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Evaluating Blockchain Companies

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This talk was presented at the 6th Annual Global Big Data Conference in Santa Clara, California on August 29, 2018.

Michael Slinn has performed technical due diligence for investors since the mid 1980s. In this 40-minute presentation he explains how he evaluates blockchain-related technology companies. See https://www.mslinn.com/blog/2018/08/29/evaluating-blockchain-companies.html

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Evaluating Blockchain Companies

  1. 1. Evaluating Blockchain Companies Mike Slinn August 29, 2018 Global Big Data Conference Santa Clara, CA
  2. 2. Technical Due Diligence
  3. 3. Companies and Products “Is This Real?”
  4. 4. See Me in Our Booth • I will be in the Micronautics Research booth • Most of today • Please talk to me there!
  5. 5. About Mike Slinn • Distinguished engineer • Electrical Engineering degree • Author of go-ethereum walkthrough • Contributor to Ethereum Java and Scala libraries • Operates ScalaCourses.com • Author of EmpathyWorks (artificial personality) • Expert witness • Twitter: mslinn
  6. 6. Key Facts about Mike Slinn • Focuses on generating business value by applying people, process and technology • Wrote 3 books on distributed computing • Created hundreds of online lectures on advanced computing concepts • Uses many computer languages (“polyglot”)
  7. 7. Prior Assessment Work • I have been performing technical due diligence for investors since 1985. • I have helped prepare companies for acquisition and investment since the early 90s; resulting in sales to IBM, Microsoft, NBC Interactive and AltaVista (later purchased by Yahoo!).
  8. 8. Risk, commissions, uniqueness, scales About This Presentation
  9. 9. Who Commissions Evaluations? • Investors - Interested in a new technology or a startup’s implementation/approach. • CEO – Vulnerability assessments and action plan. • Startups - Grooming themselves for investment or acquisition. • Competitors – Probing for weaknesses or potential acquisition.
  10. 10. Risk • I investigate and report on risk when performing technical due diligence. • Identify the factors in play, and those that are lacking, for the present state of the company being assessed.
  11. 11. Each Company Is Unique • I do not use a one-size-fits-all approach for evaluations. • Investors can ask me to address specific concerns that they may have. • I focus on technology product companies; I do not assess service firms, for example, or consulting firms.
  12. 12. Each Evaluation Is Unique • Some are for self-assessment • Some are done with the knowledge and cooperation of the company being evaluated • Some are done in secret, without cooperation • Some are done undercover (with senior management approval) • Ethics are important in this work!
  13. 13. I Do Not Do • Security audits • Valuations (where dollar values are assigned) - but I work with accountants who do • Endorsements
  14. 14. Small-Scale Assessments
  15. 15. Quick Sanity Check • "Is this project real?“ • Proceed one day at a time • Daily reports • Appropriate for $25,000+ investments
  16. 16. Key Person Vulnerability Mitigation • Assess impact of loss of key technical person • Recommend a mitigation plan • Execute or oversee plan
  17. 17. Scala Effectiveness Assessment • 5 days • Is Scala being used effectively? • Standards and best practices • Unrecognized or underestimated problems • Suggestions for your technical strategy for the F/OSS world that Scala comes from. • “You Moved Us Forward 8 Months!”
  18. 18. Large-Scale Assessments
  19. 19. General Outline of Activities • Funded initial assessment • Present written report • Discusses his findings and optional next steps • I can act as an advisor, interim CTO, or interim VP Engineering
  20. 20. Preparing for Investment or Sale • Help building a winning technical team • Establishing just the right amount of process • Streamlining the technical architecture • Help define product roadmap
  21. 21. Typical Deliverables (Report) • Are the people, processes and technology appropriate for the development stage of the technology company? • Can the engineering team consistently deliver quality results on time and on budget? • Is the management team effective?
  22. 22. Subject Stages • Idea only • Technical standard • Fundamental research done • Initial implementation • First rewrite / first pivot • Scaling • Integration • Professional Services
  23. 23. Idea only • White paper but no implementation or prototype. • Too early for a technical evaluation.
  24. 24. Technical standard • Produced by a standards body. • Implementation is important
  25. 25. Fundamental research done • This is the earliest stage for a detailed evaluation of a product company or technical standard. • Process normally does not exist yet • The team consists of only a few key people at this stage. • Customer engagement is very important, but is often completely lacking.
  26. 26. Initial implementation • A VC’s dream: first mover advantage. • Usually the company can describe what they are building, but the reasoning behind why a customer might want it is weak. • I care about the communication between product management, such as it might manifest, and engineering.
  27. 27. First rewrite / first pivot • Attrition of key people is a commonly experienced risk for startups at this stage. • This might be a good thing, or not. • Sometimes investors or the board of directors will engage me to assess and strategize potential attrition.
  28. 28. Scaling • Addressing this problem requires data and a focus on operations. • This is the time to add instrumentation and to analyze the resulting data so operations can be optimized. • A dedicated operations team is often set up when scaling becomes an issue.
  29. 29. Integration • Another desirable problem to have, if customers and business partners clamor for integration with a startup’s products.
  30. 30. Professional Services • In the early days of a startup, engineering might perform custom work for the initial customers. • This is in general not desirable, and professional services should be carved out from engineering early on.
  31. 31. And Opportunities Common Issues
  32. 32. Excessive Management • The kiss of death: many impressive- sounding titles for prestigious managers, but few or no direct reports who have authority to do things. • However, when it is time to introduce middle managers, it should be done properly.
  33. 33. Yet Another X • Problems and opportunities should be well- known when creating a product that competes with incumbents. • Central question is often “can the product be significantly better for a specific application?” • These assessments generally cost less, because they can be quite focused.
  34. 34. Security Cannot Be Retrofitted • Secure systems can only be designed that way from the start o Trying to secure an existing platform can only give marginal improvements • Need orders of magnitude of improvements to smart contract security o Not possible without a fresh start
  35. 35. Sample Special Assignment • The investors brought me in. • The board, investors, CEO, and CFO knew of my assignment, but VP level and below did not • initialAssessmentNeutered.docx • observationsNeutered.docx
  36. 36. Thank you! Mike Slinn mslinn@micronauticsResearch.com 650-678-2285

This talk was presented at the 6th Annual Global Big Data Conference in Santa Clara, California on August 29, 2018. Michael Slinn has performed technical due diligence for investors since the mid 1980s. In this 40-minute presentation he explains how he evaluates blockchain-related technology companies. See https://www.mslinn.com/blog/2018/08/29/evaluating-blockchain-companies.html

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