BusDev for Bitcoin Platforms

Work should be attributed to Ryan Selkis

Founder, Inscrypto (www.inscrypto.com)Founder, Good-Benefits (www.good-benefits.com)

C: 518-542-1077E: ryan@inscrypto.com

November 15,2013

About the Author

Ryan Selkis is a former VC and current Bitcoin entrepreneur working on two separate consumer Bitcoin ventures.

• Good-Bits (fka: Good-Benefits) is the first charitable foundation denominated exclusively in cryptos.

• Inscrypto is a service provider that helps consumers insure the USD value of their Bitcoin wallets.

• Former banker (JPMorgan) and VC (Summit Partners)

Ryan also blogs under the pseudonym The Two-Bit Idiot, where he publishes the “The Daily Bit” M-F and tweets regularly throughout the week.

• Follow @twobitidiot on Twitter

• Subscribe to the Daily Bit: +1 to 2bitidiot@gmail.com

• Archive of TBI blogs: http://two-bit-idiot.tumblr.com

Bitcoin Opportunity

Bitcoin is a tremendously exciting digital currency option for consumers and businesses alike.

BUT

Long-term viability depends on its gradual and successful migration from a speculative currency investment to a widely accepted (and promoted)

alternative payment mechanism.

Biggest Provider Challenges

Industry

1) Merchant adoption and promotion

2) Government over-regulation

3) Security, volatility, liquidity

Company

1) Brand: Entice early adopter merchants

2) Security, security, security

3) Win the footrace vs. competition

Challenges to Adoption

Most bitcoin is held by speculators for investment. Transactions that do take place occur in the black or grey markets. Some reasons:

Consumers Merchants

Fear of newness: Is this a bubble / illegal / unstable?

“Up” Volatility: Why use for txns if it’s going to keep going up?

“Down” Volatility: Isn’t there a risk this could go to zero?

Limited current utility: Where can I actually use this?

Liquidity concerns: Given small mkt,could I lose $ converting to USD?

Regulatory concerns: How can I ensure compliance with fed/state?

Accounting : How will I account for this (books, taxes, investors, etc.)?

Customer Base: Will there be enough users to justify investments?

Merchant Adoption Thesis

Consumers buy BTC for

utility

Higher transaction

volume

Greater inbound interest

Merchants understand

benefits

More large merchants

adopt

Content Mkt

Direct Sales

Sales Support

Start:

PullExcitement about wallet services:

Merchant adoption will “pull” more consumers into the market, turning this speculative currency into an amazing, industry-changing utility.

I want to help make this a reality.

Identifying Opportunities

Evaluate merchants based on five factors:

1) Is market a “white market”?

2) Are its consumers current BTC users?

3) How will the U.S. view BTC in this market?

4) Are there meaningful incentives for both merchants and their consumers to use BTC?

5) Are transactions at the merchant small enough to prevent large bid-ask spreads?

Male, young, educated, libertarian, tech-savvy

Significant savings, broken pmt system?

Summary of Best Opportunities

Online Jewelry

eCom Platforms

Social Enterprise

eSubscriptions

HC: Personalized

HC: Cash Svcs

HC: Copay Mgmt

Gaming

eCommerce Integrations

Market: These platforms have a big footprint with online retailers and brick and mortar merchants. Might require more intensive integration efforts than with one-off merchants.

Customer Base: This is a land grab, tens of thousands of merchants, millions of users, many would use bitcoin over alternative payments.

US-Favored: Can service provider make it easier for states to collect sales tax?

Incentives: LevelUp is a natural partner as they make much more money when their customers link accounts to non-credit card. Clear pricing / rewards incentives for users to spend BTC.

Txn Size: Most of the transactions at SMB merchants utilizing these platforms are small and can be processed off TBC. No apparent liquidity issues.

Subscription Services

Market: Disruptive companies that revolutionized their respective industries, ticked off the establishment, overcame scrutiny with the help of a rabid customer base. Libertarian founders.

Customer Base: Good user base, young, social, educated. Users have higher average disposable income. Recurring transactions could be great for BTC. More concerned about privacy.

US-Favored: Make it easy for states to collect sales tax? These companies have a lot of enemies.

Incentives: Large financial incentives for companies when it’s easy to accept bitcoin on a recurring basis. Large privacy incentive for consumers to cut down on companies storing their CC info. Consumers that believe in BTC’s long-term growth will save more money as currency appreciates.

Txn Size: These large, rapidly growing companies would be growth partners, but small ticket for transactions would ensure liquidity for companies converting currency.

Online Jewelry

Market: Multi-billion online market for jewelry, growing fast due to better comparison tools, service/quality guarantees and social acceptance. $10bn total market according to IBISWorld.

Customer Base: Perfect user base, young, educated male BTC user base. For early BTC adopters,tons of disposable income for jewelry / engagement rings for the +1’s in their lives. Right?

US-Favored: Blue Nile and other online vendors do the majority of their business in the U.S. Major sales tax opportunities for big ticket items.

Incentives: Large incentives for customers to pay cash. Larger ticket items would be difficult for merchants to convert to dollars because of low BTC liquidity, but instant wire VERY ATTRACTIVE.

Txn Size: Huge. Could put cap on txn size through bitcoin, or work only with jewelers willing to accept a certain degree of BTC currency risk.

Online Social Enterprise

Market: Doesn’t get much more plain vanilla than supporting charities, but long-term could be a difficult task for US to determine tax-exempt donations.

Customer Base: Good user base, young, social, educated. Especially interesting for donors to charities with strong peer-to-peer or “direct transfer” missions.

US-Favored: Charities would win and tax payers wouldn’t be able to write off donations. Home run for the government in the near-term.

Incentives: Large financial incentives for charities, especially those with an international focus, to accept bitcoin, however donations would not be tax deductible to donors – major drawback.

Txn Size: Massive ($30 BN) and high-growth (15% per year) domestically, with most smaller online transactions coming from middle-income donors. Opportunities big and small (donor).

In App Purchases (& Gaming)

Market: In app-purchases are growing fast. Especially interesting opportunity for paid news content (opportunity to integrate into paywall so people can easily pay per read?)

Customer Base: Perfect user base, young, social, male, hackers.

US-Favored: Regulations around in-app purchases (especially with children’s apps)?

Incentives: Simple opportunity for gaming companies to save 2-3% given that most in-app purchases come via linked credit cards, and high relative proportion of gamers familiar with BTC. Opportunity to maintain privacy may also be important for certain games / PPV content.

Txn Size: Small transactions/rewards are perfect for BTC.

Healthcare: Personalized Care

Market: Personalized health management is huge for individuals who want to prepare for / manage chronic conditions, and payors who have an extraordinary need to lower costs post-ACA.

Customer Base: Young, educated, higher-income user base. Razor-focused on healthcare privacy and expect to be in control of their healthcare finances.

US-Favored: Absolutely, anything to contain costs.

Incentives: Ability to earn micro-payments for each workout could help wellness companies incentivize healthy behaviors in populations (e.g. pay / workout vs. pay / gym membership). Consumers need privacy, especially with genomics companies like 23andMe.

Txn Size: Small transactions/rewards are perfect for BTC.

Healthcare: Cash Svcs

Market: Consumer-oriented chains with cash pay are among highest growth areas of HC. Could focus on urgent care (large uninsured base), SAMH trtmt (private pay), and dental (low insured)

Customer Base: Young, suburban, privately insured (higher income) patients. Cash pay from a significantly higher percentage of patients than elsewhere in the HC system.

US-Favored: These are all good economic deals that drive down the cost of HC and provide terrific services outside of the insured market.

Incentives: Merchant marketing opportunity (libertarian patients might be drawn to facilities), more efficient and lower-cost method of payment collection so much larger discounts typically offered. However, most patients still covered by insurance, so many will continue to wait for bills.

Txn Size: Avg urgent care and dental visit are moderately priced. Substance abuse centers $$$.

Healthcare: RCM Companies

Market: Healthcare providers are bad at billing because of the dysfunction in how healthcare actually gets paid for. Massive opportunity for the third party revenue cycle management companies to improve the way their clients collect copays.

Customer Base: RCM companies have a vested interest in helping patients pay copays.

US-Favored: Healthcare providers must efficiently collect copays or can be held liable for fraud.

Incentives: Providers have legal stick to collect copays, and RCM companies have income carrot to do so effectively on behalf of their customers. Patients might be offered significant discounts for BTC payment of copays upfront (maybe hold in BTC escrow account?), but still a hassle.

Txn Size: Copays and cash payments from insured patients are normally small and burdensome.

Client Acquisition Strategy

Consumers buy BTC for

utility

Higher transaction

volume

Greater inbound interest

Merchants understand

benefits

More large merchants

adopt

Content Mkt

Direct Sales

SalesSupport

Start:

PullInbound Marketing

& Direct Sales

Brute Force (Direct) Sales

Personal Connections

1) Many companies highlighted above are ones with which I have personal connections for warm intros

2) The healthcare and charitable industries (non-obvious customers) are particularly interesting

Direct Sales

1) Nurture inbound leads to close (see next)

2) Possible direct sales hires down the line

Distributed (Content) Mkting

Tools (Hubspot)1) Seed LinkedIn / Blogs with industry leading groups2) Sponsor events / meetups ($BNFT “City Tours”)

Bodies (Army of Interns)1) Relatively easy to hire talented undergrads/ recent grads in SV

willing to work with a high-flying startup

Outputs (White Papers)1) Library for merchants – sell/promote BTC usage by customers2) Videos tutorials for consumers – raise awareness3) Additional library for app partners on the Coinbase API

Other Ideas

Be proactive help people pay (avoid not evade?) taxes on appreciation of BTC

1) Integrate with Turbotax or H&R Block

2) Send “tax documents” to users at year-end in case retroactive rates are applied

Create currency “hedges” so businesses can safely hold certain levels of BTC – Work with hedge funds?

Create industry trade group encouraging adoption by women who control the purse strings in many HH’s