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Alternative Business Models: open-source, crowd funding and tokenisation

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Alternative Business Models: open-source, crowd funding and tokenisation

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Presentation to the Cambridge Product Management Network by Liam Crilly and Arthur Meadows

Open-source has grown up from the gift of shareware to become a legitimate business model. Similarly, crowdfunding is no longer an exotic fund-raising mechanism for community-interest projects only. Tokenisation, cryptocurrencies and Initial Coin Offerings (ICOs) have streaked across our horizon.

This session looks at these alternative business models and what they mean for technical and marketing decisions in product companies.

Presentation to the Cambridge Product Management Network by Liam Crilly and Arthur Meadows

Open-source has grown up from the gift of shareware to become a legitimate business model. Similarly, crowdfunding is no longer an exotic fund-raising mechanism for community-interest projects only. Tokenisation, cryptocurrencies and Initial Coin Offerings (ICOs) have streaked across our horizon.

This session looks at these alternative business models and what they mean for technical and marketing decisions in product companies.

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Alternative Business Models: open-source, crowd funding and tokenisation

  1. 1. Cambridge Product Management Network Alternative business models: open-source, crowd funding and tokenisation Liam Crilly & Arthur Meadows 26th April 2021 Thanks to our sponsors
  2. 2. LIAM CRILLY Writing simple web applications since 1993 Sr Director, Product Management, NGINX (Part of F5) WFH since 2015 Previously in Cambridge  Velocix (aka Alcatel-Lucent, aka Nokia)  Signify  ElectricMail (aka Net Connect)
  3. 3. SO, YOU WANT AN OPEN SOURCE BUSINESS…
  4. 4. OPEN SOURCE MONETIZATION By Accident On Purpose
  5. 5. OPEN SOURCE BUSINESS MODELS
  6. 6. OPEN SOURCE BUSINESS MODELS Enterprise Support •Not only available to the original creator •Scales with people •Little need for funding •Perfect lifestyle business •Example: cURL Open Core •Project + Product •Hold some features back for paying customers •Knife-edge balance of adoption vs value •Example: Docker (Mirantis)
  7. 7. LICENSE CHOICES Permissive vs Restrictive  Do what you like, but give credit  Use in your similarly-licensed project Notable licenses  BSD (2-clause, 3-clause)  Apache 2.0  GPL  SSPL Two choices for monetization  Fully permissive  SSPL (if your service doesn’t need an ecosystem)
  8. 8. OPEN SOURCE STARTUP FUNDING Friends, Family & Fools (pre-seed) Seed Series A Series B≥ Public / IPO Maturity Concepts / Ideas MVP / Prototypes Product- Market Fit Scaling / Growth Multiple Products /Revenue Streams Typical Raise <£1M £150k - £2M £3-12M >£10M >£100M Typical Valuatio n £1-3M £3-10M £10-30M >£30M >£500M Market Cap
  9. 9. THE NGINX STORY
  10. 10. 10 “... when I started NGINX, I focused on a very specific problem – how to handle more customers per a single server.” - Igor Sysoev, NGINX creator and founder
  11. 11. THE NGINX STORY 2001 • Original idea 2004 • NGINX 0.1 2007 • "Viable" 2011 • NGINX, Inc. • NGINX 1.0 • Series A $3M 2013 • NGINX Plus • Series B1 $10M 2014 •Series B2 $20M 2015 • Series B3 $8M 2018 • NGINX Unit • NGINX Controlle r • Series C $43M 2019 • Acquired by F5 $670M
  12. 12. WEB SERVERS: MARKET SHARE OF ALL SITES First appearance 2008 NGINX Inc. formed at “Z” Takes market share from Apache and Microsoft IIS No.1 web server April 2019 Cloudflare stop emitting “nginx” Server header NGINX Inc. never sold a web server Source: Netcraft Web Server Survey https://news.netcraft.com/archives/category/web-server-survey/
  13. 13. Q&A: OPEN SOURCE
  14. 14. Intro to Arthur •Product management & marketing for 20 years. •Founding member of Fetch.ai, AI + ML + crypto- currency start-up at St John's Innovation Centre in 2017. •Led an Initial Coin Offering (ICO) of $6m on a crowd- funding platform which sold out in 22 seconds.
  15. 15. Crowd funding
  16. 16. Some History •Business loans have been around since 2,000BC •Milestone in Renaissance Italy in the 14th century: • Double-entry book keeping • Concept of shareholding / equity • Renaissance mercantile trading / exploration •Pulses of innovation: • Italy • British Empire • Expansion of America Arthur Joseph Meadows Venice on the flood tide
  17. 17. Crowd funding – non-financial returns • Donation • Continuous (eg to church, school, charity etc) • Project-based • Philanthropic (eg Save the Pig, build a park bench, run a marathon) • Rewards-based • T-shirt – I helped! • The promised unit (of many) • Tickets to the opening night Marillion fans raised $60k to tour US in 1997
  18. 18. Crowd funding – financial returns Businesses Individuals Debt Equity Secured and Unsecured Few (legal) examples! P2P P2B (marketplace lending) (*) Examples only Justin Wilson (racing driver)
  19. 19. Start-up funding – equity-based Project • Write a business plan, assemble team • Do the financial model • Define funding requirements (and how much equity will be given away) • Add to platform • Market, market, MARKET Platform Marketplace • Easy communication to the crowd Legals • Identity • KYC / AML • Payment Processing
  20. 20. Crowd funding – Scope ‘n’ Scale in UK Largest campaign by capital raised: £11m Largest campaign by number of investors: 16,735 crowdfunders Largest campaign by pre- money valuation: £150m valuation Data from
  21. 21. Why use Crowd funding •Pros • More control for the entrepreneur • Lower expectation of financial returns than venture capital • Engaging with the public before the product is built •Cons • A lot of marketing needed – even before the product is built. Need to have your ducks in a row.
  22. 22. Early stage investing? Angel Investing / Venture Capital Crowd funding Complex offerings • B2B • Lots of due diligence & market knowledge Simple to Understand • B2C • Shorter decision timeframe Prior failure not necessarily at disadvantage Failure definitely a black mark Will invest in: • Someone’s crystal ball • The germ of an idea Will invest in • Evidence of initial success • Green shoots of an idea More disclosure about the magic sauce Less disclosure about the magic sauce Few, highly demanding shareholders (who have significant control) LOTS of shareholders (noise rather than voting rights) Negotiated terms Take-it-or-leave terms + momentum! 10x returns in a diversified, professional portfolio <10x returns in a ‘unprofessional’ portfolio Product-Market fit not achieved Funding appetite == Product-Market fit
  23. 23. Tokenisation
  24. 24. The Problem What happens when: •you know that there is network value, •but the value derived by the innumerable services that sit on top of the network far, FAR exceeds the value that you (as the original generator of the network) can extract from it? •Massive impediment to the initial construction • Traditionally, overcome with consortia and standards
  25. 25. Formula Tokenised Business Model Open Source Crowd Funding Cryptography Distributed Replication
  26. 26. Tokenised Business Model • You give me real $$$ to build it • In return, you get credits to be used on the network (aka ‘utility tokens’) • Example of a telephone network • Premise • The network grows, the value increases, the value of the token increases (because each token does more) • Mandates Token  Fiat exchange mechanism • So, if you have invested in tokens you can use the network for cheap OR realise returns by selling the tokens • How entrepreneurs make out • They are gifted some of the tokens • Tokens = share options, except that they are immediately tradeable – and you have to pay tax and NI on them.
  27. 27. Control - No-one & Everyone! •Compute / network / network credits •Perils of an open-sourced banking systems • Bad actors can change the balance in their own account • Solved by consensus: if 51% agree that this is the truth, then the majority rules. • Example of going down a dark alleyway • Proof of Stake vs Proof of Work (used by Bitcoin) • Best explanation of cryptocurrencies: https://www.bbc.co.uk/news/av/technology-43026143
  28. 28. The impact of publicly traded businesses •MARKETING •Community Support •Fetch.ai example •Continuous sale of tokens – zero bank balance •Insider trading + continuous forensic accounting •Volatility & paying to dampen it
  29. 29. Fetch.ai - the Crazy Sh*t
  30. 30. Fetch.ai – The fund raising •The big idea: autonomous AI-driven agents that operate on your behalf solving life’s challenges. •Pivoted into tokenised business model •Raised $15m in pre-sale (ie Series A) •Raised $6m at Initial Coin Offering (ICO) on crowd- funding platform • All over in 22 seconds • Max individual contribution $3k = 2.8k investors
  31. 31. Fetch.ai – Token price rollercoaster Feb 2019 Mar 2020 Apr 2021 Sold at 8¢ First morning 49¢ 0.735¢ 88¢ = $1b valuation 37¢ 0 100¢
  32. 32. KYC in Crypto •Some interesting investment offers •Some interesting verification techniques
  33. 33. Final Question •If Tim Berners-Lee came to you with the idea of a web server + client browser, would you advise him to open-source or tokenise it? •Fibre / 5G network?
  34. 34. Q&A

Editor's Notes

  • One isn’t better than the other, or guaranteed to make more money

    Red Hat was the first $1B open source business
    They took open source Linux
    Offered support, and certified that it would work on commodity hardware
  • Let’s assume you have created a successful open source project - either on purpose or by accident
  • Tech support for $$$
  • GPL = use this code and your parent project becomes GPL (infection)

    SSPL – server side public license
    Variation on GPL
    Use this code in a 3rd party service and your service’s code becomes open

    Amazon is your biggest enemy
  • ×