This interview is in media cooperation with Frankfurt Forward (https://www.frankfurtforward.com/startups/cashlink).
In this interview, we are talking with Michael Duttlinger, who is Co-Founder and CEO of CASHLINK. CASHLINK is a tokenization platform for startups, where they can tokenize phantom shares.
You can learn more about the technical aspects and what CASHLINK does in our audio-only podcast here: https://www.startuprad.io/interviews/cashlink-wants-to-digitalize-venture-capital/
Due to the recent interview with CASHLINK we focus more a bit on the German VC scene, rather than the startup itself. You can learn a lot about the functioning of the German VC market during this interview.
During the interview we are talking about:
• Rhine-Main-Area: https://en.wikipedia.org/wiki/Frankfurt_Rhine-Main
• RhineMain.vc: https://rheinmain.vc/ or go directly to the Medium Blog: https://medium.com/@RhineMainVC
• Handelsregister (Germany’s company register): https://en.wikipedia.org/wiki/Company_register
In a startup with three founders, one is only focused on raising venture capital.
We want to reduce the time a founder spends on raising venture capital.
We thought: Venture capital can be more flexible and easier.
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Announcer: Welcome to startuprad.io, your podcast and YouTube blog covering the German startup scene with news, interviews and live events.
Joe: Welcome, this is Joe from startuprad.io, your startup podcast and YouTube blog from Germany. As you can see I am still in my cramp study, as you can see I did not clean up yet. I’m not completely moved in but I’ll promise I get there one day. Today I’m here because I do have a guest to start about a month in June 2019, a startup called cash link. Congratulations Michael.
Michael: Thank you very much, yeah we’re very happy and honored to be the Startup of the Month in June and yeah we already had the pleasure to had a podcast a few weeks ago so I’m happy to talk again.
Joe: Yeah, it’s pretty funny because we’ve tried like 3, 2 times to get a video podcast going because 2 times Betsy didn’t want to do it, once it was just not working. On my bicycle, I rolled the camera through Frankfurt and at the end it was too cold, they just didn’t want to work and the second time it actually stopped autofocusing and we’ve just been some big blobs, so that’s why I’m more than happy that you’re Frankfurt, for what, startup the month of June 2019. Disclaimer, this is not a paid media partnership, we do it free of charge. Let’s talk a little bit about Cash link and what we see in the background. This is the FinTech hub of Deutsche Boerse in lovely Bornheim. Can you tell us a little bit about that and your startup, please?
Michael: Yeah, so we’re a cash link, so we’re a tokenization platform for startups. So what we’re doing is we’re helping a startup to issue digital securities, security tokens so they can easily onboard new investors and that investors get a very flexible share which they can sell at any time by using the blockchain or by just simply having a security token. So we do this fully compliant in Germany and also our solution is completely standardized, so the starters come to us and once we get it tokenized, we can tokenize to start up in one week. As you just said, I’m sitting here at lovely FinTech Hub of Deutsche Boerse, so we are one of the four starters which moved in quite a long time ago and we’re still here and we’re very like happy because the exchange between the big player Deutsche Boerse here in Frankfurt and us is very, very valuable for both sites and yeah, we highly profited from having our office here and now we can see some startups moved out and now more startups move in. We also have like kind of a change here and what’s also really, I think the main point about this FinTech Hub is that it’s totally focused on FinTech. So we see many startup hubs in Germany but usually, they have not, they maybe have some clusters in between but here is really focused on FinTech and it’s very valuable because FinTechs usually have the same problems. They face regulation, they face banking corporations, no matter if you’re FinTech in lending or if you have watching start-up at the bottom line, it’s kind of the same challenges and that’s why just having like exchanging ideas, like talking to each other just brings a lot of value to any one of us here at the FinTech hub and especially here the Deutsche Boerse adventure network which connects startups and investors, for example, also it helps us a lot but we when we looked for investors, we also like to find one investor through this Deutsche Boerse adventure network. Now, the other side we can also provide the Deutsche Boerse adventure network with insights from the startup ecosystem because I’m personally also very involved in the startup ecosystem in Frankfurt.
Joe: We may want to add that you are very involved because you’re one of the hosts of the FinTech meetup Frankfurt which is the largest FinTech meetup in continental Europe.
Joe: So that appears to be a little bit of work on the side besides being an entrepreneur plus we may add that Deutsche Boerse is actually the company behind Frankfurt Stock Exchange, Xetra, Eurex and all of that and they are running the largest central counterparty in the world which most people don’t know which is actually located in headquartered in Frankfurt. They have a very lovely building there and they have like an outpost, the FinTech hub that is where you guys are. Everybody who wants to know a little bit more of what you guys are actually doing, a little bit more to technical terms they can go down here in the show notes, we’ll have a link to our audio-only podcast where we just did the interview because we thought for the people who are listening to us on a regular basis, it gets quite boring if we talk like twice about the same start-up in like half a year which we usually don’t do. So, therefore, we are talking a little bit more about the German venture capital scene and how you guys actually want to change them.
Micheal: Yes, yes. So for us, venture capital is the main topic why we’re not doing cash link. For example, we ourselves, we did several funding rounds so we as a founder, we went through the whole process of getting venture capitalists on board and Derek, we like really discovered there are a lot of like challenges to solve, problems to solve and overall the whole, like what we figured out is that the whole ecosystem in the venture capital; industry and the venture capital industry is funding the whole digitization of the world and it’s in many parts very non-digital. So we thought this was kind of funny because the startups the venture clubs invest in, they do blockchain, they do AI, they do machine line, they do big data but if you look at how venture capital works, it sometimes seems from an old world and so we really tackled into this and for example, of course, if every founder who has, most of the founders who went through capital funded know this. So if you have two founders or three founders, one founder is always fully committed to raising funds and this of course, like the founder is probably the most valuable person or should be the most valuable person of a start-up. If one founder is only focused on raising funds, he cannot develop the product or the whole business. So it’s just reducing the amount of time a founder has focused on raising funds can have an enormous impact on the development of the whole startup and that’s actually the point where we saw, ok the whole process can be way more flexible, can be way easier and especially if you look at the numbers, adventure capitalist is on the rise. If you look at the German numbers and compared to in 2017-2018, the value of venture capital raised 11% and the number of financing grounds increased by about 15%. So more and more and the venture capital gets into the market which is very good, more startups get funding and more startups get more funding which is also something, which even makes a problem bigger because how can we transform this very old-school process which is and not automated, which is very manual, which is very paper-based into a more digitalized process, a more automated process, maybe a more standardized process to just make it easier for both the startups and the investors.
Joe: We may add that I’m also a partner of the RhineMain.vc which is a group of three people that I initiated where we actually collect VC data in the greater Rhineland region which is actually, Frankfurt is like the center of the Rhineland region and everybody thinks, oh small Frankfurt, small Frankfurt, actually that’s more an administrative stuff. It would be if you take London just a square mile and then say everything is something else, it’s a little bit with Frankfurt and Rhineland areas like London and Greater London. It’s the same place so there’s one city center, one focus of commercial activity and then there are several specialized areas and in this Rhineland, we found with the Rhineland VC last updated in March this year almost 375 million Euros in VC investment. It was actually 374 where surprisingly the classical venture capital was still way ahead. Yeah, I was talking about the numbers we’ve seen here in Rhineland.
Joe: And the most important part with a classic adventure capital or venture debt, number two was IPO, of course, due to Frankfurt Stock Exchange then it was the classical ICO classical and then we had Crowdfunding with a very tiny sliver here. co you think crowdfunding is falling out of favor and venture capital is getting more important again?
Micheal: I think this totally depends on your business model. So if you want to connect your fundraising process with like a marketing campaign, I mean if you have a product which really is about having a strong community then maybe crowdfunding can be the perfect instrument for fundraising for you. When we talked to so many venture capitalist and business angels, many business angels said, okay, they favor their private investments over crowdfunding because they say, okay, in some in some aspects if you do crowdfunding it’s a totally different game, you need more money for the whole marketing campaigns and you don’t know what you get out of it and on the other hand many crowd fundings are structured differently so, for example, I think especially the seasoned business angels they like to have the terms they’re used to. So their shareholder agreements they used to, their liquidation preferences, anti-dilution, etc. and probably then for the venture capitalist, the crowdfunding mechanism it’s not their favorite kind of deal, let’s say and of course they want to have, some investors may want to have a seat on board and others want to have more the equity upside which not all the crowdfunding campaigns offer. So overall, I think it totally depends on your business model but of course if you see all the B2B companies it totally makes sense to go for venture capital, but I think still, crowdfunding will remain in some sort and what won’t remain is probably the classical ICO that we saw all the world’s enormous sum of funds raised, but now the ICO market totally decreased and totally collapsed. We can also yeah, we can’t really collapse and so the thing is what’s next and what I think is we will see more and more of digital assets, digital securities which I would say can be, like its overall term, you say digital asset is your securities, they can be venture capital. You could also use digital assets for crowdfunding or you could even use digital assets for IPOs but it’s more like in a general term but I think this technology will maybe change the way venture capital works, it can change to make crowdfunding works and it can change the way IPOs work. So this will probably drive the whole ecosystem even more.
Joe: Do you think we’ll see like a blurring of lines between venture capital here, on the one side crowdfunding and the ICO world?
Micheal: Yeah, I wouldn’t say the ICO world, I would say the digital asset world. So what I think, it’s very important that we probably have regulated tokens which are security tokens because you have an underlying security or an underlying asset, asset makes security tokens and I think we will see totally a mixture between them, maybe blurring so there will be, for example, we had the ICO utility tokens and now we’re having more and more security tokens but maybe we will see you mixture between utility and security tokens and we’ll see and startups could for example, use crowdfunding and later on they can use digital security token offering and then they can also have an infrared equity round with venture capitalists and then they can do an IPO at the end. So I think the whole impact of security tokens is just at the beginning and we’ll see the next years how all these different forms of fundraising will play together and this is very exciting.
Joe: We may want to add that Germany is always a little bit more conservative and Germany also has a very big tradition of non-listed big companies, for example, what many people would pop to mind is like Raley, the grocery retailer, its competitors like Needles little and they’re also almost globally present. It’s one of the many many examples like Battles Mind Group with BMG who dominates large shares of the music market and they are all just examples of non listed companies in Germany. So there’s a big tradition in that and venture capital stepped in there as well. How you guys aren’t actually doing that, digitizing this venture capital market and how do you see the changes will influence most likely? Admittedly, it will be a little bit biased by your business model and I assume the quota of digital venture capital funding will be high in your forecast but what from what I’ve heard focused always very hard especially concerning the future so what’s your forecast?
Micheal: Yes, of course, I said, I’ll focus that we’ll include that there’s a rise of digital assets, an enormous rise of digital assets because we think it’s totally.
Joe: It’s a big surprise to me.
Micheal: It’s a big surprise but it just makes sense. It just makes sense because the whole process right now is very flexible, it’s manual, it’s paper-based. So, for example, this is the case for Germany now, yeah.
Joe: Should we tell our viewers, our listeners how this process actually works right now in Germany?
Micheal: Yeah, yeah. That make sense that makes sense because in Germany it’s a little bit different than in other countries. So in Germany, if you want, if you’re an investor you want to invest in a company, what you do is, of course, you have your deal, you have your founder, you want to invest in the company and at that point, you have to negotiate the whole shareholders agreement which usually takes ages and of course there’s a saying, time conceals. So if you can reduce the time, the likelihood of the deal increases and of course and when you then finally have agreed on an agreement but what have to do, you have to make an appointment at the notary service where everybody has to be in person. The people have to fly in, people have to meet and then the notary service reads the whole contract which in venture capitalist sometimes takes up to six or seven hours and after that, the notary service gets a lot of money and then you’re finally settled and but the real settlement until it’s registered at the German Hannes Agusta also takes another two to three weeks. So like the whole settlement process takes weeks. It’s very cost, like cost a lot of money because you have to go to notary service, see them in person and it’s all completely not automated and it’s manual, it’s based on paper and of course here you can have a huge gain in efficiency if you can digitalize the whole process. if you can standardize the process and for example, for foreign investors it’s always not that easy to invest in German companies and if they can just use digital assets which they are familiar with because digital asset is something which is worldwide accessible. Yeah, it gets way more easier for an investor to invest in German countries and not having to fly in for example, or having to go to a notary service. So this is one point in this whole non-digital venture capital process which we are digitizing but of course there are many other processes so, for example, there are other startups. We kind of call this venture tech. So this is our term, we say venture tech. So bringing more tech into the venture capital ecosystem. So one thing, what we are doing is to digitalize the process of the fundraising but other startups are for example digitalizing the whole cap table management, other startups are digitalizing the way dues are sourced and bringing AI machine learning into due sourcing. It’s not only about having intro and knowing each other, also what we are also doing is digitalizing the employee stock option where programs and what other startups also doing is for example, like the whole customer relationship management and investor reporting, it’s still something every startup does differently and it’s still, it’s actual Excel or Google Docs based and bring this into software. So within many, many areas where we and many other players can bring more tech into the venture capital ecosystem and therefore just adding well you to the whole ecosystem.
Joe: Okay. So in the future, we’ll see completely digitized venture capital, what one point in the future? That may be a thousand years from now but it will be there.
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