Waymark Tech, a Startupyard Batch 8 alum, is a London based AI regulation intelligence company, with clients among the top accounting and consultancy firms in the world. Waymark helps big enterprises to stay on top of regulatory changes, and bring alerts and guidance about regulation compliance to the right places in the organization, at the right time.

You can read more about Waymark’s story and its Founder and CEO Mark Holmes in our last in-depth interview. This week I connected with Mark for a one on one chat about his journey since StartupYard. Since he left us nearly a year ago, Mark has managed to raise a seed fund for his young company, and now has a team of 5 working on Waymark Tech, as well as a growing list of clients either actively using, or testing their technology.

We decided to focus our discussion on the challenges for a first time founder raising seed capital. From hiring the right team, to picking the right investors, we took a detailed look at the process, and what Mark learned from it. Here is a version of our conversation – edited for clarity and length.

Hi Mark! We’re gonna talk today about the process of going from a one-man-show startup, to being CEO of a small startup team that has raised seed investment, and gained a lot of traction with their product. Sound good?

Looking forward to it. Lots to tell. Lots of ground to cover since then. As you know, we’re now a team of 5, we have a bunch of customers in our pipeline, and the product is out in the world being used by companies today. We also had Credo ventures join with StartupYard and Seismic Foundry as our seed round investors in March.

That’s where I want to start. Can you tell us a bit about how that process worked for you? What’s it like to negotiate a deal like that for a first time founder?

Well, I did just about everything wrong at the beginning, but you learn as you go. You figure out what investors are looking for, what they need to see from you to feel comfortable. You have to figure out also what you’re looking for, and what kind of an investor you really want. It’s just a big learning process for everyone, and I think we got the result we really needed. That’s the important thing.

What did you get wrong?

There were thankfully no big mistakes in the process, but rather I found out that many of the things that investors look at are just very different from the things I thought would be most important.

I’m a product guy, and that’s where I come from. Going into the process of raising funds, I also had some customers who were ready to work with me. You think from your own perspective, this is enough to justify an investment. Of course it isn’t, because a VC investor like Credo are looking for more than this. They want to see the big picture in 5 years. They want to see it down the road, and how this thing you do can become really essential and irreplaceable for the customer.

The fact that you have this customer ready to buy is great, but the investor wants to know how you are going to make that a growth relationship, and how you’re going to repeat it everywhere you can.

To demonstrate you are doing something that people are not going to be able to get on without, that’s not the same as having a great product. It’s having a sticky product, that can’t just be replaced tomorrow. Especially for the early stage investors, they want to see that this will be at the heart of your industry in the future, which people will depend on. I did find this helped me to make some critical product decisions as well.

You made more scaling focused decisions?

Yeah, definitely. More importantly, I made more customer focused decisions, that were not necessarily about the product features. You have to get over this fear of rejection, which is very big for a product person. It’s maybe the worst thing I can imagine, to be told someone doesn’t like my product. You fear they’ll dismiss you, and you will lose your chance with them.

Now that I’m selling and not just building, I see that this doesn’t happen. Actually the opposite, because you aren’t selling the idea only, you’re selling the relationship you’re going to have with the client. They have something to react to and to give you feedback, which makes the product even better, and makes the relationship even better.

I found out when you show your product to a customer, even if it doesn’t completely work yet, that actually builds a lot of trust, because they can see what you’re doing is real, and it’s not so big a risk for them to start trying it. I felt this surge of confidence from getting all this feedback, positive or negative, because people are showing that it matters to them. You are doing something that matters.

Knowing that now, what would you tell yourself to do differently when approaching an investor?

Maybe this: that they are “technology” investors, but they are investing in you at the end of the day. The product can be the best, or just good enough. I want my product to be the best, but the investor needs your team to be the best, your traction to be the best, and your technology to be unbeatable. At the end of the day, the product is a small part of that mission. A critical, but ultimately small part of it.

One thing I didn’t do, which I honestly should have before talking with investors, is to know more about their portfolios and their history. Focusing more on how the investor’s portfolio and the team they have is going to be a help in scaling and really in growing your business. Do they have the existing clients and companies in the industry you’re targeting, and can they open these doors for you that can’t be opened otherwise?

You always say at StartupYard that it isn’t just the money. That’s really, really true. The wrong money is not a blessing, if you aren’t also getting the right network and the right support to use it.

I didn’t read enough about investors before talking with them, because obviously it feels like they are the ones interviewing you. It’s not like that though; you have to interview them too, and figure out if the relationship really makes sense, apart from the financial consideration. That goes both ways too: how do they enhance your ability to scale, but also how do you enhance their portfolio? Are you going to be of value to the investor in the future? If you are, that is a good sign you will get the support you need, because they also need you.

It ended up that investors started to sort of pitch me on their ability to help the company grow, and this is when I started to pay more attention to an investor’s history, their other investments, and the decisions that the individuals you are working with have been a part of in the past.

As a result of this growing awareness, I did end up stepping away from the table with some investors who were interested in a cooperation. I saw that if you can’t see how you’re going to enhance each other, and have more of a marriage than a business relationship, then it might not be the right move. That’s particularly true in an early stage investment. These people are going to be around for a while. They will maybe have board seats. They will have opinions. You want them to compliment what you’re doing, not make your life harder unnecessarily.

I am ultimately happy with my choices, so I think I managed it ok.

What were some of the harder topics for you in the initial discussions with the VC investors you talked to? What did you need more preparation for?

There are obviously some things I wasn’t familiar with, that I had to study up on. Liquidation preferences, and preferred shares, shareholder rights, and other legal and technical things. These are really important to get your head around, so you know that the goals you are setting together make sense from everyone’s perspective. You want to have your expectations be aligned as much as possible.

I found I had to get used to this idea, that for a VC investor, they are really expecting most of their investments not to produce much in the long run. Just a few will pay back the fund, and maybe one will be that unicorn that will change everything. That being said, this is the kind of mindset they have when they are making decisions about who to talk to. Can you be the unicorn for us? Can you pay back our fund?

That is much less about your product than about your ability to scale, and to be sticky. I know that having a great shiny new product isn’t enough if it isn’t used by anybody, but I’m still a product guy. Still the focus on scaling and traction is really powerful from investors.

I also struggled with this, and we worked on this together a lot at StartupYard, which is that you have to have a story that someone can understand and relate to. These are really smart people, but generalists, and usually not as involved with your industry as you are. They are fast learners, but you have to give them something to work with, and that was something that was a challenge for me.

I’m doing regtech. Even just a year ago, this was not something being talked about much. Nobody knew what the stakes were for this industry. How important will this be, right? If you remember, at our DemoDay for my batch, we came up with this great story about a vineyard in the UK that made this wine, and then come to find out they can’t call it “wine,” because of some EU regulation they had no idea about. So they call it a “fruit-based alcoholic beverage,” which is just a crap thing for selling a good wine.

That was a story that early investors could really see very clearly. You can sense the frustration when you tell that story, and people get it immediately, that it’s this real problem, and it can effect them too. Once you can do that for people, you can get them to start seeing what you do as something that matters. This was a new discovery for me, just how powerful these little stories are in helping people to just “get it.”

You said the focus on the team was also a surprise for you. Why is that?

I knew they would want to know about my team, but it was something that went deeper than I thought. It’s not just having talent, which any company can find.

The investors are focused on your team because that is where the value is really being built in the company. With just a technology you have something that potentially anyone can do. There can be other ways to solve the problem. You are not likely to be so unique that nobody could ever replicate that technology.

I had grown the business through outsourcing, which is cheaper. Well, anyway it seems cheaper, particularly when I was trying to get a lot of things done very quickly. The investors look at this as a bigger risk in the long run, than slowing down a bit and building a great team that is going to continue to grow your product in-house and bring that organizational knowledge and experience that makes you viable in the long run.

There are other things like security concerns, IP concerns. However, I think it’s mainly that the investors do recognize that the team is going to be critical in building the company’s value, and reduces your risks.

It makes sense, for sure. If you are one founder, and it’s all in your head, that’s a big risk for someone to invest in. To gain trust, you have to also trust people, and bring people in, so I took that very seriously, and thought hard about how I was going to grow my team, and what kind of team we were going to be.

What is important to you about your team members? How did you pick them?

I got this I think from an old boss of mine in the finance industry, a long time ago. He said you can hire the best person for the task, but that isn’t always the best person for the job. There is talent, and there is fit, and you have to balance them.

Being with StartupYard was a good experience in this regard as well. In the program you’re with other companies that are struggling sometimes to find the right fit for themselves. Founders or employees come and go, and I saw some examples of what I wanted, and some of what I did not want. That gave me something a little more concrete, and made it easier to make these decisions.

When I was growing my team, to be frank I did not always choose the people with the most experience or the most skills in their area. I looked at their fit in the team, and their long-term vision for themselves, and tried to pick the best people for the job. I let some people pass with very impressive skills, which I think in the long run is the right thing to do. I couldn’t imagine how to work with them every day. We need that sense of belonging in the team, to be our best.

Also, I want to build a team that lasts beyond me individually. I am the “get it started” guy. I’m a builder and an idea guy, and I want to make something that I can pass to the next person to really grow it and nurture it. When we reach a size and a state where I feel I can hand this over to a great team that can take it to the next phase, I will probably step back and think about my next step personally. Since this is my nature, I am planning for that to happen eventually.

Ok, so more personally, is this something you can see yourself doing again in the future? Are you going to start another startup, if and when that time comes?

Look, never say never. Ok? I didn’t think I would even found one company, but there was just this moment that all of us know who found companies, that I knew I had to do it. It was just something I couldn’t let go. So here I am, and that’s the journey.

And by the way, I now see why some people do it over and over. I didn’t know this before, but the more I work with our customers and the more I solve their problems, I just keep finding even more mind boggling problems that I could fix, so my ideas are still growing. Your confidence grows, and your ideas just come faster, so maybe one day I will have to do it again. I don’t know.

I have spent 15 years in financial services and I do have other interests, so I want to explore them too. It might be a business, but it could be angel investing instead. I think the entrepreneur spirit is something that comes from having your eyes really open to what is possible, and what is not being done, that could, and should.

So to cap this off, can you give me maybe a bullet point list of the things you wish you knew a few years ago, that you know now? What would you tell young Mark of 2 years ago?

So many things. Ok, I’ll try and give you a simple list:

• Know what kind of founder you are, and let yourself be that to some extent. Don’t try to be somebody else completely. I am a product guy, but this doesn’t mean I can’t focus on scaling and selling. I am selling now maybe 70% of the time. Still I spend time on the product, where I get inspired to keep going. Don’t lose that.
• Remember that investors want to commercialize, scale, and grow. If you aren’t ready or you don’t want to go at their pace, you can choose not to. If you do, understand what it means for you.
• You have to sell. You have to sell! You have to overcome this fear of rejection, and sell what you have, as soon as you can. That is so valuable to the creative process, and it will make your product better.
• See clients as an advisor, and not a buyer. The old saying is “ask for advice, and you get money. Ask for money, and you get advice.” That’s it. If you are looking at your customers as the best source of insight, you are going to be rewarded in so many ways. Keep that focus where it should be, on listening and responding to clients.
• Think about how your company is going to become essential, and how it is going to become impossible to replace. Whatever this is that makes you stick, you focus on that and you don’t lose focus. You don’t want to be one of many alternatives. You want to be the one that the customer has to have. That’s how you raise investment, and that’s how you get deep into solving customer problems.

StartupYard Batch 9, has been defined by “tech with a soul.” That trend continues even when the focus of the startup is on what people traditionally think of as a dry and boring topic: big data, behavior analysis and product recommendation.

That’s because Tomas Pluharik, CEO and Co-Founder of Behavee, believes strongly that the future of recommendations is at once more personal, and more private. Behavee is focused on providing e-commerce and content companies with the tools to truly understand their customers, but without breaching their privacy or mining their personal data and shopping history. They do this by training their machine learning systems to understand how customers behave, and use that knowledge to create instantaneous micro-segmentation of customers based on what they are interested, and what they really want – not just what a company wants to sell them, or what they’ve bought in the past.

To do this, Tomas has arrayed a team of experts in big data, marketing, machine learning, and software engineering with a strong corporate background, who are tired of the way big data is being used for marketing, and believe there is a better way. Behavee is an open-source recommendation engine that learns from its experiences, but doesn’t violate your privacy.

I sat down with Tomas to talk about his vision for the future of marketing in an age of privacy and a post-GDPR world. Here is what he had to say:

Hi Tomas, tell us a little about yourself and your team. How did you all end up together founding Behavee?

We’re a team of corporate refugees who have all worked many years at the Big 4, banks, telcos, and pretty much every big corporations you can imagine in Central Europe.

Without getting into too many of the messy details, I originally hoped to form a spinnoff from one of the Big 4 consultancy firms, to pursue what I found most interesting about big data, which I’m sure we’ll talk about here. Anyway, that experience showed me that my colleagues and I were living on a different planet from our superiors, and we needed to escape to startupland as soon as possible so that we could really do something that big companies don’t have the appetite for.

We teamed up, David, Jan, Richard and myself (team bios are here), and banded together with Michal and Juraj from the banking sector, and Marketa from Microsoft, and we formed what started as a kind of big data agency. I have really enjoyed the fact that the team has been very dynamic, and a harsh selection process outside the cushy corporate environment, which has molded us into a team of hardened individuals who can stay lean and scrappy.

Behavee focuses on user behavior and micro-segmentation for recommendations. What is the unique approach you’re using, compared with other recommendation services?

Ok, how much time do you have? Just kidding, I’ve learned now to make this as clear and straightforward as possible, although in the background it’s tremendously complex.

First of all, we must understand how content and product recommendations currently work online. Or rather, how they don’t really work. What happens mostly today is that e-commerce companies and content companies hoover up a huge mountain of personal data about their users through the use of memberships, cookies, browsing history, purchase history, and data collection services.

With all that data in one hand, and with a pile of products or content to promote in the other hand, they do what you might expect anyone to do in this situation: they figure out the best way to get the most people they can to buy the products they have or look at the content they own.

Now, in this process, they like to think that what they are doing is helping their customers to find products that they need and want. That is sometimes true. However, as you may imagine, it also produces a huge number of recommendations for things customers not only don’t want, but which are actively annoying or nonsensical for them.

A good example of this approach is if say, I bought a phone on an e-commerce platform. The e-shop can recommend me a case for the phone while I am shopping, or even after I purchase the phone. So far so good. Now say I bought the case. Great! Now what does the recommendation system for that e-shop do? It spends the next 6 months advertising that same case to me, over and over again. That’s a true story by the way. Many people, if not most people know it well. 

Why does it do this? Because it is not looking at *me* and thinking: “Tom already bought that case… let’s find something else Tom would like based on what he is actively doing on our platform.” No, instead the e-commerce platform is saying: “We have a couple hundred of these phone cases lying around… we need to sell them to anyone who bought the phone.” That includes me, even if I bought the case already. Who knows- maybe they get lucky and I buy it again? 

I know that sounds pretty dumb actually, but even the most advanced e-commerce companies are still doing this. Even Amazon does that. They can’t stop.

Wait… why can’t they stop doing this?

Because, as I said they have this pile of user data, and this pile of products. They have to move the products using the data. So these little annoyances like seeing the same promotion 50 times after you bought something are not their cheif concern. Their chief concern is to sell the products they need to sell.

What do you do differently?

Ok, now we’re getting somewhere. Behavee is different because we don’t need this giant pile of customer data. We don’t need to know the history of any single individual and what they have bought, or what they are like. We instead anonymously study the behavior of many people, and from this we derive an understanding of how people really work, and what really motivates them. What we do instead of focusing on the past of someone’s shopping activities, is to focus on how a customer behaves, what she or he does when they are visiting the e-commerce or content site, and use that behavior to understand what they are looking for right now. Not a month ago, but right now today.

In order to do that, you must break this addiction to looking at a customer’s past, and focus on a customer’s present. The fact that I bought a phone 6 months ago is irrelevant, if I am in no way motivated to buy a case. So don’t show me something I am not ready to buy. Instead understand me by the way I behave, and show me something I really want. That is what Behavee is doing. Behind this is machine learning technology, analytical tools and automation software to help e-commerce and content platforms make better recommendations automatically, based on dynamic micro-segmentation, which basically means making offers that work for a customer based on what they do, and not who they are.

How can you understand what a person wants by how they are browsing a site?

Let me give you a nice analogy. My grandfather ran two pharmacies during the second world war and before the period of socialism. He said that after many years, he could tell what a customer was looking for in his shop, just based on how they looked, what they did in the shop, and generally how they behaved. Actually it’s very intuitive, because in-person sales is all about reading body language and judging a person on how they are behaving and how they present themselves to you. Are they confident? Unsure? What items are they interested in? You get that all by observing.

In fact my grandfather said this is the trick to serving people is not to judge based on the past: you pay attention to how they act right now, and not always to what they say about themselves. Very often a customer does not know how to get what they really want. You must understand them and help them to understand and see the products that they really need. Maybe a person who has bought the same thing every week for years doesn’t actually want that same thing again. If you presume too much, you will miss an opportunity to sell them something else.

So this is what we do at Behavee. Our recommendation engine first of all observes how many thousands of people behave on a website, and then just like grandpa in the 50s, we train our machine learning systems to recognize what people need by how they behave: what they look at, where they go, how much attention they pay to something, etc. Then we can actively micro-segment and offer a customer something specifically for them, that we know with a high degree of certainty that they will want.

The best way to give an amazing customer experience is to make it feel like the person magically found exactly that thing they wanted. It feels as if that thing is there waiting just for them. That is the experience we want for customers of e-commerce. Less flashing lights, and more understanding of the individual, but without being creepy and pushing against their privacy.

Our solution looks on the whole customer journey from beginning to the end. We do not ask how we can sell a pile of products we must sell; instead we ask “what does this person need, right now, and can we offer that?”

To do this we are an open-source, open platform company. The more our recommendation engine learns from customer behavior (all without keeping any personal data about individuals), the better we can be at helping e-commerce and even content companies to recommend the “next best thing,” for any individual, based on what they themselves do.

So this is ethical big data?

Of course, privacy and anonymity I believe are fundamental rights that we ignore at our peril.

However, I want to stress that even if I didn’t feel that way, this approach to recommendations just works better than looking deep into someone’s past and trying to predict their future that way. If we keep doing that, using a person’s history to define their future, then we will always miss on the best opportunities, and we will never recognize when our customers have changed and are not interested in the same things anymore.

Using someone’s history all the time is like never letting them grow up. You show you don’t understand or even care about someone by doing that. You bought jeans? You are the jeans guy forever. That is somehow both deeply personal and dehumanizing at the same time. It doesn’t work. It will never work.

Just imagine in my story about my grandfather if he had, instead of looking at his customers as people, just looked at them in some spreadsheet with all their past purchasing activities. That is ridiculous. Maybe he could sell them something that way, but could he tell from this if the person in front of him has a cold right now? No. You can see how this approach can be taken to such extremes that we end up not being able to help people anymore. Ultimately people are looking to be understood, not to be treated as pieces of data.

We work with pseudonymized and anonymized data. We don’t keep data of individuals after using it to train our algorithms. If someone came to me and asked for data deletion (as is anyone’s right now with GDPR), I would have no trouble because I don’t even have it, and I don’t want to keep it. Behavee has no knowledge of individuals, and that makes us better at recommendations than if we did.

As for our partners and clients, this will be an adjustment, but a much needed one.

So you see GDPR (General Data Protection Regulation), as an opportunity to change the way online marketing works?

GDPR will clear the marketing space of the random advert calls for a while and will partially reset some marketing functions (like loyalty programs). The opportunity is in the approach to lead generation. It will be hard to generate direct leads from endless databases anymore. Now you must be smarter and more proactive in thinking about the customer journey.

Though anyone who knows me can say that I am not a big fan of too much regulation, I believe GDPR for the most part did a necessary amount of damage to the current system. It made it so that these ways of using big databases to sell are less attractive, and that is ultimately better for consumers and businesses.

You’ve already launched the service with some pilot customers. Can you talk about that process? What surprised you, both about the client’s needs and their reactions to Behavee’s capabilities?

Yes we started and we expected to collect the data for a month to make something beneficial for our clients. We still do need a lot of data, to be clear, but we don’t need to keep that data for very long at all to train the algorithms, and that data does not need to be linked to any specific person.

To our surprise, in only a week, we were able to generate interesting reports for the client that had an impact on their sales right away. I did not believe we could provide such a benefit so quickly, so that is a very welcome shock. Actually one of our clients is now calling for more help after he just saw the data we are providing. We are becoming very busy!

On which kinds of projects or in which industries do you see Behavee having the biggest impact in the near term, say 1-2 years?

What we can do right now, and for the near future is to provide a much better insight for our clients into how their visitors behave, and how to work with them. On top of that, we can provide, after some time of monitoring customer behavior, a way of automating recommendations of content and products, and also offering customers relevant products from other sellers, with revenue sharing for the lead originating site (referral marketing), if that is desired.

In short our focus is mostly on e-commerce and media. However we see great potential in interconnecting verticals and businesses over the whole internet. Realtime behavioral analysis of users can be used even in industrial segments, but as I said our main focus is now on e-commerce and media.

Tell us about your decision to join StartupYard. You’ve got many years of corporate experience on your team, so what was the biggest motivator for joining the accelerator?

To be frank, we were initially not sure if we should join. But I knew the product is too fat and unfocused, communication too complicated and clumsy and our sales cycle too long 🙂 . So at the end of the day we give it a shot.

I must say that it surpassed my expectations. The network we have through StartupYard is very strong, even stronger than before, and there is a level of trust that we bring with us into meetings and new potential partners and clients because they know we are an “SY Company,” so it means we are serious and have backup on our side.

The StartupYard management team has been great. It can be very helpful to have someone always with an outside perspective, bringing past experience and knowledge of the network to help us stay realistic but also to be more open to new possibilities too. I can only say I recommend it, even if you have lots of previous experience. This is not about someone telling you what to do, but rather having a support system that you couldn’t buy otherwise.

What kinds of partners and customers are you looking for in the near future?

Ok, so I could tell you that we are looking for the most forward-looking and most progressive e-commerce companies, financial institutions, media, etc. That is the startup thing to say!

Actually these businesses are generally very conservative, and the most conservative players can use our help the most. Some of these companies are trying to build their own closed solutions, and that is ultimately not going to be enough, or is frankly just a bad idea. Smaller startups and younger companies are already set up to use data more wisely, but bigger institutions are big machines that have only a few speeds.

Thus we are looking to work with companies that deal with lots of customers in a pretty conservative, by the book big data approach. That is where we can do the most good, because generally these companies have a lot of tools and a lot of data (and with this they do make a lot of sales) but not much in the way of connecting all those tools to the data to actually improve their customer experiences. Behavee isn’t about “press this button and user your data to sell more.” It’s about collecting the right data, and using it the right way to ultimately grow your business stronger, with better customer experiences. That will generate more sales, and not only in the long run.

What we have learned recently is that being open-source is not a deal breaker for big companies and conservative institutions if they understand what is actually being shared, which is not their own operational data or the data of their customers, but the deeper understanding of how customers behave in general. In this way a bank that is using Behavee can benefit from our understanding of an e-commerce company, and vice-versa. Everyone can become stronger this way.

So if you have a lot of data and you somehow feel that you aren’t quite giving your customers what they are really looking for, then we are open to a discussion with you. Let me convince you that open-source is the future, and that understanding customer behavior, not just mining your data, is the key to being competitive today and in the future.

Blocknify, one of the 6 Batch 9 startups at StartupYard, actually began life at StartupYard, long before now CEO and Co-founder Chris Cowles came onboard. It was originally the brainchild of StartupYard alum Dite Gashi, and a team of developers from Budgetbakers he worked with at the KB Hackathon, cohosted by StartupYard last year.

Though the initial pitch for Blocknify was not much more than a QR code connected with the Ethereum blockchain to verify the authenticity of contracts, the idea clicked, and StartupYard along with Decissio started looking for a real Founder/CEO for the project. We found him this year, and since he arrived, he’s made Blocknify his own. I sat down this week with Chris Cowles to talk about Blocknify, and how he came from working for Amazon in Seattle, to running his own company in Prague.

Hi Chris, you joined StartupYard after meeting one of our alumni, Decissio. How did you end up taking charge of Blocknify?

That’s a classic Prague story! It started before I came here actually. StartupYard investor Philip Staehlin sort of came up with the idea when he was having issues signing sensitive documents with a big group of people.
A bank VP told Philip stories of how he had signed confidential documents in the past. They used to take the multiple copies of the contract and tape them up to the windows of a conference room. That way, they could compare the multiple copies and ensure that they were identical and there were no differences, just based on the line-endings and paragraph sizes.

Obviously that’s crazy in this technological age, but it still happens. Anyway, Phillip shared that idea with Dite Gashi, who is a StartupYard Alum (Decissio), and Dite worked on it with a few friends from BudgetBakers (another SY alum), at a KB hackathon organized by StartupYard. The idea the team came up with to verify contracts was to attach QR codes, and allow people to basically scan the contract with a smartphone and confirm there haven’t been any changes. It would use the Ethereum blockchain to make it transparent and also secure, because none of the data in the contract needed to be shared in order to verify that a new copy is authentic.

Chris, Dite, and the Blocknify team

The team did really well at the KB hackathon, but they were all working on other projects, so the idea didn’t really have an owner. Since Startupyard was interested in the idea, you guys encouraged Dite to find someone (eventually me), to take it over and become CEO for the project. I had just moved here from Seattle, and was looking to get into blockchain development somehow. I found the project by chance on LinkedIn. I actually read Dite’s interview on this very blog, which convinced me I had to check out the project and StartupYard. It just clicked for me.

A few months later here I was, attending startupyard as CEO of Blocknify. We have a development team in Kosovo thanks to Dite, and we’ve simplified and clarified the original idea to something really amazing. I’m excited to talk about it.

Blocknify aims to allow professionals to safely and securely sign documents anywhere, without ever hosting them on cloud servers. How does this technology work, and why is it so different from competing solutons like DocuSign?

Contracts are inherently sensitive. Of course you might not worry too much if certain documents were intercepted or stored improperly, because usually a contract by itself isn’t very compromising (unless you are Donald Trump). However, for businesses as well as for individuals, the sum of all your contracts is kind of the blueprint to your business or your life. It’s a roadmap to your strategy that, if someone had access to all of it, they could gain a serious advantage over you.

As we know from recent experience, centralized databases are prone to theft and hacking. It is innevitable as long as the incentives are there to misuse that data.

Despite this known issue, Europe is not adapting quickly to e-signatures, with many corporations having policies against the use of any software for contracts. Of course it doesn’t help that the regulatory system in Europe is very complex, which is a big part of the challenge of driving adoption of e-signatures.

What is particularly good about Blocknify is that it gets past many of these barriers by not acting like a cloud service. We do not need to store contracts in any reconstructible way, and no part of anyone’s sensitive data needs to touch a server.

Yet we are still able to ensure for multiple parties in different places that the contracts they are signing are the same. That’s because when any user has the contract in front of them on their computer and signs it, that signature is irrevocably recorded in the Ethereum blockchain, and it is attached only to that exact version of the contract. Because we use a unique fingerprint of the document to apply signatures, if someone were to change the document in any way, the unique ID would be different therefore the signature would not match.

In essence what Blocknify allows companies and individuals to do is have the same level of security and verification as if all the signatories were sitting and signing the same exact piece of paper. No chance to hide anything or make unauthorized changes. All documents stay local, without touching the cloud, just like with paper.

Your solution uses the Ethereum blockchain. Many people aren’t deeply familiar with how that works, and what the advantages of distributed ledgers are. Why is Ethereum so important for your solution?

The most important thing to know about why we use the Ethereum blockchain is that in order for Blocknify to work, signatures must be totally immutable. There is just no reason to sign something if someone can modify or destroy the signature later. That’s like signing a contract and then not keeping a copy with the countersignatures. Ethereum is a distributed database of all those countersignatures that can’t be changed, only added to.

On Blocknify, once you sign something, it’s signed. That version of the document is signed, but no other version. The thing about databases in the traditional sense, like a cloud storage platform or an on-premise server, is that it is taking something inherently mutable and making it immutable using software. The problem is that the more functionalities and permissions you add on top of a database, the more possibilities there are for a security flaw, and thus for data to be corrupted or changed. A database can be built very secure, but it is mutable by nature.

Blockchain doesn’t have to be like that. Because it is distributed across many, many nodes, no attacker can change the history of transactions without the permission and agreement of a majority of the nodes. As long as there are many actors in the system, the vulnerabilities in any one particular node are minimized by the whole. Ethereum is designed to be very inflexible: it does not focus on speed and ease of use, but on absolute certainty that a change to it is legitimate. Then on top of that, we can build an application layer that is easy to use, like Blocknify.

The great thing about that is that as long as the Ethereum blockchain is used, the records it creates cannot be destroyed or altered. It is safe from disaster in a way. You can’t lose the records in a fire, like you could with paper. You can’t misplace them. If they are destroyed locally, you can still get them back.

So if you imagine a world where all contracts are smart contracts on blockchain, and some disaster happens like a Tsunami, and wipes out all the local databases of a particular company, then every one of their agreements and contracts could still be recovered from their counterparties, and would also still be in effect.

All that being said, as our customer, you don’t need to think about the blockchain or know how Ethereum even works. It is just a way of having a database that is fully transparent and safe in the way it stores and collects data. The way our technology works, we have no access to data from our customers, so no one else does either. Unlike any other e-signature service, there is no risk of a data breach with us because we don’t have any of your data.

This is not only secure in a way that cloud platforms aren’t, but it also makes auditing and verification of authenticity much easier. Because there is no centralized database that can be corrupted, there is also no way to fake, undo, or override previous changes. Anything signed is signed, and the only possible way the signature data is useful is if you have the document it relates to.

To you, what does the future of contracts and signed agreements look like 5 years from now? How will most people be signing and handling confidential documents?

It’s too obvious to say that contracts and the signing process will be paperless. There will be die-hard businesses that still use paper, but changes in regulations such as GDPR will also accelerate the need for everything to be digital, auditable, and in the control of the owners of the data.

I am not going to predict with certainty that you will be using the blockchain to sign everything. You might. Either way, laws and regulations will be focused more on immutable workflows, one way or another. We will have an ever increasing need for systems and databases that cannot be faked, back-dated, or overwritten without some sort of trail. As all things go digital, the danger is the same as with paper: you can destroy documentation and you can create false documentation.

In analogue technology, there have always been ways of using one-of-a-kind aspects of documents to make them resistant to fakery. Watermarks, stamps, holograms, even the grain of paper. The Romans used wood chips that could be matched to each other to verify agreements, for example. They could cut the woodchip in half and only the two pieces matched each other because the wood grains were unique and impossible to fake.

The blockchain replicates that effect. It’s like the blockchain is half of the woodchip, and a private key is the other half. Both unchangeable, both permanent, both only working with the other. That kind of inherent incorruptibility is going to be vital for making digital agreements work in the future.

Of course, blockchain technology also means that we can go beyond the analogue functionalities of a wood chip or a notarized signature. We can construct smart contracts that will only execute when other contracts and agreements have already been fulfilled on the blockchain.

For example, suppose you want to do factoring of your invoices, which means borrowing money against money owed to you as a company, which is a common process in business. Today in order to do factoring, the bank or lender loaning you the money must trust your clients and their agreements with you. If those clients don’t pay, it is your company that is responsible for that. In addition, the lender has to trust that you will pay them back when you get the income you’ve invoiced for.

With a smart contract, you could create a factoring system where that is all automatic. The lender can see the status of the contracts, and can be paid directly from the source. In addition, a smart contract can even put safeguards in place so that a lender knows that the companies which owe money will be able to pay the invoices when they are due. This would also give a lender a way to very safely lend the money, and a company that needs factoring of its invoices a very easy way to get liquidity when it is needed.

In fact, we have built a system just like this for a major bank already. I can’t share more details yet, but this is a really exciting possibility for banks, and for their client companies that face liquidity issues. I believe that solutions like the one we are providing will be the standard in a few years.

What is your go-to-market strategy today, who are you targeting, and where do you see that leading in the next few years?

We were lucky to find our first paid customer early on (Raiffeisenbank) and were able to deliver an API version within a month. Our main go-to-market strategy is B2B as this is business productivity software. Still, because organizations require more significant features, we realize that Blocknify can bring value in a simpler form. With that understanding, we decided first to produce a version meant for freelancers, contractors, and small businesses. We will be launching this version within this quarter (Q2 2018). Then we plan to release an enterprise version in late Q3 2018.   

Today our platform allows us to build processes into our smart contracts.  For example, you have a contract but it is only valid for a certain amount of time. If the contract is self-executing, there’s no need to actively monitor it. Also, we can do something similar for approval processes, and we see these self-executing smart contracts involving more processes over time. We believe this change will happen and we want to provide simple solutions to help companies realize the benefits of smart contracts.

You joined StartupYard in March. What did you expect from the experience, and how has that compared to reality? What has been your biggest challenge in the program?

Coming from consulting, I knew the value of getting an outside opinion for creative inspiration or challenging assumptions. I was expecting StartupYard with the mentors to be the outside consultant to challenge and inspire new ideas. This did happen, and we have benefited greatly from this.

What I didn’t expect was to find partners to help us avoid the common pitfalls, but also going beyond that and helping us grow a business that is self-sustaining and with a strong long term vision. From the outside the acceleration process looks like a carwash, but from the inside, you’re rebuilding the whole engine. When you’re starting a startup, you don’t know how to match your vision with what’s real. At StartupYard you integrate the vision and reality and make it real.

I believe you’re the first American to join the accelerator as a founder. Tell us a bit about your history, and how you ended up in Prague. What was surprising, either pleasant or not, about the transition?

Actually I am Czech on my Mom’s side of the family, but going back to her grandparents. She grew up in a Czech neighborhood in Chicago, with church services in Czech and Slovak. She taught me a lot about the Czech culture, and it ended up being a hobby for me. I used Czechoslovakia and Czechia as topics for a lot of school projects, and things like that.

I started out my career in Seattle, have traveled and lived in South East Asia as a management consultant, eventually living in Seattle again and working for Amazon. I didn’t really want to stay there, and I wanted to run my own company. That’s also a family thing, because my dad also founded and sold his own startup in the past. So I booked a ticket to Europe just to sort of look around. I ended up in Prague, and instantly fell in love. And of course, while I was visiting I met a girl as well. So I was hooked, as many people have been before.

To me Prague is the perfect size for what I want to do. It’s not in the spotlight like San Francisco or London, but it’s smart, there’s lots of local talent, and it still retains this unique atmosphere that my Mom loved about her “Bohemian” neighborhood in Chicago.