiveness, and more flexibility to consumers. Today, Toronto-based startup called Flybits is announcing $35 million in funding for a platform that it believes can offer these banks a way of continuing to capture their users’ attention, and to help them pivot into the next generation of services, financial or otherwise.

Today, a typical end product for a customer of Flybits’ services will use insights to upsell a customer by offering financial services, for example a bank providing an offer of a specific kind of loan or credit card that you are more likely to take; or to offer a loyalty program or rewards for usage. But the longer-term goal, said CEO and co-founder Hossein Rahnama, is to help its customers take on a bigger role as repositories that can be used for more than just money, and used beyond the walls of the bank.

“We don’t think banks will go away as some do, but we think that they could have a role not just as money vaults, but as data vaults: a place where you can deposit data, which you trust,” he said in an interview. Indeed, some of the funding will be used to put into action some of the AI and machine learning patents the startup has amassed, with the building of a “data” marketplace for banks, fintechs, and other data providers to partner and build more services together.

The Series C comes from an interesting group of investors that includes both strategic backers using Flybits’ services, as well as backers of the more non-strategic, financial kind. Led by Point72 Ventures (hedge fund supremo Steve Cohen’s VC fund), the list also includes Mastercard, Citi Ventures, and Reinventure (the fund backed by Australia’s Westpac Banking Corporation), Portag3 Ventures, TD Bank and Information Venture Partners. Valuation is not being disclosed, and prior to this the company had raised around $15 million.

Much like another marketing tech company, Near — which today announced $100 million in funding — the premise that underpins Flybits’ technology is that there is a lot of disparate data out there that, if it’s treated correctly, can uncover a lot more insights about consumer behavior, and that by and large many companies are missing this opportunity because they haven’t found the right way of merging the data to unlock insights.

While Near is applying this to location-based data and a range of different verticals, Flybits’ primary target has been banks and the data that they and other financial services providers already posses.

Many smaller startups in the world of financial services have stolen a march on bigger incumbents by building personalization into their products from the ground up. (Indeed, some like Step, aimed at teens, are so personalised that they will actually change their service mix as their customer base grows up and needs new products.) This is something that incumbents might have been more readily able to do in the old days, when people knew their bank managers and tellers and made daily trips into branches to transact. In the digital age they have fallen behind and are now catching up.

Flybits’ investors have spotted that and this in part is why they are banking on technologies like this to help bigger companies catch up, not just in financial services (although with banking alone estimated to be a €6.9 trillion industry, this is clearly a good start).

“Personalization is mission-critical for all D2C businesses in the digital age. Flybits’ integrated platform allows financial services firms to offer contextualized experiences, driving product awareness and adding significant value to the lives of their customers,” said Ramneek Gupta, Managing Director and Co-Head of Venture Investing at Citi Ventures, in a statement. “We look forward to partnering with Flybits in its next phase of growth as it continues to set the bar for hyper-personalized customer experiences.”

Indeed, it’s not just banks that are working on upselling, or that have large repositories of data that are not used as well as they could be.

“Mastercard and Flybits share a vision on using data driven insights to enrich consumers’ experiences.” said Francis Hondal, President, Loyalty & Engagement at Mastercard, in a statement. “Our ultimate goal is to develop products and services that engage consumers in a highly contextual manner. Through this collaboration with Flybits, we’ll be able to offer rich, personalized experiences for them throughout their journeys.”

N26 announces N26 You, a revamped premium account

Challenger bank N26 has unveiled a new premium plan called N26 You. This plan replaces N26 Black with the same benefits and a few tweaks.

N26 is keeping its three-tier system with a free basic bank account, a premium account (N26 You) and a super premium account (N26 Metal). With N26’s free plan, you can pay anywhere in the world without any foreign transaction fee, but there’s a 1.7% markup on ATM withdrawals in a foreign currency.

N26 You costs the same price as the previous premium plan N26 Black, €9.90 in the Eurozone and £4.90 in the U.K. In addition to a travel and purchase insurance package, you can withdraw money without any foreign transaction fee. €9.90 is roughly what you’d pay in fees if you withdraw the equivalent of €580 with a free N26 account.

You can also create up to 10 Spaces to organize your money with savings goals, separate sub-accounts and more — free accounts can only create two Spaces.

And of course, you get a better looking card. N26 is reusing its pastel color palette to give you more options. You can now choose between five different colors — Aqua, Rhubarb, Sand, Slate and Ocean. The card has a minimal design with a tiny N26 logo in the top left corner, a transparent line at the bottom of the card and a solid color background.

N26 also plans to add perks to the N26 You plan, such as discounts on Hotels.com, WeWork, GetYourGuide, Babbel, Blinkist and Bloom & Wild. Those perks were limited to N26 Metal customers in the past, so it’s going to be interesting to see how the lineup will work once those perks are added to N26 You.

Changing N26 Black to a premium plan with multiple card designs might seem like a small detail, but it potentially opens up a lot of possibilities. You’ll soon be able to order an additional card.

Eventually, you could imagine having a blue card associated with your main account and a yellow card associated with a shared Space sub-account for instance. At least, that’s what I hope the company will do.

ocean

UK-based women’s networking and private club, AllBright, raises $18.8 million as it expands into the US

AllBright, the London-based women’s membership club backed by private real estate investment firm Cain International, has raised $18.8 million to expand into the U.S.

The company’s new round was led by Cain International and was designed to take AllBright into three U.S. locations — Los Angeles, New York, and Washington.

The company said that the new facilities would be opening in the coming months.

Coupled with the launch of a new networking application called AllBright Connect and the company’s AllBright Magazine, the women’s networking organization is on a full-on media blitz.

Other investors in the round include Allan Leighton, who serves as the company’s non-executive chairman; Gail Mandel, who acquired Love Home Swap (a company founded by AllBright’s co-founder Debbie Wosskow); Stephanie Daily Smith, a former finance director to Hillary Clinton; and Darren Throop the founder, president and chief executive of Entertainment One.

A spokesperson for the company said that the new financing would value the company at roughly $100 million.

The club’s current members include actors, members of the House of Lords, and other fancy pants, high-falutin folks from the worlds of politics, business, and entertainment.

The club’s first American location will be in West Hollywood, and is slated to open in September 2019. The largest club, in Mayfair has five floors boasts over 12,000 square feet and features rooftop terraces, a dedicated space for coaching and mentoring a small restaurant and bar.

Facebook’s testimony to Congress: Libra will be regulated by Swiss

The head of Facebook’s blockchain subsidiary Calibra David Marcus has released his prepared testimony before Congress for tomorrow and Wednesday, explaining that the Libra Association will be regulated by the Swiss government because that’s where it’s headquartered. Meanwhile, he says the Libra Association and Facebook’s Calibra wallet intend to comply will all U.S. tax, anti-money laundering and anti-fraud laws.

“The Libra Association expects that it will be licensed, regulated, and subject to supervisory oversight. Because the Association is headquartered in Geneva, it will be supervised by the Swiss Financial Markets Supervisory Authority (FINMA),” Marcus writes. “We have had preliminary discussions with FINMA and expect to engage with them on an appropriate regulatory framework for the Libra Association. The Association also intends to register with FinCEN [The U.S. Treasury Department’s Financial Crimes Enforcement Network] as a money services business.”

Marcus will be defending Libra before the Senate Banking Committee on July 16th and the House Financial Services Committees on July 17th. The House subcomittee’s Rep. Maxine Waters has already issued a letter to Facebook and the Libra Association requesting that it halt development and plans to launch Libra in early 2020 “until regulators and Congress have an opportunity to examine these issues and take action.”

The big question is whether Congress is savvy enough to understand Libra to the extent that it can coherently regulate it. Facebook CEO Mark Zuckerberg’s testimonies before Congress last year were rife with lawmakers dispensing clueless or off-topic questions.

Sen. Orin Hatch infamously demanded to know “how do you sustain a business model in which users don’t pay for your service?,” to which Zuckerberg smirked, “Senator, we run ads.” If that concept trips up Congress, it’s hard to imagine it grasping a semi-decentralized stablecoin cryptocurrency that took us 4,000 words to properly explain, and a six-minute video just to summarize.

Attempting to assuage a core concern that Libra is trying to replace the dollar or meddle in financial policy, Marcus writes that “The Libra Association, which will manage the Reserve, has no intention of competing with any sovereign currencies or entering the monetary policy arena. It will work with the Federal Reserve and other central banks to make sure Libra does not compete with sovereign currencies or interfere with monetary policy. Monetary policy is properly the province of central banks.”

Marcus’ testimony comes days after President Donald Trump tweeted Friday to condemn Libra, claiming that “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.”

TechCrunch asked Facebook for a response Friday, which it declined to provide. However, a Facebook spokesperson noted that the Libra Association won’t interact with consumers or operate as a bank, and that Libra is meant to be a complement to the existing financial system.

Regarding how Libra will comply with U.S. anti-money laundering (AML) and know-your-customer (KYC) laws, Marcus explains that “The Libra Association is similarly committed to supporting efforts by regulators, central banks, and lawmakers to ensure that Libra contributes to the fight against money laundering, terrorism financing, and more,” Marcus explains. “The Libra Association will also maintain policies and procedures with respect to AML and the Bank Secrecy Act, combating the financing of terrorism, and other national security-related laws, with which its members will be required to comply if they choose to provide financial services on the Libra network.”

He argues that “Libra should improve detection and enforcement, not set them back,” because cash transactions are frequently used by criminals to avoid law enforcement. “A network that helps move more paper cash transactions—where many illicit activities happen—to a digital network that features regulated on- and off-ramps with proper know-your-customer (KYC) practices, combined with the ability for law enforcement and regulators to conduct their own analysis of on-chain activity, will present an opportunity to increase the efficacy of financial crimes monitoring and enforcement.”

As for Facebook itself, Marcus writes that “The Calibra wallet will comply with FinCEN’s rules for its AML/CFT program and the rules set by the Office of Foreign Assets Control (OFAC) . . . Similarly, Calibra will comply with the Bank Secrecy Act and will incorporate KYC and AML/CFT methodologies used around the world.”

These answers might help to calm finance legal eagles, but I expect much of the questioning from Congress will deal with the far more subjective matter of whether Facebook can be trusted after a decade of broken privacy promises, data leaks and fake news scandals like Cambridge Analytica.

That’s why I don’t expect the following statement from Marcus about how Facebook has transformed the state of communication will play well with lawmakers that are angry about how those changes impacted society. “We have done a lot to democratize free, unlimited communications for billions of people. We want to help do the same for digital currency and financial services, but with one key difference: We will relinquish control over the network and currency we have helped create.” Congress may interpret “democratize” as “screw up,” and not want to see the same happen to money.

Facebook and Calibra may have positive intentions to assist the unbanked who are indeed swindled by banks and money transfer services that levy huge fees against poorer families. But Facebook isn’t acting out of pure altruism here, as it stands to earn money from Libra in three big ways that aren’t mentioned in Marcus’ testimony:

  1. It will earn a share of interest earned on the Libra Reserve of traditional currencies it holds as collateral for Libra that could mount into the billions if Libra becomes popular.
  2. It will see Facebook ad sales grow if merchants seek to do more commerce over the internet because they can easily and cheaply accept online payments through Libra and therefore put marketing spend into those efficiently converting channels like Facebook and Google.
  3. It will try to sell additional financial services through Calibra, potentially including loans and credit where it could ask users to let it integrate their Facebook data to get a better rate, potentially decreasing defaults and earning Facebook larger margins than other players.

The real-world stakes are much higher here than in photo sharing, and warrant properly regulatory scrutiny. No matter how much Facebook tries to distance itself from ownership of Libra, it started, incubated and continues to lead the project. If Congress is already convinced “big is bad,” and Libra could make Facebook bigger, that may make it difficult to separate their perceptions of Facebook and Libra in order to assess the currency on its merits and risks.

Below you can read Marcus’ full testimony:

For full details on how Libra works, read our feature story on everything you need to know:

Canal+ acquires Nollywood studio ROK from IROKOtv to grow African film

French television company Canal+ has acquired the ROK film studio from VOD company IROKOtv for an undisclosed amount.

Founded by Jason Njoku in 2010—and backed by $45 million  in VC—IROKOtv boasts the largest online catalog of Nollywood film content in the world.

Nollywood is a movie genre popularized in Nigeria that has become Africa’s de facto film industry and one of the largest globally, by production volume.

Based in Lagos, ROK film studios was incubated to create original content for IROKOtv, which can be accessed online anywhere in the world.

Actress and producer Mary Njoku—IROKOtv CEO Jason Njoku’s wife—founded ROK studios and will stay on as Director General under the Canal+ acquisition.

Owned by media conglomerate Vivendi, Canal+ looks to give Mary more production resources, without disrupting ROK’s creative chemistry.

“We are acquiring the talent of Mary,” Canal+ Chief Content Officer Fabrice Faux told TechCrunch on a call.

“We will provide administrative support, finance, and equipment, but otherwise it is our intention to give Mary maximum autonomy and creative freedom,” he said.

Mrs. Njoku’s creative work so far has led ROK to produce over 540 movies and 25 original TV series, according to company data.

Mary Njoku ROK IrokotvThrough ROK, Njoku has expanded Nollywood’s formula for producing films on low budgets, largely shot on location in Nigeria, that connect with African audiences wherever they are. One of ROK’s more recent popular productions is Ojukwu, a period series set in an 1800s Nigerian village, in which Njoku directs and acts.

“Nollywood is Africa…We tell the African story. You can bring a Nigerian story, a Ghanaian story, a South African story…we talk the same drama. So Africans can connect to the average Nollywood story anywhere in the world,” Njoku told TechCrunch.

With the ROK acquisition, Canal+ looks to bring the Nollywood production ethos to other countries and regions of Africa.

Ojukwu ROK IROKOtv“It’s not that easy to produce an interesting movie for $20,000. People in Nigeria, particularly Mary and IROKO, know how to do that,” said Faux from Canal+.

“We want her to bring that to French speaking Africa. Because we need more African content and we need the industry to develop in French speaking Africa.”

Faux would not divulge the acquisition price but confirmed there is a cash component of the deal. “This is key for Jason…to developing the VOD aspects of IROKO,” he said.

Under the deal, ROK will continue to create unique content for IROKOtv, ROK’s four existing channels—three on DSTV and ROK Sky in the UK—as well as Canal+’s Africa and global channels.

The ability to reach a larger network of African consumers on the continent and internationally is another acquisition play for Canal+. Nollywood online content has proven the ability to find demand anywhere Africans are, including diaspora populations abroad. IROKOtv’s top-three streaming countries are Nigeria, the US, and the UK, according to a company spokesperson.

“We’ll now be able to do things in English speaking and French speaking African markets…and gain access to an advertising market where we believe there’s huge potential for growth,” said Faux.

The ROK acquisition is not the Canal+ Group’s first collaboration with IROKOtv. The media company joined a $19 million Series E investment in 2016, that also saw Canal+ and IROKO launch a French VOD channel. This was shortly after Netflix announced it would go live in Africa, though with little original African content. Netflix has since started to commission film content from Nigeria.

VOD tech startups, such as IROKOtv, have worked to take African film online, where it can be better distributed and monetized. That’s become less of a hard road, given the continent’s improving mobile and internet penetration paired with better bandwidth and falling data costs. There has been some attribution and loss. In 2017, Y-Combinator-backed French language VOD startup Afrostream, which had raised over $100 million in VC, shuttered—ending subscription services in 24 African and 5 European countries.

Canal+ and ROK are open to producing content for other VOD and production outlets, according to Njoku and Faux. “We could [for Netflix], or we could create a production corner on another VOD service,” said Faux.

On the possibility of pursuing an African film with crossover appeal to non-African audiences—particularly in the wake Black Panther’s success—ROK CEO Mary Njoku did not rule it out.

“I have been tempted in the past and am tempted today, but I want to focus on making the channels we have now the best Nollywood channels out there,” she said.

 

 

Facebook answers how Libra taxes & anti-fraud will work

Facebook provided TechCrunch with new information on how its cryptocurrency will stay legal amidst allegations from President Trump that Libra could facilitate “unlawful behavior”. Facebook and Libra Association executives tell me they expect Libra will incur sales tax and capital gains taxes. They confirmed that Facebook is also in talks with local convenience stores and money exchanges to ensure anti-laundering checks are applied when people cash-in or cash-out Libra for traditional currency, and to let you use a QR code to buy or sell Libra in person.

A Facebook spokesperson said the company wouldn’t respond directly to Trump’s tweets, but noted that the Libra association won’t interact with consumers or operate as a bank, and that Libra is meant to be a complement to the existing financial system.

Trump had tweeted that “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International”

For a primer on how Libra works, watch our explainer video below or read our deep dive into everything you need to know:

In a wide-reaching series of interviews this week, the Libra Association’s head of policy Dante Disparte, Facebook’s head economist for blockchain Christian Catalini, Facebook’s blockchain project subsidiary Calibra’s VP of product Kevin Weil answered top questions about regulation of Libra. Here’s what we’ve learned (their answers were trimmed for clarity but not edited):

Would Facebook’s Calibra Wallet launch elsewhere even if it’s banned in the USA by regulators?

Calibra’s Kevin Weil: “We believe that creating a financial ecosystem that has significantly broader access where all it takes is a phone and lower transaction fees across the board is good for people. And we want to bring it to as many people around the world as we can. But as a custodial wallet we are regulated and will be compliant and we will only operate in markets where we’re allowed.

We want that to be as many markets as possible. That’s why we announced well in advance of actually launching a product — because we’ve been engaging with regulators. We’re continuing to engage with regulators and we can help them understand the effort that we’re taking to make sure that people are safe and also the value that accrues to the people in their countries when there’s broader access to financial services with lower transaction fees across the board.

Facebook Calibra Libra Wallet

TechCrunch: But what if you’re banned in the US?

Weil: “I’m hesitant to give a blanket answer. But in general, we believe that Libra is positive for people and we want to launch as broadly as possible. The world where the US does that I think would probably cause other regulatory regimes to also be concerned about it. I think that’s very much a bridge that we’ll cross when we get there. But so far we’re having frank, open and honest discussions with regulators. Obviously, that continues next week with David testimony. And I hope it doesn’t come to that, because I think that Libra can do a lot of good for a lot of people.”

TechCrunch’s Analysis: The US House subcommittee has already submitted a letter to Facebook requesting that it cease development of Libra and Calibra until regulators can better examine it and take action. It sounds like Facebook believes a US ban on Libra/Calibra would cause a domino effect in other top markets, and therefore make it tough to rationalize still launching. That puts even more pressure on the outcome of July 16th and 17th’s congressional hearings on Libra with the head of Facebook’s head of Calibra David Marcus.

How will users cash-in and cash-out of Libra in person?

We already know that Facebook’s own Libra wallet called Calibra will be baked into Messenger and WhatsApp plus have its own standalone app. There, those with connected bank accounts and government ID that go through a Know Your Customer (KYC) anti-fraud/laundering check will be able to buy and sell Libra. But a big goal of Libra is bring the unbanked into the modern financial system. How does that work?

Calibra’s Kevin Weil: “Because Libra is an open ecosystem, any money exchange business or entrepreneur can begin supporting cash-in/cash-out without needing any permission from anyone associated with the Libra Association or member of the Libra Association. They can just do it. Today in a lot of emerging markets [there’s a service for matching you with someone to exchange cryptocurrency for cash or vice-versa called] LocalBitcoins.com and I think you’ll see that with Libra too.

Second, we can augment that by by working with local exchanges, convenience stores and other cash-in/cash-out providers to make it easy from within Calibra. You could imagine an experience in the Calibra app or within Messenger or WhatsApp, where if you want to cash in or cash out, you’ll pop up a map that highlights physical locations around that allow you to do it. You select one that’s nearby, you select an amount, and you get a QR code that you can take to them and complete the transaction.

I’d imagine that most of these businesses that we work with will support Libra more broadly, so even if we get these deals started it will benefit the whole ecosystem and every Libra wallet, not just Calibra.”

Facebook Calibra

TechCrunch: Have you struck relationships with any convenience store operators or money exchangers like Western Union or MoneyGram, or Walgreens, CVS or 7/11? Are you in talks with them yet?

Weil: “I probably shouldn’t comment on any specific deals but we’re in conversation with a lot of the folks you might think, because ultimately being able to move between Libra and your local currency is critical to driving adoption and utility in the early days . . . If you’re banked there are easier ways to do that. If you’re not banked and you’re in cash — those are the people we really want to serve with Libra — we’re working very hard to make that process easy for people.”

TechCrunch’s analysis: This approach will let Calibra largely avoid the complicated and potentially error-prone process of KYCing people in person or handing out cash by offloading the responsibility and liability to other parties.

How will Libra stop fraud or laundering while offering access to unbanked users without ID?

Weil: “There are very important populations that don’t have an ID. People in a refugee camp may not, as an example, and we want Libra to be serve them. So this is one example of many of why it’s important that Calibra isn’t the only option for people who want to participate in the Libra ecosystem  . . . Others of these will be run by local providers and they have programs to meet customers face-to-face and other ways to serve people and even KYC them that we may not . . .  We’re not going be the only wallet, we don’t want to be the only wallet.

This is one of the reasons NGOs have bene members of the Libra association from the start, because we want to encourage the monetization of identity processes both through working with governments issuing credentials for more people and also making use of new types of information for identity and authentication. We hope this process will hep the last mile problem.

In the case of a non-custodial wallet, the user isn’t trusting anyone. The way the regulations have worked and this is evolving as we speak. The on-ramps and off-ramps to the crypto world are regulated and they have direct customer relationships and it’s their responsibility to KYC people. In our case we’ll be a custodial wallet and we’ll KYC people. There are a number of wallets in the Bitcoin or Ethereum ecosystem — non-custodial wallets that don’t have a direct relationships with the users. . . They have to get that Bitcoin somehow. Usually they’re going through an exchange where usually as part of the process they’re KYC’d.

In a lot of emerging markets you have LocalBitcoins.com where you can find a representative or agent who will meet you in person and exchange cash for bitcoin in whatever market you have to be in. And I believe that they just started making sure that they KYC everyone,but they’re doing it in person. And they have more flexibility in how they do it then you might otherwise. I think there are lots of ways that this will happen and the fact that Libra is an open ecosystem will enable people to be entrepreneurial about it.

There are lots an lots of people who are underserved by today’s financial ecosystem who have government ID. So even with requiring everyone go through a KYC process, we’ll be able to serve many, many people who are not well-served by today’s financial ecosystem. We want to find ways to support people who can’t KYC and the important part is that Calibra will fully interoperate with any other wallet, including ones that people in local markets are using because it’s a better fit for their needs.”

TechCrunch: Through that interoperability, if someone with an non-custodial wallet receives Libra and then sends it a Calibra wallet user, does that mean you Libra coming into Calibra from users who weren’t KYC’d and could be laundering money?

Weil: So it’s part of the regulatory situation that’s evolving as we speak. There’s something called the Travel Rule . . . If there’s a transfer above a certain value you have to make sure that you understand both who the sender is, which you do if they’re using a custodial wallet, and who the receiver is. These are evolving regulations, but it’s something that obviously we’re going to make sure that we implement as regulations solidify.”

TechCrunch’s Analysis: Calibra appears to be inviting regulation that it can strictly abide by rather than trying to guess at what the best approach is. But given it’s unclear when concrete rules will be established for transfers between non-custodial wallets and custodial wallets, or for in-person cashing, Facebook and Calibra may need to establish their own strong protocols. Otherwise they could be guilty of permitting the “unlawful behavior” Trump describes.

Libra Mission Statement

How will Libra be Taxed?

Dante Disparte of Libra: “Taxing of digital assets is something that’s being designed at the local level and at the jurisdiction level. Our view of the world is that like with any form of money or any form of payment or banking, the onus in terms of compliance with tax is with the individual user and consumer, and the same would hold true broadly here.

We expect that the many, many wallets and financial services providers building solutions on the Libra blockchain would begin to provide tools that make it much easier than it is today [to calculate and file taxes] for digital assets and cryptocurrencies more generally . . .  There’s plenty of time between now and Libra hitting the market to begin defining this more strictly at the jurisdictional level among providers.

TechCrunch’s Analysis: Again, here Facebook, Calibra, and Libra association are hoping to avoid shouldering all the responsibility for taxes. Their position is that just as you have to take the initiative of paying your taxes whether or not you use a Visa card or your bank’s checks to transact, it’s on you to pay your Libra taxes.

TechCrunch: Do you think in the United States that it’s reasonable for the government to ask that Libra transactions be taxed?

Disparte: “Tax treatments of digital assets broadly hasn’t been entirely clarified in most places around the world. And we hope that this is something that this project and the ecosystem around it helps to clarify.

Tax authorities will see a benefit from Libra at the consumption level and at the household level, while some cryptocurrencies have avoided taxes until the point they tried to cash out. But the nature of it and the lack of speculation and its design we think should give it a light tax treatment the way you would find with traditional currencies.”

Calibra Transactions 2

Christian Catalini of Facebook: “Cryptocurrencies are taxed right now every time you have a sale on the differences in gains and losses. Because Libra is designed to be a medium of exchange, those gains and losses are likely to be very tiny relative to your local currency . . . Sales tax would likely be implemented the exact same way on Libra as it is today when you pay with a credit card.

At launch giving current regulations, the Calibra wallet will have to track every purchase and sale of Libra for a US user and those differences will have to be reported on tax day. You can think of the losses, albeit they may be very small gains and losses relative to USD, as similar to the what people do today when they have a Coinbase account with Bitcoin.

The sales tax I think could be implemented in the exact same way as it today with any other sort of digital payment, it would be no different. If you’re buying goods or services with Libra you’ll be paying sales tax the same way as if you used a different form of payment. Like today when you see a percentage, that is the sales tax on your total.”

Disparte: “Maybe the best way to frame how taxes work all over the world is that it’s not up to Libra, Calibra, Facebook or any company to make that determination. It’s up to regulators and authorities.”

TechCrunch: Does Calibra already have plans in place for how to handle sales tax?

Weil: “That’s also a pretty rapidly evolving part of the regulatory ecosystem right now. It’s really an ongoing discussion. We will do whatever the regulation says we need to do.”

TechCrunch’s Analysis: Here we have the firmest answers of our interviews. Facebook, Calibra, and the Libra Association believe the proper approach to taxes is that Libra transactions carry a country’s traditional sales tax, and that Libra you hold in your wallet will have to pay taxes based on the Libra stablecoin’s value (that’s pegged to a basket of international currencies) relative to the US dollar.

If the Libra Association recommends all wallets and transactions follow these rules and Calibra builds in protocols to handle these taxes simply, at least the government can’t argue Libra is a method of dodging taxes and everyone paying their fair share.