Why we are excited about Factorium
This article is a continuation of previous articles we have published. To make sense of this it is best that you have a recap by having a read through the below listed article first.
Now that you have read through all of that, let me give you a quick update on where thing stand.
EstateBaron shareholders have all been bought out for a combination of cash and shares. We are now doubling down on the whitelabel IPO in a Box solution. We have formalized the customer onboarding and follow up process and increased the price points. In addition we are also looking to provide exits via listing on a full securities exchange and looking to establish a close partnership with the exchange.
In the next few months Konkrete will be the first securities tokenization platform globally with a full retail issuance and secondary market capability.
Whitelabel generates us cash to pay our bills and it also creates stock for secondary market.
Completed stock also feeds into our Rent Roll, see our thought process on it below.
But what we are most excited about is Factorium, a decentralized P2P Factoring marketplace built on top of the Konkrete technology. We first conceptualized factorium only a couple of months back as we worked through the criteria we developed for a scalable product offering.
We are happy to report that the platform is now live and open in a closed beta.
Let me explain why we are so excited about it by benchmarking it against the criteria we laid out earlier:
- Are we solving a real problem and who is suffering the pain
We are helping businesses with their cash flow. Factoring is a well proven solution with a 3 Trillion global market.
2. Can we control outcomes
We believe we can incorporate enough checks and balances in a decentralized manner to give all stakeholders the outcome they desire.
3. Short sales cycle, higher transaction velocity, Transaction size and ability to underwrite enough transactions to get the platform to take off velocity
This one is a killer. One of the big challenges of a crowdfunding platform is it takes a significant amount of time to get a campaign over the line. In property development each project takes a year or more to complete which means investors don’t see outcomes till then and don’t reinvest or refer. This makes scaling a big challenge. The more parties you need to get to agree and larger the transaction size the slower the transaction.
Yes the reward is appropriately often larger, but it is also harder to get.
You want something that is small enough that one investor can buy on their own and gets paid out in a matter of weeks.
The smaller the transaction size the easier it is for the platform to use its own balance sheet to get enough transaction volume going. For instance a property development would take several million to get going, which makes all but institutional plays impossible.
A business loan (particularly to a SME) on the other hand can be often smaller, a personal loan can be even smaller, all of which makes it possible to get more transactions executed with the platforms balance sheet itself till it begins to attract critical mass.
I will eat humble pie here and admit that a number of platforms that started around the same time as Estate Baron have done better than us because their tranche size was smaller.
TruePillars took longer to get its compliance sorted but because their tranche for a business loan is in the tens of thousands of dollars unlike ours which is hundreds of thousands of dollars and millions, they were able to underwrite a number of loans themselves and get more over the line. While we were always gasping for air to complete one deal.
Ratesetter operates in the unsecured lending space and its transaction sizes are even smaller.
The difference in traction are visible for everyone to see.
Note that I am not talking about investor cheque size, which we can make smaller as well. I am referring to the deal size.
While it is theoretically true that smaller cheque sizes can attract more investors, what you really want as a platform is lower goals and lower cheque sizes to reach scale velocity.
So while BrickX and Domacom can claim traction as well (relatively speaking) their tranche sizes are much larger and they will always struggle with getting deals over the line the way they are currently setup.
Discounted invoices tick all the boxes. They are small enough to be bought by one investor in their entirety (B2C invoices in particular) and we have enough capital internally to underwrite the platform till it achieves take off velocity.
5. High return and relatively safe
This is easy to understand, you want an investment that offers strong returns and is relatively safe. Often these 2 factors are inversely correlated but that is where you want to engineer something that achieves a happy balance.
Factoring is already a lucrative proposition. We believe by incentivizing payments and automating the control mechanisms we can reduce defaults significantly.
6. Scalable through use of technology and capital, Programmability
Once the product market fit is achieved, it should be easy to increase the spend and the revenues should scale with it. The business model should be able to distilled to a set of rules which can then be programmed using software which can then be used to reduce the marginal costs of operations substantially.
This goes beyond operational cost reduction. The intent of this whole exercise is to create a machine, a decentralized self regulating autonomous operation that can outlast us as the creators and create value in a scalable manner.
We are already in the process of turning Factorium in a full DAO.
7. Sticky and cumulative revenues
This is a trick which fund managers have learnt over a period of time. If you are always going after the next transaction then you are not having compounding effects. While yes, you gain more experience and optimize your processes through prior experience. But simply gaining more revenues through sticky cumulative assets is a great prize. This can run counter to the goal of extracting maximum value from each transaction at the fastest possible rate, but again a happy balance can be struck.
The more easy we make it for secondary market transactions to happen the more transactions are likely to happen which can in turn increase our revenues.
8. We have an undue advantage in execution
While we do not have strong domain knowledge in Factoring, we do have the tech to support it and we are not primarily in the factoring business. We are in the investments offering business. We have a strong understanding of what investors want and how to streamline that part.
10. Lower complexity
This point is relative, complexity is a function of understanding the underlying factors and breaking them down till they are simplified. What is complex to an outsider might not be complex to an insider who understands the factors at play. Having said that the end goal has to be to build a machine (see earlier remarks) and clearly defined operational patterns should be decipherable.
Factorium is a straightforward and simple business model.
11. Revenue generation should be faster and front loaded
Revenues should start coming sooner, you should not be doing something that would take years and years to build before you see a penny. While it is possible to go down that path and the rewards might justify it, as of now we do not have the luxury of either capital or time and other resources to contemplate this route. We have to be able to pay our way through, demonstrate traction and raise further funding to accelerate growth.
12. Easy to establish secondary market
If we make it easier for investors to enter and exit the investment, then they are more likely to invest. While it is possible to make all investment products liquid through fractionalizing them and listing them on a secondary market, some have an easier route than others. For instance, if you are not deemed a security then you can go after a wider global market and save on cost of compliance.
Invoice factoring is exempted from securities regulations in most jurisdictions, which means it can be traded globally in a non custodial manner as a commodity or property.
More interestingly, our invoices are Blockchain native assets. Unlike tokenized real estate which requires offramps, invoices factored and represented on the blockchain are fully native to the blockchain. This means programmability using smart contracts and its authenticity are easier to control.
We are working on fine tuning the platform and expect to be in a public beta by mid september. By mid October we expect it to do a soft launch as well as do an IEO for the Factor tokens.
Watch this space.
