Interview with Ted Martynov – CEO amd Founder of Carmachain (*)
Why did you create Carmachain?
CARMA is a natural extension of my background which is consumer lending. I spent many years building different lending companies in Ukraine before moving to Myanmar in 2016 to start SolarHome. SolarHome is a pay-as-you-go solar company that is essentially a mix of lending and distribution. Running lending facilities in an unbanked country was very new for me. The biggest pain point was the lack of credit data for proper credit assessment what is a horrible situation for every lender. Solving this issue become my passion and I left the company in 2019 leaving its status the biggest PAYGO solar in SE Asia to start CARMA the world’s first credit data marketplace.
Who is in your team?
Lina who also worked for SolarHome joined CARMA as CTO six months later. She is extremely talented software engineer with enormous experience in data intelligence. I parachuted myself in Kenya in the midst of 2019 for a ground survey and we were lucky to deliver MVP closer to Jan 2020. We are still in search of CSMO and I hope this highly valuable team member will join us in the next weeks to start building distribution channels.
Which are your products? Clients/Target Clients? BAHG?
CARMA aims to fill in the gap for credit reference services in underserved markets. There are 85 countries across the globe experience this problem mostly from Africa and SE Asia. The demand is coming from lending organizations that would like to have better manageability of default rates through overindebtedness control and fraud prevention. Over Indebtedness became a huge issue even in the western countries after the pandemic outbreak as it affected income sustainability nearly everybody what caused withhold granting new loans.
CARMA is fundamentally different from traditional credit and designed to be a really quick fix of the problem. We withdrew from aggregating data into a centralized silo. Centralized data silos are vulnerable to hacking and what is more important it requires organizations to give away their entire databases. Our ground survey revealed many cases when even a good working credit bureaus environment able to collect only negative credit histories because positive information is not contributed by organizations. This approach is simply lack of transparency. We organized data sharing in a fully distributed and decentralized way. Data contributors transfer only query-related data leaving the whole database behind company’s firewall. This also created an advantage of access to real-time data that is critically important for fraud prevention among digital lenders who are the new trend of unbanked economies after mobile money introduced itself a few years ago.
Dealing with unbanked economies also brought us to an interesting takeaway. A lot of data sits with non-financial industries. Unbanked customers actually made a lot of digital footprint up to date. CARMA‘s credit data marketplace is totally inclusive for data of any b2c industry. Data contributors receive a reward every time lenders hit their information what made a quite unique revenue stream that was never introduced before.
Access to credit data is only the tip of an iceberg. At the end of the day, we see CARMA Protocol could make a secure connection between enterprises across the globe. Companies could securely leverage personalized or personalized data for the benefits of HR, R&D, marketing from each other. This might be another internet. Internet for corporate data.
Faster, less riskier and cheaper credit?
We were fortunate to sign an umbrella agreement with a huge association in Zambia where the situation with credit data is quite average with 9% (vs 11% average across Africa) rate of collected credit histories. The members of the accusation presume to share credit data within their group and acquire information from other local organizations as telecoms, PAYGO solar etc. CARMA facilitates transferring raw data what is a perfect feed for any scorecards. Accessible credit data helps lenders to reduce the time for credit decisions and improve the predictability of default rates which improves the quality of loan books hence lenders can give more money to creditworthy customers and mitigate losses of fraud and low-quality transactions.
The future for Carma?
CARMA‘s beauty is in its global context. The data goes directly peer-to-peer and CARMA works as a post office. We deliver “parcels” with data with no idea what is within the “parcels”. This liberates us from obtaining local licenses or putting IT infrastructure what means we can available everywhere where it is necessary right today. We made our baby steps in Zambia and making a close look at Nigeria. Some talks are coming from Bangladesh and Vietnam. We are going to be flexible in building the presence following signals of early adopters. We are happy to be in Benin, Senegal, or Uganda tomorrow after signing up for three or four customers.
We are strongly convinced that pay-as-you-go model works the best for our customers. It reflects with zero sign-up or subscription fees. Lenders pay only in case of hitting data, it entails processing reward to a contributing side. CARMA might be a smart alternative to credit bureaus. The credit bureaus usually charge per request.
Challenges, competitors and growth opportunities?
Starting up any marketplace is challenging and doing it for enterprise data even harder. Companies like the technology advantage of CARMA addresses the vast majority of their concerns in terms of data security but nevertheless the sales cycle is quite long what requires from the team and me to have enough durability. Global lockdown did not make it faster but exposed overindebtedness issue what made credit reference services critical.
We see a lot of startups trying to help lenders with credit assessment built around alternative credit data or fetching data from borrowers. We are fundamentally different, we give visibility to recorded data that sits deeply in enterprises. This makes us optimistic to improve credit risk for 530 million loan deals made annually in underserved markets.
What could CARMA do with a $1m investment?
This is going to help a lot. We are at the very beginning of building distribution channels. The technology requires more capacities to keep data security, applicability, compatibility elements on the highest level. Such investment injection would bring us to serving over 5 mln data requests bundled with access to 19 mln of credit histories. This is roughly $1 mln ARR for CARMA.
The interesting thing is unbanked left massive digital footprint since smartphones became available. This data is a real driver for many industries to find and deliver critical products and solutions for this financially underserved layer. I strongly believe CARMA is one of the missing puzzles in the equation of financial inclusion and building data-driven economics for Africa and SE AsiaTed Martynov – CEO Carmachain
(*) I am an investor in Carmachain
Interview with Timothy Kotin (CEO) Superfluid Labs
Why did you create Superfluid Labs?
Prior to founding Superfluid Labs, I was a Research Scientist at IBM in Kenya where my team supported enterprise clients to develop new products and innovations to drive access to financial services and inclusion building on the foundation of existing innovations like M-Pesa and IBM’s technology innovations. I was fortunate to both support and witness first-hand how a regional bank at the time with only about 50,000 retail customers launched and rapidly scaled a digital banking offering for the underbanked which has now reached over 25+ million customers with credit and saving products on basic mobile phones. That product is called M-Shwari, and this innovation was possible by leveraging the power of data analytics to reach, score, and service the previously underserved. The motivation for founding Superfluid was thus the desire to develop affordable platforms which democratize access to similar advanced analytics and artificial intelligence capabilities for many more businesses, large or small, in order to expand economic opportunities by better serving the essential needs of hundreds of millions of underserved consumers, starting in Africa.
Could you please describe your products?
Superfluid has developed an enterprise analytics and intelligence platform called SuperML (https://superml.io) as well as a consumer insights and credit scoring platform called SuperScore (https://superscore.me/). Together these platforms enable businesses in any mass retail (or B2C) vertical to i) to understand consumer transactional behaviour, ii) score customers to establish an accurate risk exposure, iii) offer personalised and relevant products, iv) increase customer lifetime value and v) reduce revenue churn in a scalable and accessible manner.
Behind the scenes, our platforms harness advanced analytics and artificial intelligence technologies to process both traditional and alternative data, structured and unstructured data sources, in order to predict valuable business events or outcomes and reveal relevant strategic insights for stakeholders. The company serves clients in Financial Services, PAYG Solar, Agriculture, Technology, and Retail industries across several African countries.
What is the business driver for your clients?
Historically, high credit risk is one of the factors cited by lenders for either not serving millions of potential consumers or charging high-interest rates and fees to their current customers. With Superfluid’s credit risk scoring models which more accurately predict risk at the individual customer level, lenders can i) save working capital (sometimes up to 20%) that would have otherwise been lent to the wrong customers, yet still, generate more profits from a higher quality of good customers (sometimes up to 50-75% higher total profits). With these significant gains, lenders can therefore confidently lend to more customers previously declined or not considered or further can also reduce the interest rates charged to their current customers with lower risk profiles.
What is your marketing strategy?
Having validated our offering and proven the return on investments for our customers, we are now looking to expand our offerings to empower more businesses providing solutions for consumer lifestyle needs. The strategies we are looking to leverage for growth are two-fold: 1) establishing partnerships with aggregators which serve other specialized industries/verticals, like Solar PayGO, retail/commerce, fintech, and 2) providing white-label versions of products which can be branded by our business customers or embedded in their own systems.
What is your ‘magic formula’?
Based on our proprietary automated machine learning platforms and other deliberate process improvements over the years, we are now able to provide our value offering at a significantly reduced initial setup cost and time to support our clients as their businesses scale efficiently. We have successfully served the clients at varying growth stages – from those serving just a few hundred customers to multinational companies serving almost millions of customers.
Our objective is to have both low barriers to adoption through a pay-as-you-go or volume-based pricing model based on the scale of a business as well as clearly demonstrate the ROI link between investment in our solutions and specific business outcomes.
Challenges, competitors and growth opportunities
Data analytics and artificial intelligence are still an emerging industry in many markets so our major challenges usually come from getting clients to understand the transformative power analytics can provide for growth for them. To help mitigate this, we occasionally provide training and capacity building to enable key stakeholders to understand and adopt the requisite analytics capabilities needed to scale strategic growth and optimize current business opportunities.
Our immediate competition really comes from some businesses who will rather employ internal data scientists to deliver their needs. However, our comparative advantage lies in the broader diversity of our team’s combined depth of expertise, experiences across multiple use cases, and focus which provides much more valuable returns when we engage with clients. Even where some customization is necessary for complex use-cases, the maturity of our platforms and in-built automation means that we can deliver value in weeks rather than several months or years.
As digitization explodes globally and especially in emerging markets, we see more business understanding and desiring the power advanced analytics and machine learning provides for scale, efficiency, and growth. We are already preparing in multiple ways to provide the needed offerings for serving these anticipated needs profitably and at scale.
What would you do today if you knew exactly what will happen in the future?Superfluid Labs
I could start with, “it depends”, but I will try to give you a more straightforward answer.
If you are a founder and have landed on this page, why are you even asking this?. Beyond your need to ensure that you will have onboard a few anchor/marquee/strategic investors, you are signaling that you are trying to raise money in as few conversations as possible. Alex Danco perfectly describes this game theory behavior in his post ‘VCs should play bridge‘.
A business angel perspective:
My investments are constrained by a series of considerations. They have more to do with myself and my investment philosophy than with your startup, such as:
- Staying within my investment rules. As described in previous posts, I fancy an initial allocation that allows me to be comfortable if the investment sours and goes to zero. I am also looking to have some reserve cash to follow up with additional investments, in the case of the best performing startups.
- I could commit to convertible notes with a cap (read more about this in Brad Feld and Jason Meldenson’s book on Venture Deals), but my preference is to invest in equity (SAFEs being second best)
- The Added Value that I can bring to your startup.
Let me expand on this last point. I like to view myself as something more than an ATM. As a founder, you should be conscious that “Piles of Money” come in different shapes and sizes-
Some of us favor patient capital vs. quick returns. Others don’t. I don’t have any LPs behind me and no mandate to achieve any specific profits within a defined period. I only invest ‘betting/gambling’ money that could be put 100% at risk of loss, patient capital (again, I have no accountability to anybody for the way I invest other than myself and wife)
In terms of other value, I bring my ‘other skills to the table’. I generally work pro bono on legal issues for the startups in which I invest. I have also helped them with business development, recruitment, and fundraising. Furthermore, provided that we are a good fit, I am willing to work for advisor equity, vesting over time.
Finally, I belong to some business angel networks. I could either facilitate introductions or arrange for the syndication of specific investment opportunities.
Some more interesting discussions
I think of investing as placing bets. In a few startups, it is worth doubling down. For the founders, investors are the bank. Founders exploit investor biases such as the sunk costs fallacy, FOMO, etc. Sometimes some founders have no issues telling investors that the next big client or exit opportunity is just around the corner, even thought they know it it not true.
I don’t know and have no way of knowing the future. When I place my bets, I am looking for companies with optionality (multiple futures). Nevertheless, I prefer founders focused on the next leg, i.e., following just one strategy.
Cash flow is king. Companies that can generate cash recurrently, should be preferred over long-shots. I appreciate frugal innovation, bootstrapping, and founders that have demonstrated some resilience and creativity. I haven’t yet reinvested in any founders whose startups have failed, but I could be willing to do in the right circumstances.
I don’t appreciate founders that are always pivoting, but I do look for founders with a growth mentality. I see startups as a growth experiment for product/market fit, which implies the capacity to adapt and change. By the way, I also look for these characteristics in public companies – ‘Amazon Day’ mentality as opposed to the ‘Kodak way.’
I believe that trying to identify potential winners in an industry is trying to hit the jackpot without knowing your chances at the game (blissful ignorance, known unknowns). We don’t have a clue because we can not foresee how the tech/market i.e., demand/options, will turn out. It seems as futile as trying to find the black swan, not knowing the potential payout or the probability of success. I prefer to build a resilient portfolio based on the antifragile method, to diversify, be agile and flexible.
I need to plan. Founders, please keep me informed so that I can plan ahead how to allocate my own cash flow. Founders should try to avoid surprising shareholders, whether to the upside or downside.
I believe in letting your winners run – that is why I insist on pro-rata rights, having the option to decide to follow up or double down on an investment.
In my experience, founders usually find ways to be made hold by newcomer investors or acquirers. In opposition to this situation, I am a minority investor. I have to place my trust and look for protection against the founders’ bad behaviors on the aggressiveness/greediness of the lead investors or more significant shareholders.
I am not afraid of frontier technology, but do not have the funds or knowledge to invest in deep tech.
I believe in the remix design philosophy, aka ‘nothing is 100% original’.
I have found that some of the best bets are on techs that sit at the crossroads of two different industries/problems, and offer multiple reinforcing solutions to complex problems. Rather than thinking vertical, horizontal, or chain – I prefer startups that try to identify where value is easiest captured (low hanging fruit). These founders are continuously thinking about locking in the whole ecosystem while starting with the simplest solution.
“The outside world can push you into Day 2 if you won’t or can’t embrace powerful trends quickly. If you fight them, you’re probably fighting the future. Embrace them, and you have a tailwind”.Jeff Bezos
Positive Impact at Exit
I recently became aware for the first time about the concept of positive impact at exit time, when Andrew Kuper with Leapfrog Investments discussed how his company combines profit with purpose, even at the exit stage. This principle, which makes part of the Operating Principles for Impact Management, posits that the investor should ‘conduct exits considering the effect on sustained impact’.
The Operating Principles for Impact Management are the following:
My exits so far …
So far, there are two ways in which I have exited the startups in which I had invested:
We all know that startups are experiments and that many fail due to different reasons (albeit always the same). I will post another day the reasons why the startups mentioned above failed. Here, I want to bring your attention to the fact that even in exits due to bankruptcy and reorganization, there are conflicts and tensions between the different stakeholders, particularly the creditors.Different legal systems provide for different arrangements, but in general, equity holders lose all of their investments at this point.
The bankruptcy system’s role is to provide for an upfront, known, fair, and foreseeable arrangement among creditors. The legal systems that prevent a company from going bankrupt or reorganizing result in perverse incentives and moral hazard. Even in the case of large financial institutions, ‘too big to fail,’ bailouts, and the like are out of favor. There is an increasing tendency to avoid asking the taxpayers to pay. The new trend is the bail-in in which debt creditors have their claims written down or converted into equity.
In the case of startups looming with bankruptcy, despite the pleads of the founders, there is almost no sense in throwing good money on to a dead body. The best thing to do is to learn and move on.
Even though there is a signed shareholders agreement in place that supposedly rules the relationship among shareholders, receiving an offer to be acquired usually triggers some tensions. There are generally explicit and hidden conflicts between the stakeholders, namely, employees, founders, shareholders, and VCs. In acquihires, founders can find many ways to be compensated by the potential acquirer without any obligation to share such gains with the other shareholders. As Mike Brown stated in What Everyone Should Know About How Talent is Bought and Sold, this is the time for founders to be honest and transparent. As he says, “Your investors had the courage to take a risk in backing you, so don’t hide things from them — be clear about what the deal says. They’ll figure it out,”
As a business angel, if the exit price is fair, you should not fight with the founders. You can get the proceeds from the sale and fund your next future unicorn. The founders are the lucky horse that you had been riding, and you should be happy that someone with larger pockets has identified and validated your investment thesis. It is not worth being sour; instead, we should accept this outcome as one of the regular possibilities when investing at the seed stage.
I hope to be able to see one of my startups be acquired, as part of a transaction where the purchaser is interested in more than the founders’ team, or exit via an IPO. When this day arrives, I will ensure to remember to decide what is best for me, considering the effect on sustained impact.
When conducting an exit, the Manager shall, in good faith and consistent with its fiduciaryImpact Principle No. 7
concerns, consider the effect which the timing, structure, and process of its exit will have on the
sustainability of the impact.
Sameer from my portfolio company, FAE Bikes, a Bangalore headquartered company, that recently launched in several Indian cities, a low-cost, compact, smart IoT-powered Electric Vehicle charging station, challenged me to answer the following:
Should we make the city center EV only?Sameer Ranjan Jaiswal
Should we create low-emission zones (LEZ) and zero-emission zones (ZEZ) in our cities?
Without being an expert on this matter, I can just express what I am witnessing from my advanced outpost in Europe.
There are no zero-emission zones in force that I am aware of. Prohibiting the circulation of internal combustion engine (ICE) powered vehicles at present when they represent the majority of the cars in circulation, seems to be – as of today – unrealistic and impractical.
There are several low emission zones and ultra-low emissions zones in various European countries, including Belgium. The phase-out and restrictions are gradual and incremental. The enforcement is achieved via fines and monitored by cameras and police. LEZs exist in over 250 cities in Europe, and they are considered as a success case in terms of the environmental and social consequences.
What do you need to create a LEZ or ZEZ?
You can find the answer here. Besides, support from the government and stakeholders, the relevant EV infrastructure needs to be in place before any LEZ or ZEZ is created. Moreover, alternative means of transportation should be available such as walking, cycling, and public transportation.
The experience in Latin America shows that transport electrification at scale is best carried through private-public partnerships. The government is tasked with setting the rules, and sometimes initially subsidizing or providing incentives for the transition from ICE to EVs. The private actors, which generally comprise vehicle manufacturers, utilities, EV charger manufacturers, and other actors from the electro-mobility ecosystem, bring these components and usually finance these types of projects. Some of the most salient examples of successful PPPs are the electric buses in Chile and Costa Rica.
LEZs generally target freight delivery activities due to the high levels of pollution emitted by today’s urban delivery fleets. There are even some LEZ that are implemented solely for goods vehicles or heavy vehicles and not cars. This forces the modernization of the delivery fleet, albeit it punishes the small companies that are unable to keep up with the required investments. Besides, a lot of chargers are needed to allow the efficient circulation of electric trucks and pickups.
A Plethora of Investment Opportunities
The electrification of urban activities – even without the introduction of LEZ or ZEZ – has given me a wide range of investment opportunities. From new manufacturers of utilitarian electric vehicles (I passed), urban electric charger networks such as the one operated by Clem’, pedestrian-friendly electric chargers such as the ‘pop-up’ charging hubs manufactured by Urban Electric, Happy Box for last-mile delivery logistics, among others.
My recent investment in Blissway, a tolling as a service company that enables traffic management at no cost to the cities, is not strictly related to LEZ or ZEZ. Instead, it concerns the creation of smart highways. I am betting that intelligent roads will be cheaper than high-speed trains and hyperloops and will foster the introduction of driverless cars and related technologies.
Low Emission Zones (LEZs) have had a positive impact on air quality in many European cities. They are one of many measures that are implemented in cities to improve air quality. Poor air quality has an impact on our health. Improving air quality improves our health and lets us live longer.Urban Access Regulations in Europe
Most of the pitch decks that I receive include a Boston Matrix of some kind. Typically the startup that is pitching places itself in the upper right corner (superstars), far away from all existing and future competitors.
As Hunter Walk said:
Most of us equate startups with innovation. Sometimes the novelty lies in the product or service, sometimes on the business model itself (ask Mark Zuckenberg of TheFacebook fame).
I am particularly attracted to startups operating at the crossroads of radical ideas, i.e., ideas or businesses which are simultaneously being implemented in different industries or geographies. As I will explain below, there are many sources for achieving a lasting strategic competitive advantage. Being a first-mover is only one of them.
Strategic Advantage and Systems Thinking
Mike Ghaffary, GP at Canvas VC, discusses in the video below the concept of ‘strategic advantage’, i.e., what is your long term sustainable reason for succeeding in business.
Every startup needs a strategic advantage or a combination of them: it can be summarized with the phrase ‘what is your moat?’ (a.k.a. defensibility). You should be concerned if you have no strategic advantage since copycats and fast followers will soon put you out of business.
Some types of strategic advantage include the following:
- Marketplace with network effects – Mike published this post on how to evaluate strategic advantage in a marketplace.
- Same-side network effect
- Data Moat
- First Mover / Brand
- High switching costs
- Proprietary Distribution
Some signs of competitive advantage:
- ‘Liquidity’ / frequency of use / Average transaction size
- Take rate / ‘rake’
- Low risk of disintermediation
These are the steps that Amazon took to systematize their moats.
I strongly recommend watching the full video!
Intuition is nothing more and nothing less than recognition.Thinking, Fast and Slow | Daniel Kahneman
Before discussing a methodology, i.e., a logical investment decision-making framework, I would first address the elephant in the room: emotions. Whether you admit or not, emotions are always involved in decision-making. When contemplating a prospective investment, greed and fear are the first things that loom in my mind. One of the sentiments that I associate with seed investments is Fear of Missing Out (FOMO). There are two components in FOMO: 1) the idea that there must be something better out there and 2) the sentiment of exclusion or scarcity. Some accelerators advise startups to capitalize on investor’s FOMO and manufacture pressure and competition to allure such investors.
FOMO concerns to sleep if you stick to your competitive advantages and if you trust your brains and guts when saying ‘no.’. Similarly to some VCs, as part of my regular practice, I keep track of my anti-portfolio. I am sure that due to the law of large numbers, at some point, I will regret learning that one of the ‘pass’ opportunities has become a unicorn. Still, I accept it as part of the rules of the game.
What can you do?. Typically two things: preparation and trusting your guts. The practice consists of some form of due diligence, knowing the market (particularly who are the competitors and their strategy), interviewing the founders, etc. The second thing I do is to trust my guts, i.e., my instincts. I share Malcolm Gladwell’s view in Blink, that in most cases, spontaneous decisions are often as good as—or even better than—carefully planned and considered ones. Unconscious pattern recognition should allow me to spot cases to be passed or considered for further research, i.e., startups that seem to have some anomaly. To enable some reflection and to avoid any compulsive buying behavior, I usually impose a 24-hour wait rule before making any investment decision. Then I tend to act swiftly.
Part of the FOMO problem in seed investment arises from the fact that in general, there is no cooling-off period. Once the check has been sent and the documents are signed, usually, there is no turning back.
Investment decision framework
After a cooling period, I then apply my investment criteria and the following framework for deciding whether to invest or pass:
- Product/Market fit – Who are the customers? Competitors?
- Secret sauce
- Will this investment ‘return the fund’?
- Estimate value at exit
- Time to exit
- Path to exit: How many rounds? How much funding? How dilutive?
- Free Cash Flow / Leverage / Liquidity (path to exit)
- Pre-Money Valuation vs. benchmarks
- Margin of Safety
Some additional tests that I would love to implement, but haven’t done so far are the following: