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Market disruptions can leave people scrambling. Is blockchain a potential solution to helping mitigate those shocks? Host Matt Schaar talks with the Mercy Corps Ventures team to unpack this question.
Fintech has the power to build a more inclusive world. Fintech for the People is about the innovators who are developing fintech solutions that reach the people who’ve been left behind. In each episode, we’ll hear from innovators who are creating financial solutions that bring every person the financial tools they need to grow their business, support their family, and build their community. Together, we’ll learn how fintech looks different in spaces and places where basic financial services are a luxury — and how solutions to address these challenges require a different level of creativity, empathy, and execution.
Fintech for the People is an Accion podcast hosted by Amee Parbhoo, Managing Partner of Accion Venture Lab – an early-stage investor in inclusive fintech startups. Learn more about Accion Venture Lab here. Episodes will be released in seasons, on a weekly schedule.
Matt Schaar (00:12):
Hi, everyone. And welcome to Fintech for the People, the Accion Venture Lab podcast. I'm Matt Schaar, operating partner here at Venture Lab, sitting in for Amee this season, as we discuss one of the more intriguing topics in fintech today, Web3, Blockchain and crypto, and their impacts on financial inclusion. As mentioned in our intro episode, this season, we'll be spending time talking with experts across the industry who are working in this space. To kick things off, I am joined by Tim Rann and Ken Kou, from Mercy Corps Ventures. You'll hear more about their role as a fund within a larger NGO, and how they're applying a combination of investing and pilot programs to test the viability of Web3 technologies in moving financial inclusion forward. Tim, Ken, welcome to Fintech for the People.
Tim Rann (01:08):
Really great to be here. Thanks for the invitation.
Ken Kou (01:10):
Yeah. Thanks for having us.
Matt Schaar (01:12):
Absolutely. So to get started, I'd love to hear more around Mercy Corps and how ventures fits into your mandate as a broader organization and where ventures fits into that.
Tim Rann (01:23):
Yeah, absolutely. Yeah. Thanks again for having us today. Excited for the conversation. So, Mercy Corps is a global non-profit operating in around 40 countries, with about 6,000 staff. We are essentially the corporate venture capital arm of Mercy Corps, although of course, with a very specific impact investing lens. So, what we are really aiming to do is to catalyze venture led solutions that increase the resilience of underserved individuals and communities. We were founded in 2015, and to date have invested in about 38 startups across Southeast Asia, Latin America, and Sub-Saharan Africa. And today have had those companies raise around $400 million in following capital. We're relatively active, usually precede and cede stage investors, typically doing anywhere between two to four deals a quarter, and that's split across three main thesis areas. So, the first is in adaptive ag and land use, second, inclusive financial services and the third in what we're calling climate smart systems and services.
(02:30):
And so really all of it's with a resilience aim like how can we look at solutions, and services and technologies that allow those living in frontier markets to withstand disruption, and stresses and shocks of climate and other events applied for their future? So, yeah, we'll get into it, but I'm excited for Tim to join as well. Because beyond just investing in startups, I think similar to AVL, very hands on, post investment have a variety of different vehicles and methodologies for how we can engage with companies to support other growth. Maybe, Ken, feel free to chime in and give a quick intro on your sentimal.
Ken Kou (03:05):
Yeah, definitely. Thanks for having us, Matt. Matt, on our side, we also run a lot of pilots with a mixture of portfolio companies and other startups in the ecosystem. And the reason why we run these pilots is broadly to drive global financial inclusion. And when we're doing this, we do think about, how do we responsibly test out bleeding edge technologies for underserved users, with particular focus in emerging markets and testing out models that are scalable and sustainable with a true impact potential? And the idea behind these is especially around the Web3 crypto components is how do we build up an evidence base, which will prove the scalability of blockchain enabled solutions. There's a lot of hype, there's a lot of talk around how blockchain can be used for good. And I think a lot of that hype has not really been realized or materialized, especially in emerging markets. And so the mandate that we have is to really test out and deploy some of these technologies to see what models work to create a positive impact for the 1.7 billion people who are underbanked around the world.
Matt Schaar (04:09):
Great. Yeah. And I know we'll get into more specifics around your approach to Web3 and these emerging technologies. Before we get into that though, I'd like to ask you a bit around Mercy Corps and by extension Mercy Corps Ventures perspective on financial inclusion. Because I think there's Mercy Corps's perspective on financial inclusion. And if you could maybe get more specifically around what particular areas Mercy Corps historically has focused in the spaces where there's been financial exclusion and where you see opportunities to make improvements there.
Tim Rann (04:41):
Yeah, absolutely. Since we got started in 2015 when we were originally setting up the fund, we always knew that the financial inclusion space broadly defined would be one that we'd want to focus on as a fund. Mercy Corps, similar to a lot of development organizations in the nineties, I would say set up a number of MFIs across Asia, central Asia and Eastern Europe as well. And so I think that we always knew that there was kind of a rich history of work and programmatic talent to be on draw from. We knew of course the impact as well as the barriers faced by individuals, communities, and systems, as they are trying to access financial services that could improve their lives broadly defined. And so that's to say from the day one we knew that was kind of the crux of what we'd be investing in.
(05:34):
And I think that was also defined by the team around us. Scott and our team had originally come into Mercy Corps, working with some of our work with Safaricom and M-Pesa back in 2008, 2009 had managed a lot of our MFI investments in portfolio, and managed a lot of work we were doing in microfinance in the Pacific Northwest. So, I was going to say it was kind of embedded in the DNA of the team and also embedded in where we thought there could be impact. Really progressed at point now where after we started making a number of FinTech investments and then investments where embedded FinTech was really core at the solution, to the point where something that was useful for the business, but really could be crucial between the end users or end partners lives being able to withstand shocks and stresses that were coming more and more frequently were seen across our FinTech and non FinTech portfolio.
(06:24):
So, I think that really was to some degree of light bulb. I don't know if it was one moment or just like a slow cascade, and then exacerbated by COVID where we saw this as well. But we really, I would say, evolved our FinTech thesis to look at what we're calling inclusive FinTech, which is recognizing we live in a world where shock, stresses and crisises hinder communities. That we really need to look at different types of models that deliver a suite of financial services and products, usually embedded in other types of platforms or services that essentially allow these individuals, and households, and systems to respond to shocks quickly, to bounce back from shocks quickly, as well as to build up an asset base ahead of them.
(07:10):
I think what we see in the markets, and again, this is not necessarily news to you Matt or AVL, but there's just so many indications now that economies from a macro perspective economies that lack insurance at all levels, not just the micro layer, but meso, macro, even sovereign side, all the data points and all the research points that these economies take multiple years longer to bounce back from the [inaudible 00:07:35] event, which has all these ramifications downstream in the communities, individuals simultaneously. When we look at the availability of digital payments in certain markets that allows during a crisis, more of a safety net that allows again, individuals to bounce back, to reinvest in their businesses, so forth.
(07:52):
Small producers, of course, in agriculture, we know if they don't have a suite of financial services, including savings, insurance, as well as credit. And once again, these stresses and shock are coming more and more frequently are going to prevent them from really securing where they've gotten to or pushing ahead. And so the way we've looked at it is that, all the investments we're excited about are really responding to this. Whether they avertly talk about it, or it's just kind of embedded in how they're thinking about building the business or the DNA of the founders, they are looking at how additional financial services can reduce the cost barriers for reaching the last mile.
(08:30):
And I think that, again, what we're seeing now is after that first wave of FinTech over 2010 to say 2015, 2018, all the different pieces of the FinTech stack are built. So that now you can look at as a new entrepreneur building this space, combining those, or being the customer interface or embedding that within your core offering. And so we look at this space in terms of, how can you connect those dots? How can you embed it within the models that have that kind of tech touch nexus with users? And then once again, how does that look at really increasing the resilience of that user, that system, that household? That's the way we approach it broadly. It's gone from just that looking at specific enterprises or companies and say, okay, how are they providing financial services more to, how are they interacting with the system? How are they really interacting with the cash flows of that individual, or that household or the SME, whatever it is, and how does that build really a more inclusive model?
Matt Schaar (09:25):
Great. So, there's definitely an interesting evolution, I think, in discovering what exactly financial inclusion means and how it actually plays out in these markets. So, along those lines, as you've been along this journey, somewhere along the way, these technologies around and seeing how blockchain becomes a little bit more mainstream, and we're starting to see it applied in a variety of different types of applications. And despite just the cacophony of different sorts of voices around what that looks like, I'd be curious to hear for you all, your specific journey into these technology mandate for financial inclusion.
Tim Rann (10:00):
I think usually when people answer this question, there's a little bit of a jocking to say how early you got into Bitcoin or something else. And so I'm not one of those people who read the white paper in 2010 and like this is it. [inaudible 00:10:17].
Matt Schaar (10:17):
Question of, did you buy the dip or not, right?
Tim Rann (10:20):
Yeah, exactly. Yeah. And so I actually think Scott, the other partner with the fund, his story really resonates. I mean, he got into this super early, I think he says 2015 when he recognized the need to pay some of our interns in Kenya. And obviously back then, PayPal, as I believe, was not active there. Really after looking at a variety of means, it just became clear that paying them in Satoshi's was quick and easy and relatively low cost. And I think that clicked in his mind between all the additional financial services work he was doing with them, Visa and other context. And then the emerging kind of blockchain universe, DeFi was not yet invent to take sort of that movement. Wow, this could be really big. And so that really started his journey. And I'd say that that is how it came into our fund to some extent. That was the initial infection, if you will. It was a personal touchpoint with, wow, this could be really valuable.
(11:15):
I see the tangible use case of it. And this really aligns with where Mercy Corps had been interacting with digital financial services. And so that was the initial impetus, I think, for us. It was kind of a personal journey for many in the crypto space. And then we were really fortunate to start building a team and a tribe around this to, I'd say, cautiously explore it between, say, 2019 and 2021, where we started to partner with some of the major protocols. We started to partner and start to see more and more startups that are integrating elements of crypto and DeFi in its early years and the back end of what they're developing. And I think that got more of the team on the investment side, starting to merge between where... All of us on any investment team, we're all coming from different places. To some degree generalists or specialists.
(12:06):
And I think from my end much more coming from food systems, ag space, although quite a bit in FinTech, for me, it was always about the user journey. How is this going to find a match where user doesn't have to download meta mask and be crypto native and all these different things? I was highly skeptical of that. And so it wasn't until I think I saw, at least, Fintechs and then embedded FinTech building with DeFi tools that merged the best of what we've learned and how do you acquire our customer? How do you engage with them and actually find a value proposition for them? It wasn't until it clicked. And I think for our fund, really the seminal moment of this, because from an investment side, as you probably will summarize, Matt, I mean, it's hard to get back a lot of these protocols as impact fund, right?
(12:50):
They're still super early, not proven to the field, et cetera. Until we had the means to pilot with organizations and partner and actually test out the application, is when we actually got to go deep and really understand what works, what doesn't, where are the barriers, what are the risks, and then helping us to define our risk paradigm and where we want to play. So, there I'll hand it over to Ken. Maybe you can talk a little bit more about the history of the piloting side. But I feel like that was really what allowed us on the investment side at least to really seriously consider investments in the space.
Matt Schaar (13:18):
And we'll be right back.
(13:26):
And welcome back to the show. And that's really great transition as well, Ken. Because I'd love to also hear when you begin to talk about this piloting you've been doing with some of these protocols. Also how the history of testing, improving out some of these models has been embedded in the DNA of ventures. So, is this something that has only popped up this piloting approach only with your DeFi approach, or is this something that's been embedded in your entire investment philosophy since the beginning?
Tim Rann (13:55):
I think similar to AVL, we always had a hypothesis that as corporate venture capital fund applied for a development organization, that Mercy Corps's 600 million a year in programming, it's based in 40 countries around the world, 5,000 experts on the ground and so forth, this could be intensely valuable to startups. And so I think our hypothesis when we started the fund was that, as a fund attached to a global organization, how do we bring all those resources, and partnerships, and advisors and so forth to support these startups to have somewhat of an unfair advantage, or to at least test different approaches to go to market, scaling, creating impact and so forth?
(14:35):
And so I'd say from the earliest days we had explored different types of partnerships and pilots between those in our networks, whether they're payment service providers, major MNOs, what have you. We're always hustling to find ways to help our companies, like good investor frankly, to forge catalog partnerships that will allow them to expand on new markets, develop new product suites, whatever it is. It wasn't really until, again, I think we had really gone through a number of iterations and discovered what works in that. How do you do proper AB testing? How do you align the interests of different stakeholders, which is a crucial bit that we had kind of packaged up, I'd say, our methodology around it.
(15:15):
That was at the time, again, when we were pretty excited about, this was I'd say probably pre Web3, but 2018, 2019. When we looked at the emerging blockchain and blockchain derivative technology space, and we thought this could be really powerful set of tools, But again, from a user perspective, they're just not much deployment in emerging markets. So, we had a lot of assumptions or hypotheses around where they can be beneficial, but not many use cases. And so we said, well, how can we take the history of how we've forged these partnerships, worked with different startups to really test these out.
(15:47):
How can we bring in partners who really understand the IUU/X? How do we be very articulate and impact management understanding whether something's impactful? And I think most importantly from a signaling perspective, how do we design something where if it is successful and even if it's not frankly, that can act as a signal that allows for the commercial expansion of something. So, making sure it's not just a pilot for pilot's sake, but if this works, it actually could scale and then be core to the business model and inspire copycats. So, it was right around then we started doing a lot of partnering with different protocols, and it was at that point, we, again, [inaudible 00:16:24] originally on our team and then Ken coming in a little bit later, started to say, okay, well here's what a piloting function could look like. And here's how we actually develop different touch points within the broadly defined blockchain and blockchain derivative technology industry, if you will, and see how we can test out these technologies.
Ken Kou (16:42):
From there, just thinking about what are some of the building blocks in the Web3 universe that have the real potential to scale and deliver meaningful impact? And I think when we go through that exercise and just being quite strategic distilling, what is the signal from the noise? There are some things that are really here to stay. You have the power of a blockchain in its immutability, and its transparency, and its traceability. That has tremendous potential for use cases around supply chains and traceability has use cases in combining multiple off chain data sources like via Oracles, decentralized ID services, proof of reputation, proof of skills, things like that. You have stable coins, which for everything that's happening around stable coins in the last little while, they are still a valuable inflation hedge. They're super powerful when it comes to transfers, payments, remittances. As a cash in cash out vehicle, the rails are there and it facilitates the flow of funding cross border, between peers, all those transfers are facilitated. And then tokens, fungible or non fungible.
(17:53):
This is a powerful building block. It allows decentralized networks to be created, powered and run. You set up incentives. So, you motivate the right behavior through token incentives. Tokens allow you to fundraise in ways that really weren't possible before. Assets can be tokenized. Tokenization is a mixture of course, smart contracts and fungible or non fungible tokens. But this is a way for us to really change the paradigm around how people get access to assets, how we fractionalize, reducing settlement costs, increasing automation in terms of whether you get paid out today versus in nine months time. There's just so much that's happened if we leverage this technology in a smart, impactful way. And so we've been building pilots like specifically testing different thesis and different theories around what can be useful. So, just to give one or two examples, we've run a pilot for smallholder farmers in Kenya, which was testing moving crop insurance policies into smart contracts.
(18:56):
So, the historical issue here is that the adoption rate for insurance for smallholder farmers is about 3% in Sub-Saharan Africa. And the reason why nobody wants to buy these insurance policies is because the payouts are relatively quite low, payouts are super slow. So again, this is months and years to get paid out anything that you're owed, and there's no transparency in the process. And so through our pilots, we ran two phases of this and combined the number of policies that were sold is around 25,000. But by migrating the policy data on chain, by incorporating rainfall data and tapping into M-Pesa and mobile payments, we were able to increase the coverage amount, because now we're cutting out a lot of operational costs and staff time that was otherwise there from the manual perspective. You were able to set up instant payouts.
(19:48):
So again, rather than weeks, months, years, it's automated and it can happen both at mid-season and end line. So that the farmers are getting their funds at a much quicker rate, and then they can reinvest that capital into land, or food, or whatever they need for their families. And then the transparency that comes with being on chain, it leads to more trust. And we found that this was particularly valuable among female farmers, because female farmers, I suppose, they find it harder to go to their insurance broker and say, "Where's my payout? When am I going to get this?" But by being on chain, they can just simply dial a number on their feature phone, and they're able to see the status of their policy and or whether they can expect to receive a payout from that policy. So, that's one that we ran in Kenya.
(20:28):
We did another one in Colombia. This is using stable coins for remittances for Venezuelan migrants. So, USD Stablecoins, which were used as remittances through a digital wallet. So, of course this being Venezuela, it provides an inflation hedge in a hyperinflationary market. So, just as context, Venezuela, the overall inflation in the past six, seven years is like 54,000,000%, like over 30% month over month. So, that's just an astronomical rate. And by having Stablecoin pay to the US dollar, you offer a very strong inflation hedge for anyone who doesn't want to see their savings rapidly deplete. And on top of that, there's a direct offramp connected to Venezuelan banks which minimizes the hassle and any onboarding, offboarding challenges for non crypto natives. So, just really making sure that the UX is there to support adoption.
Matt Schaar (21:18):
Yeah. Those examples I think are really tangible. So, thanks for sharing those. I want to dive in a bit more on some of these pilots, because I think one of the criticisms, and I can be one that attests to this, is that back to the previous thing that Tim was saying is that we're still early, which I think one of the catch phrases of crypto and Web3. And I'm wondering as you think about these pilots here establishing, and seeing that there are many ways in some of these adoptions of Web3, there's a temporal upswing, but then it's responded with a crash.
(21:48):
If we look at Celsius, we look at a lot of these Stablecoin networks, we look at the yield farming, and all of them seem to fall apart after a couple of years of running. So, when you begin to think about bringing these pilots into the mainstream and adopting them across broader populations, and implementing them in a way that has lasting value, what do you see is the risks? What are the things that need to be addressed as you move from pilot phase to early investment, to full mainstream adoption? And where do you see some of the hiccups that need to be resolved there?
Ken Kou (22:18):
From our perspective, when we set up our pilots, we like to say that we're setting up responsible pilots. Meaning that our pilot participants will never be in a worse off position from being a part of our pilots than they would otherwise. So, I think that's the baseline, the bare minimum that we set in terms of our expectations when we designed these pilots. I think you're right in that a lot of these protocols initiatives have left a pretty sour taste in the mouth of the average bystander or person who's just passively involved in the crypto world. But I think the way that we are approaching this is that, there's a difference between the financialization and the speculation that's happening in the crypto markets. And then the underlying technology, the Web2 power, the blockchains, token economies and things like that.
(23:03):
And so I think focusing on the technology and focusing on the actual building block sort of come out that have real world value, that's where we're able to build up truly sustainable and long lasting use cases that will endure and actually deliver value to the target populations that we have in mind across emerging markets. And so I think that is just the high level macro view in terms of how we are approaching both piloting and also the entire Web3 space as it is. And so I think building off of that general ethos, when we set up these pilots, we are trying to be quite strategic around what are the initiatives that we think will scale, and what are the initiatives that we think will actually have a sustainable business model behind it?
(23:49):
We don't want to be running pilots just for the sake of it, And we don't want to be running pilots for years because that's just not an efficient mechanism for us to be involved within. And so I think that's where as part of our evaluation criteria, we do get quite detailed in terms of how we select the pilots and in terms of how we design it. Because we just want to make sure that the end impact to the user is quite clear and it's something that will be sustaining once the pilot ends. Tim, do you want to jump in terms of how that transitions to the investment thesis?
Tim Rann (24:22):
We have a similar ethos so that we inherently with any investment accept risk to participants. I mean, if we have to be honest, whether it's blockchain enabled or not, if a neobank we invest in fails and potentially puts user funds at risk, or if there's fraud or other things, we do what we can in our diligence to determine these, understand what the risks are and [inaudible 00:24:49] wide open around what we can accept and mitigate, control or not control. But as all the examples you mentioned, the crypto universe presents unique challenges and unique levels of speculation. And then frankly, complexity that I think for any investor, it is very difficult, especially in these early days to fully get a grasp on. A lot of the investment opportunities we see often have very complex financial engineering in the backbone for how they're doing all sorts of unique swaps for Bitcoin and cross local markets, or using futures in order to move and create synthetic stable coins across markets, all these different types of things.
(25:31):
And one of the fears I have from an investment side is that there's a lot of money here chasing stories, and it can prop up some of these protocols and projects in companies utilizing crypto that don't necessarily have the in-house expertise to manage it. And then simultaneously as investors, I think from a responsibility standpoint, we may not be uniquely equipped to really understand the risks they're presenting to their end customers. And this is one of the issues we'll see in a lot of emerging markets is some of these things perform or don't perform during the bear market, and start to put users savings at risk as they have in many markets over the world. So, we of course try to avoid at all costs. We are following very stringent guidelines around how we assess the risks to users and their principle.
(26:23):
And again, our firm principles, we want to do know harm, don't want to leave people worse off as a result of it interacting with other companies or otherwise. But at the same time, trying to find where we can push boundaries in a responsible way, manage investments, manage risk around it. I do think the moment we're in is, and again, this will be another thing that I think a lot of folks in the crypto world would say, it's probably a healthy correction. Obviously we're seeing all risk assets and tech stocks, ETFs down significant levels down through 2020 lows. PE ratios are coming down more same levels. We are firmly, especially in the crypto space, in a bear market, and I think it's going to sort out a lot of the hype as it has before. And really, hopefully at least in the perspective and lens we're taking, reward the builders that are really building thoughtful products and services for users that we care about.
(27:16):
So, I think we're optimistic that as Ken said, they're are good building blocks for the technology there and good use cases. In my opinion, this might not be totally shared. I'd be curious if you think, Ken. I think a lot of the best use cases are kind of invisible to the end user. And especially in the Web3 world, the projects protocols companies building in that space are very thoughtful about the fact of where their technology layer interacts with all sorts of other partners, it interacts with distribution channels for whatever they're doing, or interacts with end users in a very different way. So, I think we're entering a new phase of probably user centered design proximity being really the critical enabler of what separates the next iteration of all these technologies from this past few years.
Matt Schaar (28:05):
To touch on that point a bit more, I think we've acknowledged that there's a little bit of what I call a Web3 premium. I think a lot of founders who are building something with some sort of blockchain layer like peanut buttered on top, even if it's not fundamental to their actual business case, are finding themselves getting an investor premium. We see funds that are becoming Web3 focused. And so I'm curious about when you're evaluating these companies, And I was even thinking about assuming examples around using smart contracts for insurance adoption in Kenya, how you're balancing out whether or not this Web3 layer is something that's absolutely essential and central to the business model? Or whether or not it's something that you think is just additive because someone realizes that it's hyped up? Even as investors, as you evaluate whether or not a business model actually can be innovative without this new layer of technology that adds complications, that becomes more complex from an engineering perspective, that eliminates traditional underwriting models. Where do you find the balance in all that, as you're looking at companies and talking with founders?
Tim Rann (29:11):
I'd like to say as a team we have an array of perspectives on the technologies, which I think is super healthy and good. Sometimes when I talk to very crypto centric Web3 focused funds, they'll deeply understand the technical aspects. They could do better technical DD honestly than we could ever, because a lot of them have builders and operators out of this space. However, I think their blind spot is, within this kind of space of really libertarian and excitement, and decentralization, and these digital communities of the world is really a lack of a clear pathway to people really using this, and a clear understanding of what real incentives and how the hurdles get there. So, I do feel like there's kind of a schism within those who are very Web3 focused and then those who are moving into it.
(30:02):
And I think across our team, we're at different learning journeys, I'd say, of how we assess these things. So, fundamentally I think, as a whole, and again, I think similar to any investment fund, we're always grappling with any sort of new innovation, because it doesn't exactly match kind of the thesis we have. Which is the living breathing document, but something will come in and blindside us and we have to grapple with it. And so I think we as a whole, look at opportunities and always grounded in the user experience, and does this really meet a pain point for a smallholder farmer? And again, it's great to talk about, what if a smallholder could join a Dow and participate their extra income for this shared pool of risk insurance and all these different things? I mean, it sounds really wonderful on paper, but again, the reality, knowing that user journey and having worked with portfolio companies and directly with farmers, and other constituents for many years, we know that leap is quite far away.
(31:01):
And so I think it allows us to separate the fluff from what makes sense. And I think it also allows us to, for those kind of infrastructure layer companies that say are creating maybe a tokenization scheme or a Web3 scheme, and the positive term that supports the kind of Web2 companies to do their job better, say risk pool for insurance, where a pool or micro insurance company is still purely a Web3 company, you could say. But they're deriving the benefit they can from Web3 and maybe blocking their users from anything that would be potentially negative or speculative. That's where I think we can see that perspective rooted in the persona individual. And where does technology sit kind of infrastructure layer, and where might it over time actually work with the end user? And so I think that's the way we sort it out. Certainly from an investment perspective, valuations are coming back down to earth, generally speaking. Generally speaking things are coming a little bit down from what we've seen.
(32:03):
Web3 is still pumped up just because there's so much money floating around it, but we try to avoid FOMO. We have a very specific paradigm of what we want to achieve, and we don't necessarily have to jump on the next top bandwagon for particular kind of Web3 protocol. Yeah, I'm happy to talk more about some examples of Web3 companies we have invested in and why and how we assess them. But yeah, I think we're pretty, I'd say, optimistic, but we're also very realistic about where things are at and what we're comfortable investing at this stage
Ken Kou (32:36):
When we do screen from pilots and I think deals as well, the question does come as, why does this actually need Web3? I think that's one of the first questions that we'll ask ourselves when we see one of these protocols or solutions that are supposedly tapping into the benefits of Web3. And so I think that's always something that's front and center in our minds when we're evaluating this. And I think perhaps on the other side of that, you do hear the counter argument, which is always like, couldn't this just be solved by Web2? Can't you just put this on a database and plug a few APIs? And in some cases I think the answer is, maybe that is true. Although I think then it comes to two things. One is, why hasn't it been done already in that case? If we think that it could potentially be solved that way, why hasn't it?
(33:22):
And that often leads into questions around like, perhaps it's just too complex. The bringing in a myriad of data sources together that are a mixture of online, offline, and actually trying to synthesize it and have multiple partners contribute to one shared database and have a decentralized ownership of it. Imagine building that and trying to maintain that set of APIs. It's very complex. And so you could in theory imagine it as one singular database, but in many worlds, it's probably not the most intuitive way that you would want to do it. And then I think the additional component here is that, by building certain things on chain, you do unlock additional benefits that you wouldn't get from Web2.
(34:02):
Now, of course, are those benefits necessarily value adding? That depends on a case by case basis. But in some instances, having the immutability, having the transparency, having just the full chain transparency, it does add specific value. And I think, for example, the insurance instances, a pretty clear one, because there's a clear moral hazard in how insurance premiums work. Anything that is not paid out is therefore profit for the insurer. So, having an indisputable source of truth that everyone can point to actually mitigates a lot of these potential misaligned incentives,
Tim Rann (34:37):
I was just going to add. I mean, I think where I've been really personally drawn as we've explored different use cases is two things. One is, blockchain as a service broadly or DeFi as a service. So, essentially these modules sits in the backend that allow other FinTechs that want to derive certain benefits from the DeFi universe to interact with it in kind of a white level way. So, we've made a few investments in that space, like one in Module Labs, which essentially just allows for plug and play functionality for that. I think that'll be a growing space we want to monitor and especially those that are doing great work in different regions, and figuring out on and off ramps and so forth. And the other area that we've done a pretty big deep dive into is, Web3 in theory, it's still early to say resolves, like Ken was saying, potentially a lot of the issues around coordination of data and different actors, and the transparency and all of that, as well as the incentives and all of that.
(35:37):
And so we've reviewed and made a few investments in the alternative biodiversity carbon credit, water credit space, because that is essentially a pretty broken system. Whereby many actors have to contribute data, analyze that data and then ideally provide incredibly trustworthy, transparent indication of what that data projects in terms of carbon baseline, and sequestration and so forth. And so we think there's certain areas where Web3 has a clear advantage, and we see a lot of builders and talent, most importantly, really flock into it despite all the volatility and downturns, all these things. Some of the greatest minds are really being drawn into this space, particularly around climate and crypto, particularly around blockchain as a service and traceability. So, we are, I'd say, pretty bullish that we're going to see more of these communities get set up where it starts to become obvious like, oh, this is a much improved way of how the system works.
Matt Schaar (36:36):
Well, Ken and Tim, there are a lot of things we want to try covering. There's so much more in this space, but just want to thank you for taking a bit of time today and chatting through this. Really grateful for your perspective. So, thank you again.
Tim Rann (36:46):
No, thank you. Always happy to. So much more to go into.
Matt Schaar (36:52):
That's it for this week's episode. You can learn more about Mercy Corps Ventures@ at mercycorps.org, or on Twitter @mcsocialventure. And as another quick reminder, don't forget to follow us on Twitter @accionvlab. Finally, don't forget to check out our upcoming FinTech for inclusion summit at fintechforinclusionsummit.com. Tune in two weeks where I'll be joined by Sam Iab from Goldfinch and Mobile Labs. We'll see you then.
Speaker 5 (37:25):
And ultimately really just starting with the vision really is, there's a shared vision for helping drive financial inclusion around the world and really helping to reformat the debt capital markets. Because it's just too insanely hard to get access to debt capital, which in most places, especially south of the equator or is it called global south, is the fuel that's needed to help spur economic growth, especially when you're thinking about this from bottoms up perspective.