Dragging corporate secretarial services out of the dark ages
By Benjamin Cher September 18, 2015
- Fintech startup Otonomos aims to bring the process to the digital age
- Uses cryptography and blockchain to make process easier and more secure
OPERATING a company usually means an avalanche of paperwork, from incorporation documents to annual submissions, and the arcane processes involved have led to the middlemen of corporate secretary services enjoying a stranglehold on the space.
While the rest of the business world is going increasingly digital, corporate secretarial services appear stuck in the medieval ages, according to Otonomos founder and chief executive officer Han Verstraete.
“Corporate secretarial services still live in the analogue world, while other areas have become digital,” he told Digital News Asia (DNA) in Singapore.
“We are still using almost medieval processes inside companies – for example, we are still using wax seals and wet signatures for incorporation documents, yet wet signatures are easy to falsify,” he added.
Wet signatures refer to a person physically marking a document to prove that he or she has read it.
Fintech (financial services technology) startup Otonomos, with its motto ‘We put your company on digital rails,’ was one of the graduating startups from the recent inaugural Startupbootcamp Fintech in Singapore.
It uses blockchain technology, a distributed database that maintains a growing list of data records hardened against tampering and revision.
The startup hopes to turn the incorporation process on its head, removing the hoops that people have to jump through to get a company off and running.
“Today, incorporating a company is like going physically to a travel agent to get your flight ticket –you sit in front of a person, they let you wait while they endlessly type information into a terminal,” Verstraete said.
This is the issue that Otonomos looks to solve for companies, by digitalising corporate secretarial services.
“Cryptography can now replace a lot of the processes that gave the perception of security from how you set up a company to how you transfer shares and how you vote on board resolutions,” he added.
From funding and investing, to transferring and increasing the number of shares, the startup wants make running a company easier.
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Wolves of Wall St
Verstraete (pic above) was in a Wall Street firm when the global financial crisis of 2008 broke. “It came as a massive shock to see how the whole system I grew up in was crumbling,” he told DNA.
That was the catalyst that got him looking into technology that could empower people economically.
“By decentralising this whole process, you are giving power to the broadest possible [number of] people to participate as economic actors,” he said.
The idea was to make it easy for people to start their own companies and make them legal entities – and to even start giving out equity as easily as if you were sending email to somebody.
It was with this premise that Otonomos was born.
“We are corralling analogue assets and giving the user the digital frontend, so incorporating a company through us is just a matter of creating a share wallet in your name or your cofounder’s name,” Verstraete said.
This creates your ‘genesis shares.’ Otonomos then runs this through an incorporation authority like the Accounting and Corporate Regulatory Authority in Singapore, or the Companies House in the United Kingdom, instead of the user having to do it.
“All you need is proof that you have been incorporated, which will be uploaded to the dashboard of your share wallet,” Verstraete said. “That’s the hallway to the further services Otonomos is providing.”
The company describes it as being in the cockpit, “where you can steer your company with no friction on the analogue side,” he added.
The startup is also looking to help existing companies run their corporate secretarial services.
Otonomos is not incrementally improving technology but is pushing a ‘zero to one’ technology, according to Verstraete – and this brings its own challenges.
“You want to make sure that when you use blockchain to transfer shares to your investors and collaborators, that legally it’s bulletproof and it works,” he said.
Shares also need to be linked to an identity, which is different from bitcoin, which blockchain technology is derived from, according to Verstraete.
“By law, there is no way one can have anonymous shares, because anonymous shares are bearer shares which are outlawed in most jurisdictions today,” he said.
“So we need to link the identity of the owner to the shares, and you need to do it technologically,” he added.
Surprisingly, regulatory authorities are not opposed to Otonomos, according to Verstraete.
“The regulatory authorities are generally benign – there is inertia, but there is also recognition that a solution like ours would make Singapore a magnet for businesses,” he declared.
“[Singapore] is a very important centre of incorporation, but it is still overshadowed by the mega-centres of incorporation like the United Kingdom or Hong Kong,” he said.
Otonomos also faces fewer regulatory barriers because its customers are private companies that require less regulation and compliance, he claimed.
While Otonomos might not have any direct competition, Verstraete admitted that it does face threats.
“One is the incumbent formation agents and corporate services providers.
“These are not very glamorous businesses, and they tend to be analogue and non-digital – there is no formation agent right now that has a website where you can go and incorporate a company,” he said.
While these agents might find it harder to break from tradition and innovate, Verstraete noted that should any of them do it, Otonomos would find a new competitor.
Otonomos only launched in July 2015, and the current user base is still small, according to Verstraete, who declined to give a number, only saying that the number of enquiries has been “encouraging.”
“We have to hold off a little bit because we are still waiting for one licence to come through in Singapore,” he said.
“To get a formation agent licence in Singapore you need to hire local people, so our first priority has been our funding round to be able to hire local people with the necessary qualifications to get the licence,” he added.
The next 18 months will be crucial, as the startup aims to get 200 paying customers, be in three jurisdictions, and record US$1 million in revenue.
“How to get there? The answer will be the same as for other startups – first, you want to make sure your product is done, so you add the necessary expertise to your team,” Verstraete said.
“Good old-fashioned salesmanship – there’s a temptation with technology startups and among the coding community that the code will sell itself, but there is still old-fashioned salesmanship involved,” he added.
There is a greater need to have conversations with customers about how Otonomos works, and to dispel what doubts they might have, he added.
As for talent, Verstraete said that it was not easy to find good coders in Singapore with expertise in blockchain technology.
“We have four to five people working on coding across the world, but we are looking to bring in a backend blockchain person to Singapore within the next six months,” he said.
“We are also looking to have our legal person here, our compliance person here, and together with our current frontend person here, you’ll see a team of five full-timers in Singapore,” he added.
On the technical front, Verstraete is looking to further develop the dashboard that customers can use to run their companies. Right now, users who sign up do not have access to a dashboard, only getting the cryptographic key pair to manage their share wallet.
On the subject of funding, Verstraete said he believes in bootstrapping, as it provides the best discipline and focus in building a product. Otonomos was self-funded by Verstraete before embarking on a seed round.
“We currently have about US$250,000 committed by angels since demo day, which might be topped up to US$2 million by other investors,” he said.
According to CrunchBase, Otonomos has garnered US$165,900 in funding from two rounds.
A greater challenge for the future would be in securing the next round of funding here in Singapore, according to Verstraete.
“[It’s about] whether a business that works with true blockchain technology that innovates from zero to one instead of incrementally improving something, can get Series A funding here,” he said.
This would require an investor community matured enough to understand Otonomos’ business plan, he added.
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