You might be completely unaware that some of your favourite companies are actually just a small part of a huge conglomerate. The biggest fashion brands, food, and social media companies are more often than not subsidiaries to a much larger organization. But what actually is a subsidiary? Keep reading to find out.
How can we define a subsidiary?
A subsidiary is a type of business entity or corporation that is solely owned or partially controlled by another company known as the parent company. The proportion of shares owned by the parent company determines ownership, and that ownership stake must be at least 51 percent.
What qualities do subsidiaries have?
A subsidiary is a separate and independent business entity from its parent firm. This is beneficial to the corporation in terms of taxation, regulation, and responsibility. Separate from its parent, the subsidiary can sue and be sued. Its liabilities are normally their own, and the parent firm is usually not liable for them.
The parent firm will have the requisite votes to establish the subsidiary’s board of directors if it owns at least 51 percent of the subsidiary. This allows the parent company to have a say in how the firm makes decisions.
Sub-companies and their parents do not have to be in the same area or have the same type of business. Subsidiaries may also have their own sub-companies; the line of succession forms a corporate group with varying degrees of ownership.
What are the advantages and disadvantages?
Advantages
Tax benefits: A parent company’s tax burden can be significantly reduced thanks to state-allowable deductions. For parent firms with several subsidiaries, the income obligation from profits earned by one subsidiary can frequently be mitigated by losses in another.
Risk reduction: Given that it establishes a separation of legal entities, the parent-subsidiary model reduces risk. Losses incurred by a subsidiary do not readily transfer to the parent. In case of bankruptcy, however, the subsidiary’s obligations may be assigned to the parent if it can be proven that the parent and subsidiary are legally or effectively one and the same.
Increased efficiencies and diversification: Creating subsidiary silos can help a parent firm achieve improved operational efficiency by dividing a huge corporation into smaller, more manageable entities.
Disadvantages
Limited control: If a parent’s subsidiary is partly controlled by other companies, managerial control difficulties may arise. This is as a result of matters having to be decided through the parent bureaucracy’s chain of command before any action can be taken. Decision-making ultimately becomes a lengthy and tedious process.
Legal costs: Lengthy and costly legal paperwork burdens result, both from the formation of a subsidiary company and in filing taxes.
Meta platforms: example of a subsidiary structure
Facebook, more recently known as Meta, is a well-established parent corporation in the digital industry. It has several investment portfolios in other firms in the social media sector and is the parent company of several software technology sub-companies as well.
Some examples of Meta sub-companies are Instagram, WhatsApp, Oculus VR ad Giphy. Each of these sub-companies are extremely successful in the tech/social media world.
As we have said at the beginning of this series, 21st Century businesses require a new way of valuing them. Also, since their DNA is to grow exponentially, making profits might not be in their current radar. So, to value these companies, we need to understand and take the metrics that best drives value for them. These drivers will eventually directly affect cash flow generation when these companies mature.
Performing a valution:
Our intention with this part is not to provide a valuation master class, but to explain how to identify these value metrics and why.
Why do we perform valuations on a business?
To go through a company sale process
Raise capital
Financial planning
IPO
Bankruptcy
Acquire a business
Make investment recommendation (buy/sell/hold)
Internal business decision making
Valuing employees´ compensation and options
Litigation processes.
As seen, a valuation is done to address many company situations and at different stages. There are many accepted valuation methods that can be applied. None of them is a straightforward winner when it comes to choosing one. It depends on many things. Hence, it is said that a valuation is both art and a science.
All of the above are just a few things that need to take into consideration when valuing a company. Furthermore, valuing a 21st Century company require of more art than science.
Valuation, in any business is based on expected future performance not past performance and involves:
Financial analysis
Market and operation architecture projections to establish financial conclusions
Industry and economic analysis
Applying generally accepted valuation methods
A UNIVERSAL RULE- The market dictates the value of a company. A valuation is a way to back arguments. So, it is in the eye of the beholding valuator that the true valuation approach is selected. Usually, various valuations methods are used to assess each argument. It is regularly represented in what is known a Football Field graph.
Valuation applied to 21st Century Business Models
21st Century businesses are called that because most of them started operations this century. The vast majority of them, as expressed in the Introduction part of this series, have not reached maturity yet. In fact, at least the ones that belong to the models explained in this series, many of them are still in growth stages.
As seen in the graph above, growth company barely generate profits, and sometimes negative cash flows. Does that mean that these companies are failing? NEGATIVE. By now, we should understand that the real value of these companies is in the continuous increase of their customer / userbase, with a credible thesis that this will convert into a cash flow generating machine in the long run. While engaging customers / users, 21st Century companies test various revenue generating ideas until they hit jackpot.
Based on this, the valuation methods that are best applied to 21 Century businesses are market approach methods. There could be times when cost approach methods are applied, especially when valuing a technology or certain intangibles.
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By now, I hope, we can all agree that 21st Century Business Models need a new way of being analysed and understood for their true value. It is important for all players in the economic ecosystem around them to have a common communication channel. Investors and corporations, that invest and acquire 21st Century companies, need to understand the value that they present, present and future. After all, they will be analysing their return on investment. On the other hand, entrepreneurs need to communicate their company’s value in a way that the investor or acquiror will perceive the value of their investment.
21st Century Business Models are aligned with the digital age. Hence, although there are many new business models, we have covered the most relevant as of 2021. We have explained how new customer demand and behaviour in a customer driven age drive the success of these models. How they add value to customers and how this value is portrayed in business analysis, converted into kip’s and translated into a financial language, so that investors and entrepreneurs are able to communicate about the value of a certain company.
Our goal has been always to show how to understand 21st Century business models in order to perform valuations that grasp the companies’ real value. In most cases, and due to the drivers expressed, the value lies in the very first lines of the P&L. This is all related to, what is more related to the customer itself, revenues, and COGS. This value is better explained in the assumptions that result in the upper lines: revenues, gross margins, contribution margin and cost of customer acquisition. If we understand how a business addresses customer needs, how it manages or project these upper line economics and how the KPI’s that are communicated, then it will all make sense. If you were a 21st Century Business Model valuations’ sceptic, and now you understand what drives their valuation, our job has been gratified. If you are an entrepreneur and you have learned how to communicate the value of your company, we will both succeed. If you would like to extend the conversation, learn more or are thinking of pursuing a corporate operation that involves the acquisition or fundraising process of a company with a 21st Century business model, I will be more than happy to do so. You can contact me at [email protected].
Aknowledgements
There are countless people who I need to be thankful to. I have been interested in the financing stages of both new and growth projects since the beginning of the 2000’s. Have had many mentors, along the way. One of them, late Cesar “Tito” Montilla, who mentored me in many things regarding corporate finance, who showed me that knowledge was meant to be spread and to find ways to express what I am knowledgeable of. To my wife, who pushes me to find the better version of myself. To Laura Catalán and her team, for encouraging me and laying out my blog posts and ebook. To the ONEtoONE Corporate Finance team and their support. To all of you, Thank You!
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For the last few years, we have been witnessing the rise in popularity of Search Funds in Europe (and especially in Spain) thanks to a dynamic virtuous circle of an ecosystem with more and more Searchers, target companies, investors, and funders. Some readers have asked me how do you get it? In this article, I explain the four keys to such impressive returns for the investor.
No other asset generates such a high return with moderate risk.
It is due to the participation of four players, which have been fundamental to obtain average annual returns of 30%.
Let’s talk about the four pillars:
1. THE SEARCHER
A young person over 30 years old, with an excellent education (usually a prestigious MBA), with professional experience in very demanding firms such as big strategy consulting firms or investment banks, highly motivated to become an entrepreneur.
He no longer wants to work as an employee. He is at the peak of his professional life, at the height of his energy, and when you see him, you know that he will be successful in whatever he undertakes.
2. THE INVESTOR
Between 10 and 15 investors/advisors very experienced in business management accompany the Searcher in the company’s management.
The Searcher has with these investors a luxury Board of Directors formed by experts in venture capital, investment banking or former presidents of large companies, ordinarily inaccessible to SMEs of this size.
3. THE FINANCIERS
Today, a financial community of banks is willing to finance up to 50% of the acquisition.
These financial institutions need good projects to finance. They have become familiar with the model and its good results over the last few years. Moreover, they have overcome their initial reluctance to finance small SMEs, supported by the criteria of expert investors who invest their own equity in these companies.
The entrepreneur himself usually also finances the deal by accepting deferred payments and sometimes reinvesting part of the money he receives in the company.
4. THE TARGET COMPANY
Search Funds focus their efforts on identifying healthy companies, with understandable business models, with a defensible market position, without a high concentration of clients and with growth.
Target companies typically have more than five million euros in turnover and an EBITDA of more than one million euros. They have healthy EBITDA margins, typically above 15%, low CAPEX investment requirements, low working capital requirements and strong cash flow generation.
Historically, the average company acquired by the Search Companies has had sales of $8 million, Ebitda of $2.4 million, and acquired at an average price of 5.6 times EBITDA.
The Searcher (1) buy at an attractive multiple, thanks to the scarcity of competitors in the purchase, (2) increase sales thanks to the Searcher’s commercial energy and international capacity, (3) improve margins, given that these types of companies are usually not optimized, (4) make add-ons that change the size of the company, (5) make a professional sale process of a company that has increased its EBITDA to the level where they already buy at high multiples (6) thereby benefiting from the arbitrage of multiples.
We are in a virtuous ecosystem with more and more searchers, target companies, investors and financiers.
There are more and more young MBAs, who, instead of being part of the machinery of big business, prefer to follow the path of the Searcher and become entrepreneurs, masters of their destiny and, probably, millionaires.
Global M&A activity in 2021 easily surpassed the pre-pandemic level and nearly matched the peaks of 2015 and 2007. The number of announced M&A deals exceeded 62,000 globally in 2021, up an unprecedented 24% from 2020.
2021 was a very successful year for global M&A activity, so we’re taking the time to look back on some of the biggest M&A deals of the year.
The biggest M&A deals of 2021:
5. US17.4 billion acquisition of PPD by Thermo Fisher Scientific Inc.
This partnership brings together Thermo Fisher Scientific, a pioneer in scientific instruments with a leader in clinical research services (PPD). Synergies are estimated to total around $125 million as a result of the purchase. It also establishes a foothold for Thermo Fisher Scientific Industries in the $50 billion clinical research market.
4. US20 billion acquisition of Nuance Corporation by Microsoft
Microsoft’s $20 billion purchase of Nuance Corporation provides it with a significant presence in the healthcare industry. According to Microsoft, the target company’s products are utilized by more than 55 percent of physicians and 75 percent of radiologists in the United States, as well as 77 percent of hospitals in the country. As a result, it’s a great purchase for Microsoft Cloud for Healthcare, which was launched in 2020 and is Microsoft’s attempt to apply its industry-specific cloud approach to the healthcare sector. It paid a premium of 23% above Nuance’s stock price.
3. US$22 billion acquisition of Deutsche Wohnen by Vonovia
In May, Germany’s largest residential property business launched a bid for the country’s second-largest residential property business. The deal is still the biggest in Europe so far this year. When the two companies merge, the new company will have ownership of almost 500,000 properties. Vonovia has been considering an acquisition of its competitor for several years and had already had two proposals rejected.
2. US26 billion acquisition of Shaw Communication by Rogers Communication
The purchase of Shaw Communication by Rogers creates a national mobile communications powerhouse in Canada. The merged business has already pledged to build $2.5 billion in 5G infrastructure in Western Canada over the next half-decade.
1. US$30 billion acquisition of KCS by Canadian National Railway
Finally, we´ve reached the biggest M&A deal of the year. The combined firm would bring an integrated logistics firm that spans Canada, the United States, and Mexico, potentially perfectly timed for reset trade relations between the US and Mexico.
About ONEtoONE
If you are considering selling your company, ONEtoONE Corporate Finance can help you get the best deal possible. We are a global firm dedicated to providing the highest value services to our clients through transparency and professionalism.
ONEtoONE is specialized in international middle-market M&A advisory, having participated in more than 1500 mandates. We continuously focus on improving the techniques to achieve the best possible price for our clients. We advise on mergers and acquisitions, strategic planning, and valuation. If you need advice for any possible corporate operation, do not hesitate to contact us.
Most DeFi projects or protocols can be categorized into these main project types:
Decentralized Exchanges
Known as Dexes, are cryptocurrency exchanges that allow you to trade currencies without an intermediary. One example and one of the leading Dexes is Uniswap (an automated market maker protocol that runs on Etherum).
Lending Platforms
Decentralized finance allows anyone to borrow or lend cryptocurrencies. Users can earn interest yield when they loan their assets. They can also borrow cryptocurrencies by using their own funds as collateral. CoinLoan, Lending Block and AAVE are leading cryptocurrency lending protocols.
Savings
Like with a traditional savings account, you deposit the money you want to save in a bank and cannot withdraw it for a set amount of time, although at a very low interest. Crypto-saving works similarly, but the benefits overshadow those of a savings account in a traditional bank.
There are dApps like compound that allow participants to create a network of people to allow them to pool their money to earn interests. borrowers can take a loan from these pools. These borrowers are required to pay the collateral as security against the loan and are scheduled to pay interest back into the pool.
There are far fewer limitations on withdrawals
Because of the blockchain platforms provide more rigorous security for their assets.
Insurance
Cryptocurrencies are tied into smart contracts, which can be vulnerable to hacks and other security breaches. This is the reason why the insurance sector has now set foot into the DeFi space.
Insurance is meant to protect a customer from uncertain losses and provide a plan of risk management in case of a financial loss. Cryptocurrency insurance is similar to insurance for any other asset and protects against various risks attached to cryptocurrencies.
Technical risks: risks involved in the coding of smart contracts and development bugs.
Liquidity risks
Admin-key risks: Admin-key could be considered as the master key to all accounts on a particular platform; if it is stolen, everyone on the platform is at risk of being robbed.
Derivatives
In traditional finance, derivatives are defined as a commodity that derives its value from an underlying entity. These underlying entities can either be interest rates, stocks, commodities, indexes, or currencies (in the case of DeFi, cryptocurrencies). Derivatives are essentially contracts that are designed and signed by two or more parties, mainly for risk management purposes, agreeing to the purchase or sale of an asset at a decided price in the future.
Another reason that derivatives are used is to speculate the direction in which the prices of an underlying asset will move.
In decentralized derivatives exchange, the need for a broker is eliminated. Instead, these contracts and leverages are coded into smart contracts. Moreover, the transaction is completed on-chain when the decided terms of the contract are fulfilled.
DeFi derivatives include forwards, futures, swaps, and options.
BitMEX is one of the first platforms to introduce decentralized derivatives in 2014, and since Dapps like Binance and Huobi have followed suit.
Asset Management
DEFI protocols are the future of finance but unfortunately, unless you are deeply immersed in the space, many potential investors don’t have an idea of what protocols are worth following let alone what are worth investing in.
The process of buying into a DeFi asset requires climbing a steep learning curve. Having a wallet and having to fund a separate crypto account is foreign and intimidating to the average investor.
In the past year alone, we’ve seen several products offering different ways to either track, manage or hedge exposure through a suite of various DeFi projects in the lending, DEX and derivatives sectors. The common theme is that of accessibility, ultimately making it easier (and safer) for DeFi users to keep track of their ecosystem interactions in a suite of intuitive dashboards and interfaces.
Some key characteristics:
Non-custodial – Ownership of the underlying assets is never revoked and tends to live in the wallet being used.
Composable – Many of the top Asset Management projects connect to a wide number of DeFi projects, creating an end-to-end DeFi experience.
Automated – The growing number of Asset Management tools are automated, meaning rebalances, collateralization, and liquidations can occur seamlessly without user interaction
Globally Accessible – Asset management tools are accessible to anyone regardless of their location or tax bracket.
Pseudo-anonymous – Asset Management products often connect through a wallet address, meaning that identity is optional to those who wish to share it.
Real assets:
Its is now starting to fly but over the past 2 years some of the DeFi assets also include private companies, real estate as well as hedge fund shares. Such types of assets generally feature additional growth and income mechanisms, subject to algorithmic allocations alongside the benefits of transparency in Ethereum. What would happen is that real asset projects would raise funds through an ICO. Like in an IPO scenario there would be a secondary market for these tokens.
Assets tokenization:
Help to enable organizations to dematerialize assets in the form of tokens that are legally compliant via a decentralized blockchain that are digitally accessible for investors.
Payment solutions:
Eliminating central authorities to offer a faster, efficient and more transparent payment systems to the unbanked population.
Bottom Line and DeFi Metrics
Understanding Blockchain, Crytpo and DeFi concepts allow us to understand that in the end, DeFi is about providing financial services from a decentralized platform (meaning no intermediation). To enter the DeFi market, whatever the project one would one to buy in, one should acquire a project token. That is, the currency in which the project transacts in (cryptocurrency). For example, Ether for Ethereum. A good way to analyse tokenized projects would be to know:
Who is behind the project? One way to do so is to find out if there are any known VCs behind the project
Know if it’s a reliable product trusted by many developers. The more applications that are built on that blockchain, the better.
There are KPIs that are more market aligned like:
a- Total Value Locked (TVL): The most popular metric for DeFi is the TVL metric. TVL represents the total amount of assets locked in the various DeFi applications smart contracts. This metric is used to assess how much crypto is committed to a smart contract of a project. The total value locked in a protocol can be measured using crypto or USD. In a particular marketplace, TVL is the sum of total liquidity in the liquidity pool. TVL is often used in combination with the market cap, which is calculated by multiplying the value of tokens by their price in USD. As a rule of thumb, the lower the TVL, the more undervalued a DeFi project is. However, there’s more to consider besides the TVL when making a decision.
b. Token Supply on Exchanges: While DeFi aims to decentralize financial operations, it’s still essential for you to check the supply of tokens on centralized exchanges. If an abundance of tokens is held at the exchange, it points towards a significant sell-off in many cases. As a result of such a sell-off, the token tends to destabilize. Thus, it’s imperative to look for these signs while performing due diligence on your cryptocurrency. However, things don’t always turn out this way, and you also need to weigh token supply and other DeFi indicators when making a decision.
c. Token Balance Trends/Movement: The token supply doesn’t always indicate a large number of withdrawals from wallets. You also have to look at the balance movements of the token on the exchange. Keep in mind that it’s characteristic of crypto trading to move tokens from personal wallets to exchange accounts, and vice versa. Only a highly uncharacteristic or significant movement should tip you off when making decisions about DeFi tokens.
d. Inflation Rate: Most DeFi protocols have rules in place to ensure the token supply doesn’t cause inflation, leading to the devaluation of the DeFi tokens. However, this doesn’t apply to every token. While some projects don’t clearly explain the mechanism of maintaining a limited token supply, others don’t even have any coherent information on the subject. Therefore, when you’re selecting a protocol, look at whether a token is susceptible to inflation. If the answer is yes, it’s best to stay away.
e. The Growth of Unique Addresses: If a large number of unique addresses are holding a particular token, that could mean it’s growing in popularity and is being adopted massively. As an investor, you can use this as a metric to determine the relevance of an asset. However, it’s also important to note that a single user can create many addresses, keeping their funds in separate accounts. That could give the false impression of a token being widely used. So, be wary when using this metric. It’s best to use it along with other key performance indicators, as discussed in this article.
This article was written by José Ramírez Terc, specialist in 21st century business models.
About ONEtoONE
Our company, ONEtoONE Corporate Finance, is specialized in international middle-market M&A advisory. We are continuously focusing on improving the techniques to achieve the best possible price for our clients, and we also advise on acquisitions, strategic planning and valuation. We are pleased to give our opinion about company valuation or other aspects of a possible corporate operation. If you need an advisor while buying or selling a company, contact us.
The term “FinTech” or financial technology refers to new technology that aims to enhance and automate the delivery and usage of financial services. Fintech, at its most basic level, is used to assist organizations, company owners, and individuals manage their financial operations, procedures, and lifestyles more efficiently and to a higher degree. This is done via the use of specialized software and algorithms that run on computers and more recently on smartphones. Is FinTech the future of finance?
The term “FinTech” is a mix of “financial technology” and “financial innovation”.
FinTech has come a long way from when it was first introduced, nowadays it has taken more of a consumer-orientated direction. FinTech nowadays includes various sectors and industries such as retail banking, education, fundraising, and investment management as well as many more.
The world-famous crypto-currencies are also a development of FinTech. Although Bitcoin and the rest of these crypto-currencies may appear to be the stars of FinTech the “big” money is still in the traditional global banking business, which has a multi-trillion-dollar market valuation.
A new way of thinking about finance
FinTech has altered people’s perceptions of money and value exchange in a real-time, digital environment. “Cashless” companies are springing up all over, pushing reluctant customers to adopt the habit of digital transactions and leaving governments with the debate as to whether it is discriminatory or just progress.
Expecting people to pay for products and services digitally rather than with cash is just a small change that society has had to make. There are far more extreme advancements such as Amazon´s electronic supermarket, “Amazon Fresh”. Here, customers simply take what they need, exit the store, and the products are debited to their Amazon account automatically. These types of ideas are likely to shape the future of retail.
Another example of FinTech developments that many customers have accepted in current times is payment transfers via mobile phones or smartwatches. While PayPal has been around for a while, newcomers like Venmo, TransferWise, and Zelle are changing the way people exchange money for everyday transactions like splitting a bill and selling products to friends.
What happens next?
We have only scratched the surface of what is conceivable and expected by FinTech. It is drastically transforming our lives and habits by allowing us to trade, bank, and exchange money completely digitally. With big data, blockchain, AI, and other technological advancements now in use or on the horizon, company leaders should look for ways to incorporate FinTech applications into their own business models in order to gain tomorrow’s customers.
These days you have probably encountered with a business or a project that uses tokens as a means of financing. Tokens are the digital currency means by which the so-called Decentralized Finance economy circulates by way of blockchain protocols.
Blockchain itself is complicated enough to understand, so prior to immersing into the basics of tokenized projects, let us try to explain a little about how and why are they possible. What is the best way to eat an elephant?… Piece by piece.
How we got here
The traditional financial system is organized in a centralized manner, and it involves a lot of intermediaries in order to function. It is regulated by centralized bodies that can be governments, central banks, or commercial banks. These bodies also often use your deposits to buy shares, lend money, and make other investments to earn profit and offer a partial amount of these earnings to you as interest. The 2008 financial crisis exposed the problems related to centralization in our traditional financial systems and has encouraged the introduction of a decentralized medium. DeFi, an acronym for decentralized finance, provides an alternative for customers to tackle many of the issues related to traditional finance. These issues range from autonomy to transparency and put the customers in a better position financially. It all started with the introduction of Blockchain and Bitcoin.
[1]Blockchain – is a technology that preserves records and ledgers that occur with any cryptocurrency. Blockchain is a series of information that is stored in ‘blocks’ and tied together through the usage of cryptographic validation to make a ‘chain.’ Every block contains details about the transactions like date, time, and the amount, and it also contains information regarding the people engaging in the transaction. Moreover, to distinguish blocks from one another.
To distinguish blocks from one another, each block contains a hash. A hash is a unique code that is designed by an algorithm. It can be compared to a serial number of a receipt. The serial number allows you to distinguish between the two, even if they both state the same products being bought at the same time.
When the transaction is made, the blocks become attached to the pre-existent blockchain and become public knowledge.
Decentralized applications are leveraged on these blockchain technologies.
Cryptocurrencies– are digital cash independent of banks, for that reason, being called a decentralized currency. They are stored on a digital ledger known as a This blockchain maintains a record of all of the transactions by having a distributed network of people with running computers to verify these transactions.
When a transaction takes part, the receiving end of it owns the established amount through a private key.
Decentralization – In a decentralized network, there is no 3rd party that owns your assets.
Now, where does this digital cash comes from? There are two types of supply when it comes to cryptocurrencies.
Through mining: Bitcoin has only 21 million bitcoins that can be mined in total. A bitcoin is a cryptographic problem that, when solved, turns into one Bitcoin. As of Aug, 2021, 18.77 million bitcoins have been mined, which leaves roughly 2.3 million yet to be introduced into circulation.
Through minted supplies: The creators of the cryptocurrency decide the maximum amount of supply of that cryptocurrency and produce it on demand.
Just as the world operated under a gold standard, what drives a cryptocurrency’s price is supply (which is scarce when the supply has been maximized) and demand. Cryptocurrencies are considered an asset class. They are also spendable, contrary to what most think. For example, as of 2021, you can pay through Paypal using Bitcoins. You can also buy things with a crypto card that converts cryptocurrency into fiat money.
Bitcoins – the original crypto asset is basically a ledger (its blockchain) that is decentralized because the transactions are recorded in databases on many different computers. That single record (stored across many databases) is secured with cryptography and the computers keep tabs on each other to make sure it hasn’t been tampered with. No single party is in charge, so it’s nearly impossible for someone to go rogue and change the rules that govern the virtual coin. Likewise, even if a government manages to prevent a bunch of computers from supporting bitcoin, the digital asset can continue functioning because other computers on the network retain a full record of transactions and can carry on running the show.
For reasons expressed above, Bitcoin is considered digital gold. It is considered an appreciating asset.
Ethereum – is the second highest valued cryptocurrency, behind Bitcoin. Highest among all ALTcoins (coins other than Bitcoin). It is also an appreciative asset. It is also a way to buy others cryptos and the way to buy into ICO (Initial Coin Offering) as a crowdfunding platform.
The difference with Bitcoin is that Ethereum is a software platform, meaning you can create softwares and decentralized services (dApps).
Ethereum is so important because it introduced the smart contract technology.
ALTcoins – are all cryptocurrencies other than Bitcoin. These can be bought with Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), LiteCoin (LTC), Ripple (XRP) and Tether (USDT). Tether is a stablecoin, which means it is pegged to the US Dollar 1:1. They usually more volatile than Bitcoin. Every ALTcoin has its own community
DeFi takes this concept a step further. Decentralized Finance systems use blockchains like the Ethereum network, as most of the dApps are connected to it. The computers that provide processing power for Ethereum are rewarded with Ether, which is now the second-most valuable crypto asset behind Bitcoin. Ethereum’s blockchain was created to host programs. Think of Ethereum as a decentralized computer that software developers can make applications (dApps) for, just like iOS or Windows are the operating systems for softwares to run on.
Expanding further, DeFi, enables people to access financial services like investing, lending, and trading without relying on centralized institutions. Such financial services are delivered through Decentralized Applications (dApps). Most applications that call themselves “DeFi” are built on top of Ethereum, the world’s second-largest cryptocurrency platform, which sets itself apart from the Bitcoin platform in that it’s easier to use to build other types of decentralized applications beyond simple transactions. Although there are others like the upcoming Solana.
Decentralized Finance DeFi as an economic sector
Decentralized finance is an emerging ecosystem of financial applications and protocols (programmed projects) built on blockchain technology with programmable capabilities, such as Ethereum and Solana. The transactions get executed automatically through smart contracts (or computer code) on the blockchain, which includes the agreement of the deal, which automatically execute transactions if certain conditions are met. For example, say a user wants his or her money to be sent to a friend next Tuesday, but only if the temperature climbs above 90 degrees Fahrenheit according to weather.com. Such rules can be written in a smart contract.
Simply put and according to Wikipedia: “Decentralized finance (DeFi) is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains, the most common being Ethereum.” That’s important because centralized systems and human gatekeepers can limit the speed and sophistication of transactions while offering users less direct control over their money. In other words, whoever you are transacting with, you are doing it directly, and not through a centralized institution (bank, exchange, or brokerage). Again, in the DeFi case, the transaction is executed by the smart contract, and not by these intermediators, and is only executed when all the checkpoints in the smart contract are verified by the protocol of these blockchain communities known as Decentralized Autonomous Organizations (DAO). DeFi allows money to flow in and through the internet and program money, it creates digital rights, introduces efficiency, and creates a disruption in the current financial world.
DeFi platforms allow people to lend or borrow funds from others, speculate on a range of assets using derivatives, trade cryptocurrencies, insure against risks, earn interest in savings-like accounts, raise money through crowdfunding, engage in betting and more. Cutting out middlemen from all kinds of transactions is one of the primary advantages of DeFi. DeFi uses a layered architecture and highly composable building blocks.
Decentralized finance has captured only 5% of the crypto space, according to CoinGecko, but it has seen massive growth recently. There was $93 billion worth of DeFi assets in the crypto market as of June 2021, up from $4 billion just three years ago.
How are the transactions verified?
As an incentive for participants to actively participate in transaction validations, there is a way of earning rewards for holding certain cryptocurrencies. The process is called Staking, and it’s a way to also generate gains by which participants with a minimum required balance of a specific cryptocurrency, lock their coins on a staking protocol. The protocol then randomly assigns the right to one of these participants to validate the next transaction and, once the chosen participants validate the transaction, they are awarded some cryptocurrency in return. The reason your crypto earns rewards while staked is because the blockchain puts it to work. Cryptocurrencies that allow staking use a “consensus mechanism” called Proof of Stake, which is the way they ensure that all transactions are verified and secured without a bank or payment processor in the middle. Your crypto, if you choose to stake it, becomes part of that process. This system allows individuals to stake an amount to become validators. Whenever a new block is created, a validator is selected to validate the transaction on their node. If this process is successful, then the node is rewarded. When compared to traditional finance, they play the role of the bank.
Tokens into a business context
A project creates tokens in the context of a specific business model so that it can encourage user interaction and distribute rewards among its network’s participants. These tokens have several uses, but they can be divided into security tokens and utility tokens:
Security tokens are similar to traditional shares because their value is derived from a tradable external asset. They are issued in Initial Coin Offerings (ICOs) and, once regulators and governments decide on a regulatory framework, they will most likely be treated as regular securities.
A utility token grants its holders access to a company’s future product or service before it can be delivered, much like when a bookstore accepts pre-orders for a book that’s yet to come out. Because their value isn’t directly associated with ownership, these tokens could also be exempt from the laws that will probably be applied to their security counterparts. They can be a popular fundraising method where a company bypasses traditional institutional investors and venture capitals by going straight to its customers.
Difference between a Cryptocurrency and a Token
A cryptocurrency is a digital currency that uses cryptography to secure and verify its transactions, recording them in a decentralized and immutable ledger known as blockchain.
They can be used as a medium of exchange or a store of value and are traded in many exchanges around the world.
Cryptocurrencies can be divided into two categories:
those that are supported by their own blockchains, like Ethereum and Bitcoin (BTC)
and those that are built on top of other blockchains, also known as tokens.
A token is a unit of value issued by an organization, accepted by a community, and supported by an existing blockchain. Tokens are merely a subset of cryptocurrencies which are built on top of other blockchains. Tokens power the network of a said project. For example, when you go to an arcade room, you pay with tokens. These tokens are not valued the same as the fiat currency they were exchanged, instead they have their own value. So, in order to belong to a network, you need to acquire the token it operated in.
In simple terms, a cryptocurrency operates independently and uses its own platform, a token is merely a cryptocurrency built on top of another pre-existing blockchain. All tokens are cryptos, but not all cryptos are tokens.
Token transactions using blockchain
INITIAL COIN OFFERINGS (ICOs)
ICOs are a type of crowdfunding, and they’re often used to raise money for open-source software projects. In exchange for capital, ICO investors get a unique token that might give them access to the software’s special features
NONFUNGIBLE TOKENS (NFTS)
NFTs are kind of like a limited-edition trading card—only online. Just as blockchain enables users to prove ownership of their bitcoin holdings, so too does it enable people to make unique digital assets like collectibles and art. Some examples of these transactions: https://decrypt.co/62898/most-expensive-nfts-ever-sold.
NFT market is just staring, sectors like gaming will be benefitting plenty from this disruption. Imagine that Neymar designs his own shoes, exclusively for FIFA (the videogame), on a limited or exclusive edition. Those shoes can sell for hundreds of thousands or even millions. Players would acquire them using the game`s digital currency (FUT). In order to be limited, and not hackable, it uses a cryptographic transaction (hence the blockchain).
ICOs gave startups and software developers a way to raise money without the help of an investment bank or the backing of a venture capital firm. Likewise, NFTs can give musicians and visual artists a new way to monetize their work.
This article was written by José Ramírez Terc, specialist in 21st century business models.
About ONEtoONE
Our company, ONEtoONE Corporate Finance, is specialized in international middle-market M&A advisory. We are continuously focusing on improving the techniques to achieve the best possible price for our clients, and we also advise on acquisitions, strategic planning and valuation. We are pleased to give our opinion about company valuation or other aspects of a possible corporate operation. If you need an advisor while buying or selling a company, contact us.
There are many terms and definitions used when it comes to mergers and acquisitions transactions. Today we´re bringing you a short article explaining briefly what an asset deal is.
How can we define it?
When a buyer prefers to acquire a company’s functioning assets over its stock, this is known as an asset deal. It’s a form of merger and acquisition deal. In these situations, the buyer completes the deal by paying the selling business for some or all of their assets. An asset deal, in legal terms, is any transfer of a business that does not take the form of a stock purchase. This indicates that the majority of business transfers are either share/stock acquisitions or asset transfers.
APA (Asset Purchase Agreement)
What is an APA? To complete an asset deal transaction an asset purchase agreement is used. This simply outlines what assets will be purchased. An APA also includes many specific details such as the total consideration, timing, payment structure representations, other standard legal terms, and warranties.
Asset vs Equity Deals
There are two major approaches to purchasing a company. Purchasing equity from selling shareholders is a simple strategy. This type of structure allows the buyers to indirectly own all of the company’s assets while also taking on all of its liabilities.
On the other hand, buyers purchase the underlying assets and liabilities in asset deals. What is the point of liabilities? When they buy inventory, for example, they are also purchasing supplier connections. As a result, the purchasers will be responsible for the accounts payable. Such transactions do not involve the shareholders directly.
What are the benefits of an asset purchase deal?
An asset deal may offer several advantages over a stock transaction, especially for the buyer. It allows the buyer to select which assets he wishes to purchase and which he does not. It also permits the buyer to avoid taking on any liabilities that he or she does not want to. This would not be the case when the seller’s assets and liabilities are included in the stock acquisition. Furthermore, asset transfers may be arranged in such a way as to provide a tax benefit. This would not be the case in a stock purchase when the seller’s assets and liabilities are included in the sale. In addition, asset transactions might be structured to give a tax benefit.
At ONEtoONE our advisors are experts in everything surrounding M&A transactions. Feel free to get in touch with one of our top advisors by clicking below.
When the time comes to sell your business there are many things that you will need to consider and prepare in advance. One of the factors that is often overlooked is the importance of your employee working conditions. Why are your employees working conditions important when preparing your business for sale? Keep reading to find out.
Focus on your workforce:
Presenting a well organised and dynamic workforce to potential investors or buyers is essential when trying to close a sale. It is crucial that you have all your employees regulated, i.e., pay overtime, per diems, etc. Analyse the possible employment of freelancers or the status of partners who provide services in the company. Buyers look for well-organised companies and do not want problems to arise because of any labour irregularities. All possible sources of problems detract from the attractiveness of your company and therefore can lead to complexity in the payment of the price, in the form of contingent payments, escrow accounts or lowering the price.
Find out why you should prepare your business for sale as early as possible here
Have you become the “orchestra man”?
“The orchestra man” in a company means that everything depends on you and all desicions come from you. Instead, you should professionalise your company by having a structure that allows you to distribute responsibilities so that in turn, everything does not depend on you. If you don’t already have one, hire a general manager to manage the company and report to you as president or CEO. This will allow you to make a much smoother transition when the buyer, a financial investor or an industrialist enters the company. When the buyer observes a very hands-on company management, the deal often falls through, especially with international buyers.
If you would like to find out more ways to prepare your business for sale, click here
The labour aspect in a service company is especially relevant for the sale of the company. As long as everything is in accordance with the current regulations, you will avoid possible contingencies in the sale process. Remember that the objective of preparing your company for sale is to eliminate obstacles that may hinder the process. Furthermore, it would help if you created a management team with attractive incentives for the fulfilment of objectives and with personal development plans to keep them loyal to the company. It is also advisable to involve key executives in the sale because you will need them to offer the best face to the investor and ensure that the company is in the best hands.
How can you prevent executives from leaving during the negotiation phase?
When preparing your company for a sale, it is encouraged to prevent executives from leaving during the negotiation phases of the sale, as this could be devastating to the buyer’s perceived value. One measure we have implemented on occasion with the entrepreneur has been to inform key executives of the sale idea and reward them with a percentage of the transaction value, encouraging them to collaborate to improve financial ratios during this period.
To sum up, it is clear that when the time comes to present your business to potential buyers or investors, having an organized workforce is an essential component to the success of the sale
The term business model may seem like a very simple notion. However, the phrase has evolved drastically over time. Today, enterprises are doing all they can to keep up with the ever-advancing technological world, by adapting and editing their business models accordingly. Although this might look easy to the eye, it is actually quite complex and many companies can’t keep up resulting in their inevitable downfall.
Have you noticed that some of today’s most successful businesses are those who have redesigned their business model, disrupted their industry, and produced the type of value that customers are looking for in the digital age?
The word “business model” refers to a company’s profit strategy. It specifies the items or services that the company intends to sell, as well as its target market and any estimated costs. Business models are important for both new and established businesses. They help developing companies attract investment, recruit talent, and motivate management and staff. Established businesses should regularly update their business plans or they’ll fail to anticipate trends and challenges ahead. Investors use business plans to analyse firms that they are interested in.
What types of business models are there?
Technology has changed the way businesses operate. Interconnectivity, globalization, and a digital, tech-driven world have all enabled forward-thinking thinkers to reconsider traditional models in industries ranging from travel to retail. There are as many types of business models as there are types of business.
The platform business model is an example of an age-old company model that has been altered by technology. In its most basic form, this concept puts buyers and sellers together in a single location. This paradigm has existed for decades, if not centuries, in the form of an in-person marketplace, auction house, or retail mall. However, thanks to digital technology, these platforms are no longer bound by time or geography. Innovative business owners have been able to leverage this sort of approach to develop massive digital networks that enable participation and cooperation all around the world thanks to technological advancements. Some of today’s most successful businesses, such as Facebook, WhatsApp, Airbnb and Google are all examples of reinvented platform business models.
Another example of a technology-inspired business plan is the global business model. These models rely on the quick speed of globalization and interconnectedness to succeed. Focusing on creating and selling internationally in a short period of time. The clothing brands Mango and Desigual, are strong examples of successful models that sell to tiny target groups internationally in order to obtain economies of scale, which is only achievable in a globalized society.
Example of an innovative business model:
As an example of a company that has taken an old business model and redesigned it, Uber is at the top of the list. Uber was able to seize a piece of a pre-existing market by employing a disruptive, tech-based paradigm by looking at how a present business model—taxis—could be enhanced.
Uber is in continuous expansion through reiterations of their initial model. For example, there is now Uber Eats for food delivery; Uber Health providing rides for patients and healthcare workers and even Uber Freight which offers shipping services. Uber has done exceedingly well at adapting its business model in order to remain relevant and successful.
To sum up, innovation is a critical component of every company strategy in today’s fast-paced digital environment. Executives and CEOs are accountable for trying, learning, and continually upgrading to remain ahead of the competition. It is clear that having a flexible business model is key to the longevity and success of any company.
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