July 25th (Blockchain's central role in InvestHub)

Greetings all,

It is Monday and here are today's headlines from the weekend:

Exterro Inc., a data risk and compliance software provider, on Monday is expected to disclose a new round of investor financing that tips its market value above $1 billion, a level that has the 14-year-old firm discussing a public-market debut as soon as early 2023, company representatives claimed. The latest funding round encompasses a group of new institutional investors, co-led by Coller Capital and Glendower Capital. Until four years ago, Exterro operated solely on its own revenue, with no investor funds, said Chief Executive Bobby Balachandran. Leeds Equity Partners, the company’s first outside investor, partnered with Exterro in 2018. “We’re getting ready for an IPO, and this is a time to really build and grow, even when everybody else is trying to put the brakes on,” Mr. Balachandran said. Exterro’s cloud-based software is currently utilised by corporate legal departments and IT teams in data governance projects focused on regulatory reporting. Its' platform is tailored to augment companies' data governance practices to ensure maximum compliance with all relevant regulatory agencies. Corporations’ insatiable appetite for data, gathered from from sales, marketing, customer emails, manufacturing processes, and other sources is the chief driver of Exterro's success as a software provider. The drive for additional data is in part due to the rapid proliferation of digital tools across operations but also by the access of near-limitless data storage in the cloud, industry experts claim. A growing number of companies are also inserting giant datasets into artificial-intelligence algorithms, aiming to extract insights which direct high-level decisions concerning the direction of the firm. “Data is the most powerful asset of any organization,” said Mr. Balachandran. “Without it you’re flying blind.” Mr. Balachandran said the stimulant of new capital—which he dubbed a “pre-IPO round”—will be used for boosting growth through acquisitions and an ongoing expansion across global markets.

The contraction in venture-capital funding has seeped in to early-stage startups, with that segment of the market reeling from one of the biggest investment plunges in more than a decade. In the second quarter, venture capitalists allocated around $16 billion in U.S. early-stage deals—known as Series A and B rounds—a 22% decline from the second quarter in 2021, according to PitchBook Data Inc. That constituted the largest quarterly year-over-year drop in early-stage funding since at least 2010, with the anomaly of the second quarter of 2020, when investors retracted briefly amidst the onset of the global pandemic. The retreat demonstrates investors’ increasing apprehension toward riskier investments such as new companies, a marked adjustment in sentiment from recent years, when competition among venture firms propelled them to invest even earlier in a startup’s life cycle. This trend reflects a similar retraction in funding for later-stage startups, which are closer to going public and thus more susceptible to volatile equity markets. This change is giving more power in Silicon Valley to investors, who no longer have to compete as fervently amongst one another as they used to. For years, an avalanche of quantitative easing kept valuations soaring, and venture firms claimed they spent less time on researching the start-up firms and more time on developing relationships with the firms' founders. The pandemic further catalysed many of these trends, as demand for software services spiked to accommodate businesses transitioning online while interest rate remained at historic lows.

Earlier this year, venture capitalists remained optimistic about the early-stage funding environment even as publicly-traded shares of tech firms ranging from DoorDash Inc. to Alphabet Inc. collapsed. U.S. early-stage funding increased 50% year-over-year, PitchBook data demonstrates. That calculus has corrected amidst increasingly uncertain macroeconomic conditions and a suspension in investment for mature, growth-stage startups. Venture firms that concentrate on early-stage start-ups typically depend on cash-rich analysts to appreciate the value of their holdings in subsequent funding rounds. But many of these large investment firms earlier this year curtailed their deal-making or exited the startup market entirely amidst the stock market selloff, according to venture capitalists, increasing the investment threshold for newer firms. Even funding for seed-stage deals, often the first stage of outside financing for companies still perfecting their products, has declined precipitously. U.S. deal volume dropped 11% to $3.9 billion in the second quarter compared with the second quarter of 2021, the first such quarterly decrease on a year-over-year basis in almost two years, according PitchBooks' findings.

Lastly, today's area of focus will be the evolution of Blockchain Technology and how we at Konzortia Capital are using it to better serve our clients. The blockchain is unchanging – once a transaction is recorded, it cannot be changed, modified or deleted, even by the author of the transaction itself. It stands in marked similarity to the first law of thermodynamics which states,"Energy can neither be created nor destroyed, only altered in form." This property of blockchain is fundamentally vital as Satoshi Nakamoto used it in Bitcoin to solve the double-spending problem. Bitcoin, however, is just the start and many other applications can benefit from using this property where trust plays a central role. Two branches of computer science, namely cryptography and distributed systems, laid the foundation of blockchain where cryptography supplies the underlying principles required to ensure the immutability of blockchain data. If blockchain is the magic trick behind Bitcoin, then cryptography is the furtive trick behind blockchain. Several essential features of blockchain technology, including the immutability property, were developed using cryptographic principles.

It is, therefore, essential to provide a brief discussion on cryptography. Cryptography is the implementation and study of methods designed to secure communications in the presence of potential third-party adversaries. More narrowly, it can be defined as the protocols designed to prohibit third parties and the public from gaining access to private data. Numerous features of information security such as authentication, data confidentiality, data integrity and non-repudiation are essential components of modern cryptography. Its existence can be identified in the disciplines of mathematics, computer science, electrical engineering, communication science, and physics where applications include digital commerce, chip-based payment cards, computer passwords, military correspondence and, of course, cryptocurrencies. The primary goal of cryptography is to transform any data from its original form, called the plaintext, into a concealed form known as the ciphertext. This process is called encryption. The reverse process of extracting the plaintext from the ciphertext is called decryption. It is essential to understand that the plaintext does not have to be a textual message, it can also be a computer file of binary or other types of data, an image, a database and more. A particular crypto-system's function is contingent upon specific encryption and decryption algorithms. In this context, an algorithm is a computational procedure that adheres to a fixed set of rules.

We, at Konzortia Capital, are using blockchain technology to better serve our clients through InvestHub. InvestHub, in conjunction with Paraforge Technologies, utilises a distributed ledger to encrypt datasets of various factors such as projected ROI, P/E ratio, P/B ratio, FCF, D/E ratio, and PEG ratios. In turn, it also decrypts such factors when producing tailored, potential matches for both Investors and Start-up Entrepreneurs. I would love to discuss further how we use Blockchain in InvestHub and elsewhere across our firm, however I cannot disclose specifics due to regulatory constraints and due to ongoing front-end development of InvestHub.

As always, please message myself on LinkedIn or email me if you all have any queries concerning Konzortia, InvestHub, Paraforge, or any related subject therein. I respond quickest to text messages at 323-572-3960 which is my work number.

With gratitude,

Will