Exclusive Interview with Venture Capitalist Investor at Blumberg Capital: Bruce Taragin
Bruce Taragin, a venture capitalist investor at Blumberg Capital, shares his viewpoints and experience with the bitcoin and blockchain in today’s interview. Bruce has worked in the area for over 20 years. His main focus is on investing in early-stage information technology companies. As he works for Blumberg Capital, almost 75 to 80 percent investment are enterprise infrastructure related. Financial technology, also known as fintech, becomes the biggest core of their investment. So, over the last decade, Bruce has been incredibly active in fintech space. They begin discussing Bitcoin and blocking technology since 2010. In 2017, Bruce also joined and became an adjunct professor at Columbia University, teaching courses related to the blockchain.
Bianca: How did you hear about Bitcoin and what attracted you in the beginning?
Bruce: We’re venture capitalists. And I think some firms have taken the venture out of venture capital. So, from our perspective, we are always trying to venture and find new opportunities.
I’ve been incredibly fortunate to be in this industry for a few decades and my partner even longer than that. I still remember the mid 90s, the whole internet boom and bust. The wave also witnessed the Netscape IPO. So, there have been these waves of technology innovation. Again, with the Internet; it was the type of this information. All these bits were traveling through the internet and leveraging that and all of the value creation came out of that. Next was the birth of the iPhone in 2008 which is now about a decade old. We can see the mobility and how it impacts all of our businesses. Another wave is around social media. Today you constantly hear about the fake news. It is true that social media has really transformed that industry. We were very fortunate to be one of the first investors in a company called Huet Suite that is one of the market leaders in the social media category. As I mentioned, in fintech, we've invested in 20 and more financial technology companies across all of our different funds. So, I would put bitcoin or blockchain as a subcategory within fintech. And we have been curious about it for some time, in fact as far back in 2010-2012. We have looked at it and been evaluating some potential opportunities in both following the cryptocurrency, the Bitcoin itself, and the underlying technology, the distributed ledger technology and block chain itself. That's been a focus for us.
Bianca: To use your own words, how would you describe block chain?
Bruce: It’s evolving, but it’s unquestionably blashing. Today, this new technology that, in a simple form, is this distributed ledger technology, enables the transfer, identification and ownership of assets of currency through this crowdsourced consensus medium to ultimately create an immutable bitcoin or a blockchain where you can transfer this ownership. It is distributed, so that’s why it is so revolutionary and it is not centralized. Everything today has really been much more centralized. I think this distributed ledger technology is so unique that you can have a true immutable version of something. So this transfer or this internet of value, in contrast to the Internet of information, is what a blockchain represents to us.
Bianca: Since you associate the blockchain with fintech, how does the financial industry react to this new technology?
Bruce: Well it is still in a very nascent stages and to be determined. I think there are a lot of players in the ecosystem that are looking at both the cryptocurrency as well as the underlying technology, the block chain itself. And it's still very early days. I think, in the U.S. , there is a fair amount of reticence around it, in terms of getting a better understanding and exploring what the opportunity will be over time. For example, IBM has issued a research report saying today on the financial services side, probably 15 percent of banks are working or trying to work with blockchain. But by the year 2020, they're expecting that number to be approaching 80 percent.
I think what we are seeing is a trend of innovation. There is also a study put out by Deloitte that says they expect there will be more funding for blockchain-related companies than there will be for IOT, Internet of Things, as well as cloud computing companies. So we are in the very nascent stages of innovation. It's still a little bit of the Wild Wild West but we remain very sanguine that the underlying technology of blockchain creating more certainty around transactions and prevention of fraud are things that are going to really transform the industry. It's been a decade since bitcoin and the blockchain have been created and they have never been hacked in the last ten years . It's always been secure and never been compromised. And that's a big deal when you think about financial services. One of the areas that we're actively investing in as well is cyber security. If you think about transactions across the Internet, phishing, pharming, and distributed denial of services, all of these compromises and new security innovations are coming out that effectively compromised financial services and yet blockchain has been one that has not been compromised. So, I think that uniqueness will demonstrate value in the coming decades.
Bianca: Besides the financial industry, can you elaborate on what else we can see the application of blockchain?
Bruce: Sure. Again the block chain is still in its early life. But undoubtedly, there has been interest around both identity and fraud. I think there are numerous applications where we'll see the leveraging, and distributed ledger technology.
The question we really need to ask is in what way is a distributed ledger technology unique so that it could provide a solution that could otherwise not be provided from a regular database or centralized database. So it will be in thinking through those opportunities that we will see lots of innovation around a variety of applications which I think will happen in the coming years.
Bianca: Who are the early adopters, and what kind of challenges are you facing?
Bruce: In terms of the early adopters, I would probably put them into three categories. First is the developers or platforms themselves, such as RIPPLE, Hyper Ledge, Ethereum, bitcoin, etc. Second are some of the large consulting firms, the IBMs of the world. I think IBM has spent a lot of time and energy. They have a dedicated team, approximately 6500 folks, focusing on blockchain and seeing different opportunities. Some of the large banks, for example R3, which is one of the platforms initiated by the Bank of America and some of the other large institutions as well. And, finally, the ecosystem is really the startups where you'll see a tremendous amount of innovation. It's still very early days but those are the three main buckets that I would describe as being in the early stages evaluating opportunities around blockchain.
Now you also ask in terms of the challenges or the problems. It's early. There needs to be a confirmation that people can trust and rely on what blockchain stands for. I think we're going to see a lot of capital invested into a variety of blockchain applications and related infrastructure. But there needs to be trust, scale, and speed in terms of transaction processing that can make sense for a variety of today’s applications. If you look at the transactions per second that a MasterCard or Visa does versus what you can achieve today on blockchain or Ethereum. We’re nowhere close to that yet. It has certain applications that make sense but it will speed up and grow over time.
Bianca: You mentioned the ecosystem of the whole blockchain industry, and you are seeing all different kinds of people, like miners, developers, and companies. It's pretty wild. How do you characterize this ecosystem?
Bruce: It is definitely a varied ecosystem but that's the nature of innovation and that's what makes sense. Typically, we refer to it as the Heisman Trophy where you put your arm back. What typically happens is the startups try to develop and innovate, yet, a lot of the big companies give them the Heisman, saying ‘No, we're not ready for that type of technology yet or we're not going to embrace it.' But then, those banks, insurance companies, the government and a lot of these larger institutions acquire or partner with early technology innovators in the ecosystem. It is still early but it's an amazing journey.
Bianca: Interestingly, you are teaching a course at Columbia University, but it's not for business. Do you think the blockchain can solve other problems in our society.
Bruce: Absolutely, I think there can be relevance in emerging markets where there are problems with the local currencies.
The school that I teach at here is focused on policy which is absolutely thinking about degrees, which is good. And this morning, my student and I talked about energy in our project, and how energy enables transfering in a shared economy in different regions. So I think there's lots of social good that can come from leveraging the blockchain technology. It's not necessarily just about money. Many of the students that are in the policy school are also in the business school. So, they have the dual background. They're still young and trying to figure out where they want to go with their careers.
Bianca: Tell us a little bit more about your teaching career. When did you start teaching?
Bruce: This is the second year that I've been teaching at Columbia University. And it's been great. For me it is a privilege to be in a position to give back and to be a mentor and work with some of these incredibly bright and talented students. I really enjoy it. It's challenging because I spend my full day working for Blumberg capital and that's a full time job. We sit on many boards and invest in lots of companies. So, teaching is really in my spare time. It's typically a few hours once a week. I taught a course last year on insurance technology, a subject that I would also put it in as a subcategory of fintech. This semester, I am teaching a class on blockchain and cryptocurrency which was a really interesting project to work on with the students, so I love it.
The students are great. They're really talented, young, bright students. And they're thinking about where they want to go with their careers over the next 20-30 years. I'm not a professor and I'm not an academic. There are some here that are full time professors. That's all they do. I'm a venture capitalist and an entrepreneur. I've been a lawyer and a banker. I have a diverse eclectic background in a number of those categories. But for me, it's really a privilege to get to work together with them on this project. And specifically, the class I teach here at Columbia University is called a capstone. It's their final class before they typically graduate and it's like a thesis project and it's apparently for their CPA. The capstone is one of the biggest draws why students come to Columbia University. It's that experience of getting to interact with an adjunct professor like myself that often is in the working business world. And then the capstone work. we have a client. We worked with a very large consulting firm and typically we work with Fortune 500 or Global 2000 companies on the outside. So, for the students, it's a real life business project and it's exciting for me, as a professor, too, because we don't know where it starts and where it's going to end. We iterate and pivot and it's very fluid.
And for the students, it's a very real life experience where we work in a very small group with a defined purpose. They interact with the client on a regular basis. And as part of the class, they're really learning what it means to be a business professional in the real world. For example, we have defined deliverables under a certain timeline with our client. As part of the process, we often are conducting interviews; we are meeting with experts in the industry; we are going to different conferences. It's like a very real life world experience. And I've found it really enjoyable and challenging and I'm constantly learning. I think hopefully the students feel the same way.
Bianca: Sounds fun.
Bruce: It is. It's terrific and it's frankly one of the things that I love about being a venture capitalist. Every day we're learning something new. It's studying the blockchain. It's learning about the Internet. It's new technologies around cybersecurity. There's always innovation happening in different areas. And for us, it’s always challenges ourselves to go out into the market and to learn and understand these technologies and what those applications might be. For us, we always have to understand how do we monetize that business. Can we know if there is a company here that can be created or can grow from zero to a billion dollars in revenue. That's our objective. And as fiduciaries, that's what we're looking for. Many times, we see technology companies that are creating tremendous social good as well. And it's fantastic. It's been a great run.
Bianca: You mentioned you finished a course on blockchain. Is this the very first course on blockchain at Columbia?
Bruce: I don't actually know if it's the first course. I would say that the administration was very enthusiastic when we discussed it. Then, they approached me to teach a course on blockchain.
There's tremendous demand from what I'm hearing across the university. I think that's true on a much larger scale, not just at Columbia University. I know a few of the capstone ones that started out something not related to blockchain, but evolved and pivoted into something blockchain related. I think they're definitely catching the bug. So, the point is, as a venture capitalist or as an early stage technology investor, it's clear to me that blockchain is really meaningful and going to have impact for decades across a variety of verticals. And for the students that are going out into the world, they have to pay attention to this. They really have an edge. I think they're exposed to it now while they're still in school as students and they're learning about the new technology. We refer to blockchain and the distributed ledger technology and what those applications might be. I think for the students to be on the cutting edge and have the opportunity before they go out into the professional world is a very unique opportunity and exciting for them.
Bianca: You mentioned there is a lot of demand at the university, is it coming from the students or does the school thinks it should be put into the curriculum in order to make sure the students can compete in the future?
Bruce: Well, as I was mentioning, the university came to me and they were very excited when we talked about blockchain. Last year I taught a class on insurance technology that was great and I think the students really enjoyed it as the administration had tremendously positive feedback.
But I mean, it was another level of euphoria when it came to blockchain, like they were so excited when we started contemplating such a course. So I know there's a lot of interest and probably more interest to continue and have more classes on the subject matter. I frankly haven't really chatted with the administration too much post the class because we just wrapped up. But that's my sense.
Bianca: Interesting. I'm curious about what taught in the classroom, and what type of feedback did you hear from the students?
Bruce: The students were really enthusiastic. And, again, it was a privilege for me to spend time with such bright young minds thinking about a new area. It really evolved and it was very dynamic. With the client, we didn't know exactly where we would be. We started out very broadly focused on blockchain and thinking about cryptocurrencies, ICOs - initial coin offerings. It evolved over time but we really focused on was unique applications in the enterprise where blockchain can make an impact to your earlier question. We focused specifically on three verticals. It's so vast and broad in terms of where blockchain may have application but we focused specifically around financial services, energy and mobility as a service while also incorporating artificial intelligence. That's the final presentation we had this morning for the client. We also conducted a number of interviews with experts across the globe as part of the class and I know the client really appreciated the value and the students loved it. It was great. They were excited. To me it was also great. It keeps us young.
Bianca: What type of question would the students usually ask? What part of this technology interested them most?
Bruce: There's naturally questions around what's going to be the price on bitcoin and ether and some of the other currencies that are trading and some of the initial coin offerings, that is making a lot of headlines. But, our class really focused on the underlying technology, the distributed ledger technology. This Internet is a value in that you can have the ownership and identify assets through the distributed ledger. That is very unique. It is what we try to focus on and specifically think about where and how could enterprises incorporate this technology, where a regular database wouldn't serve its purpose. I think that's part of the problem. There's something referred to as a Murray's law.The net of what Murray's law was saying was initially there tends to be an overreach in that we believe that it can solve everything. Then people realized it and pulled back a little bit. A similar thing happned with the Internet -- we saw the Internet boom in the 1995 to 2000 era and then it pulled back. Now we've seen tremendous value creation from the Internet with businesses. I think we've seen a similar euphoria around the blockchain, cryptocurrency, the bitcoin and some of the other offerings.
But I think we'll settle in probably over the next decade when applications that really make sense and where the distributed ledger is unique and provides value that you couldn't otherwise have, whether it's through security and trust for a variety of verticals, including financial services, insurance, healthcare and identity management. It is a very big area. You can securitize it effectively and know there's this immutable ledger where the information exists. That's very unique and necessary. I remain very sanguine as we go forward with the blockchain technology, the underlying technology, and how it will impact a variety of industries.
Bianca: Talking from the educational point of view, what kind of talent do we need for blockchain in the future?
Bruce: I think it's great with the students that have a technology background. They deeply understand the underlying technology of how this works, but it is absolutely not necessary. I think if we have the combination of a technology background understanding and business acumen understanding to where there's a business opportunity, what is the business model, how can we monetize this application, that is fantastic. But ultimately think about yourself, do all of us understand how an automobile works or how the iPhone works exactly or how our credit card does a transaction? You don't need to necessarily understand how a credit card makes a transaction work. You just have to be able to rely and trust that the credit card will complete the transaction or that the iPhone will connect and make a phone call or your car can get you somewhere safely. So I think as consumers, the most important thing is trust which there's still tremendous volatility and a lack of trust in a global scale around Bitcoin and Blockchain. Is this real? Is this phenomenon real? What will it translate into in the coming decades? You need the trust and you don't necessarily need to have the knowledge and understanding of the underlying technology.