Raising $10 million in 14 days
Written by Bhat Dittakavi
Coverage by Bhat Dittakavi of Variance.AI on “Raising $10 million through ICO” by Babu Munagala, founder of Zebi at T-HUB on 15th March 2018
Some say we are in the era of automation. Others say we are in industrial revolution 4.0. I would say we are in the era of disintermediation. No more middlemen taking advantage of Information asymmetry. Take Alibaba. It connects a local buyer with a global seller. Uber, Airbnb and Amazon are other examples of disintermediation. Technology is at the center of these disruptions.
Blockchain technology is such a disintermediation technology at its best. It is disrupting monetary institutions of the world, retail and investment banking industries, all at once. Initial Coin Offerings (ICOs) raised $5 billion in 2017 of which $1.2 billion came from December alone.
Babu Munagala, an unassuming technologist, has just raised $10 million through an ICO for his startup named Zebi, a data protection company. A product of IIT Chennai and I.I.Sc. Bangalore, Babu has spent 18 years at Oracle Corp in California as a technology and business leader before plunging into entrepreneurship three years ago. Earlier he raised a million through an angel round in Silicon Valley.
Babu Munagala, Founder of Zebi
What does it take to start? How do I acquire large group of investors? Is good marketing a starting point? How about good influencers? Crypto influencers are the ones who identify something new. They help you spread the message and can get you many crypto participants who can help you. But they aren’t the starting point. Starting great product is the starting point. Having a great team is the starting point. Good marketing and great influencers area myth and you don’t want to start from them as a startup.
Families and friends and my network contacts helped me raise a million dollars in 2015. We have signed an agreement with Andhra pradesh government recently to protect land records.
Basics of Blockchain
In 2008, there was no Blockchain. Big banks like Lehman and others faced trouble. US government stepped in.
Bitcoin is protected as a hacker couldn’t create counterfeit coins. It gained momentum from 2013. Articles on main stream press gave importance to Bitcoin. Rich people and HNI guys pumped money into Bitcoin. In 2017 it started at $1000 and it touched late last year $20,000. It is trading now way below but it got the popularity. Arun Jaitley said Bitcoin is illegal and Blockchain isn’t.
The number of coins that can be printed is fixed. Noone can exploit it. Counterfeit currency is completely impossible.
Traditional VC funding versus ICO
Lot of people in crypto space just read the coin name and they invest in. Few of them got so lucky by investing a little in crypto currencies and turned millionnares overnight.
Our ZebiChain protects land data, police data and so on. Even if someone knows all the passwords and all the architecture, data can’t be changed. Data is immutable. The only source of truth is paperless and protecting paperless documents is more difficult than protecting papers. Digitally it is easy to tamper. Anything convenient will lead to compromise in the digital world
In mid 2015, we looked at “write once and read many patterns” kind of hardware. We randomly came across Blockchain. Now we built it. So much money is chasing few good companies, we got to be careful in the ICO world.
Zebi has existing customer base.
One of our clients want to keep a paper and visible land certificate for consumers like farmers. We printed a blockchain certificate that got a QR code. It helps us to verify that the person owns that land.
VC funding is about going through a middle man. Limited members trust the middlemen with their fund.
ICO is like crowd funding. Company CEO shows the demo of the product. This is where utility token comes up. No middleman and there is risk too. As an individual, if you invest, you can’t distinguish good coin from the bad one. We have a great team at ZEBI. We have a real contract and got to publicly show the contract before we could get the support form he project. This is the kind of trust we need.
Most of the Indian VCs have lost their money. They may not tell you but it is a fact. When we don’t have the Googlea created out of India, you know VCs are burnt. Hence they want proof and revenues. This checklist is a problem for true innovators. Real innovators want to create a product and go to market. VCs are far from being venturing ones. They have become risk averse.
Venture capital space in US is very positive but they don’t come out of their own local geography. Even if they think it is a great idea to invest in India, they didn’t want to venture outside. India story got lot of attention to Zebi.
When we wrote our white paper, we got zillions of questions. They compare with what they know. They don’t have time to dig deeper. They ask simple questions. It takes time to soften the tone of the crowd at some places.
Telegram chatter is a place consumers can ask questions. We are admins of ZEBI Telegram channel that has more than 12000 members. We also have YouTube videos.
Data requesters: If you are registered as a data requester, you can access. APCRDA data is there and then ZEBIChain in parallel. We do double commit. We didn’t want to centralize the data as it means we open it for hacking. Our private chain is distributed geographically. We don’t have the land data with us. That is the property if the document. We just stored the hashes on distributed network.
Q) Who are the members?
Owners of the nodes. One node at CRDA, one at ZEBI and more. Multiple nodes and are private. We integrate with Ethirium public Blockchain that has more than 20,000 distributed nodes. It makes it extremely immutable
Q) How secured is the data? Do we have recovery?
A) Yes. We have recovery process. Distributed and hence all of them going down won’t happen.
Q) Where do you host?
We are hosting currently on Pi Data Center.
We convert everthing into text for example latitude and longitude data, not the visual data. We typically find that data like this that needs immutability.
Q) Types of Zebi’s revenue
Data protection fees.
Commission fees in transactions.
Data access fees.
Q) Did you do equity funding before?
We diluted first a million for a successful million post money valuation.
Legality wise, Arun Jaitley clearly said Bitcoin is not a legal tender. He didn’t say it is illegal. At the same time he didn’t say legal. In India regulations are not clear. Until regulations get clear, go to countries where regulations are clear. US is very clear. Singapore is good enough. As long as you don’t make it look like IPO and call it utility token, you are OK.
Security token is where investors own equity. Utility token means those tokens are used to buy services from say ZEBI.
Q) Utility?
As an owner of utility token, you are a participant. This is very similar to Kickstarter of crowd sourcing.
Q) Are you listed in any coin or token exchange?
Not yet. We will be listing very soon to provide liquidity. We fixed the number of Zebi coins that can be ever minted. We declared the max of one billion will be ever minted. If many missed the crowd funding and how do they come on board and participate? Only through an exchange.
Q) How many people participated?
2000
Q) If an investor wants to invest in a startup with the condition that it had to raise money through ICO, what do you say?
VC has fiduciary responsibility to his limited partners.
Q) Do you have this money in fiat currency?
I have $10 million in ethereum coins. If I want to convert the money into rupees, I can do it at the current market price.
Q) Affiliate?
Zebi singapore has the public vision of Zebi public Blockchain and Zebi India is an affiliate of the same to provide it services.
Q) AP data on Ethereum?
It is one way hash. Anyone can see the public hash. Only AP government has got the private key.
It is one way hash. Anyone can see the public hash. Only AP government has got the private key.
Q) Cost of raising the funds?
Very small. I said no to spending a million dollar for marketing. I didn’t hire an agent. We spent less than 50 ether. This is very tiny amount in crypto standard. By the time, we spent little amount, early adopters bought in the pre-sale and they told their friends and community has grown very quickly.
Q) Are the funds raised in proportion the growth projected?
Yes. We started with India first. Now we are doing it across the globe.
Q) Is it illegal to hold Bitcoins?
In India it is called illegal. In the olden days people bought it without any “know your customer, KYC, data. Account address, also known as public key, is the way to identify the person owing these many coins. Now a days, KYC is needed strictly across the world
Q) Why are there so many currencies then?
Bitcoin is a single currency. That is the idea. Ethereum founder came along and said he could find more uses to this concept called smart contracts. Zebi is built on ethereum standard. He kept good controls such as number of coins and maximum number of coins or tokens that can be minted and so on.
As of now we have enough money to become profitable within the three years.
Q) How did you come up with a billion Zebi coins?
500 million for public. 500 million for company as incentives to apartments and employees.
Q) token versus coin?
There is no difference
Q) Can we use your channel to market my coin?
No. March 5th at 6pm we started the crowd sale. We used bots to kill messages from hackers. These messages look as if someone from our company created. They give addresses where to send the money to. Hackers started sending redirection messages in our channels asking participants to send money to a different address. We used bots to kills these messages the sooner they popped up.
Q) How do you safeguard?
We publish where to send the money not publicly but through a login. Some hacker even imitated our medium article and he mentioned his own new Zebi address there. We only share the first five digits and last five digits of our 40 character address. Noone hacked our own website.
Philshing emails are a threat. Login to ICO.zebi.io. We have KYC data of all the 5000 participants. Only few of us know it.
Q) How did you verify the KYC?
We use passport data and email checks.
Q) Common apprehensions?
- Big difference between being legal and legal.
- Anti money laundering (AML) is key. KYC and AML checks are the key.
- USA and Singapore are crypto pro.
Q) Equity versus utility tokens?
Equity tokens provide share in company’s
Q) How do you define utility?
They can use it to buy your product.
Common apprehensions and safeguards
Must have
-Good legal counsel.
-Expert in regulatory compliance (SEC, SAFT, US Accredited Investors, Banned countries)
Proper KYC, No KYC.
How does ICO work
1.Why ICO
Why do you want to do ICO? Don’t do it for the sake of doing it. Think hoe this can become an established utility. Crypto communities are aggressive and grill you. Be prepared. Make sure your white paper or token model clearly lay out the purpose, vision and clarity.
-Does your product need to be on Blockchain?
-What will be the purpose?
1What function or utility it will provide?
-Is there a viable economic model behind it
2)Planning
-How much you want to raise?
-What currencies to accept. (Ethirium)
-Token metrics, soft cap, hard cap
(soft cap is the minimum you want to raise versus hard cap is the maximum you what to raise)
-Product roadmap, annual budgets
-White papers (multiple languages)
-SAFT: Simple Agreement for future tokens
-Website and social media presence
3.Before ICO
-Marketing
-Strategic partners
-Smart contract (extremely important)
-Community management
-Whitelisting (pre-registration before ICO starts)
-Bulk email communications (safe guards of email spamming are prohibiting us to send the real messages :() Figure out which bulk email company do you use.
-KYC, AM
After ICO
-Aggregation currencies
-Cash out in fiat
-Exchange listing
-Running the project
-Constant communication with the participants
Q) Is there a mechanism of service versus price of token?
Thee is an issue price.
Q) How many of the 2000 stayed invested?
All of them are locked. When we go public on multiple exchanges, they can trade
Q) How many ICO exchanges are there?
There are more than 100s of exchanges.
Q) How do you get rated?
We got zero rating. We didn’t invest in PR
Q) You have a lawyer?
TRA Law firm based out of Delhi helped us.
Q) Can you dilute your 500 million Zebi coins?
We have an eighteen month lockin period.
Q) What stopped you at $10 Million coins?
If you raise too less, you can’t survive. If you raise too much, there is a risk of dilution. Perception of dilution. Think of the profitability based on your speculation.
Q) How can you plan or budget the need of funds vetting against the ether?
There is always FUD factor. FUD: Fear, Uncertainty and Doubt. This is a factor in FUD.
Q) Are there participants based on pure speculation?
Technically no. They intend to use our services.
Q) Do you believe this replaces RDBMS?
No.
Q) Data location?
On premises of data provider.
Q) Challenges with non-blockchain data?
One company worker I met in California, told us that their government data is gone. Someone removed database binary files. This is scary in non-blockchain world.
Q) Can you do another equity funding round?
We can. We don’t want to.
Q) Over-subscribed ?
Original plan was to keep the subscription open till March 31st. But we got over-subscribed in February itself. Top three crypto influencers backing us but we didn’t have any allocation left.
Focus on your product, team and timing. Marketing will come. There are always people with spare money to invest all the time.
Q) Would you be ever influencing the pumps and dumps?
We don’t plan to do it. Like many out there employ their own pump and dump means, we don’t do it.
Q) ICO to IPO?
Parallel channels. I don’t see that happening.
Babu signed off saying, “I believe there will be new Blockchain that addresses the fears and compliance of the companies and the governments. We are still evolving. Think of Netscape and how other websites and browsers evolved later?”
Babu took question after question from all the corners of the venue and answered each of them with quality content and straight answers. His was the most interactive ever peers talk session at T-HUB.
Bhat's Notes 