Israeli startup Colu, which operates a digital wallet, raised $7 million from US investor Patrick Byrne, CEO of online retailer overstock.com. Colu aims to create a local currency using blockchain technology. Colu cofounder and CEO Amos Meiri refused to disclose the exact amount raised from Byrne and the company value for the round, saying only that the company did not lack cash and would conduct its next financing round in 2020.
The investment by Byrne, a strategic investor, comes in addition to just under $40 million raised by the company since it was founded in 2014. $23 million of this was raised in Colu's initial coin offering (ICO) in February 2018, compared with the company's $50 million target in that offering, although the currency, CLN, subsequently lost over 90% of its value and was almost completely wiped out. Meiri now says that while those who took part in the ICO lost their money (on paper), the company was not affected by the currency's loss in value, because "it sold the Ether coins raised in the offering at peak prices."
Colu apparently has little revenue (Meiri decline to disclose figures), and therefore depends on raising money to continue its activity. Its current revenue comes from the few clearance commissions it charges businesses that honor payments carried out through it, and from "revenue originating in channeling the Internet traffic that it creates for businesses and organizations." Meiri denied the possibility that the company would be acquired in the foreseeable future. "We have already rejected two feelers from Israelis. I'm not here for the money," he said. According to the company, use of its app by users and businesses is growing rapidly.
Digital payments for small businesses
Simultaneously with the financing round, Colu made a series of other announcements that stood out, given the wave of massive cutbacks in the blockchain sector following the collapse of the cryptocurrency market. For example, the company announced that two more cities this year were slated to join the four existing cities using its local currency. Two additional cities will join as part of a trial of adopting a community currency to take place in the framework of the 100 Resilient Cities project by the Rockefeller Foundation.
Meiri also says that the use of the digital wallet will be expanded through cooperation with public agencies. He explains that the company is currently pursuing two cooperative ventures. One is with Tel Aviv to allow payment of municipal property taxes using Colu. The other is cooperation that will make it possible to charge Rav-Kav public transportation cards using Colu currency.
As of now, Colu's app is a digital wallet used for payments in small businesses in the four cities in which the company operates. Users load its digital wallet with "ordinary" money using a credit card. The company launched a local community current called TLV coin, which is not based on blockchain, over six months ago, and distributed it to some of its users. It still cannot be used, but Colu plans to launch a new version of the app in the coming weeks in which the new currency will be distributed to any user for use through the app, and its use for making payments will become possible.
Colu intends to encourage use of its app with its own subsidies, or through subsidies from local authorities cooperating with it. For example, "In one of the cities we cooperate with, economic activity by businesses in the town center was affected by a fire. Instead of compensating the businesses that were damaged directly, the local authority wants to give people an incentive to make purchases from that area with the help of Colu, so that the subsidy will reach business owners indirectly through an expansion of economic activity, instead of going directly into their pockets," Meiri says.
Continuing blockchain development
What about CLN, Colu's currency? Meiri says that although the company's services are now based on a central server controlled by Colu, and are not distributed over a blockchain network, the company is still developing an Etherium-based blockchain network in expectation of the future. He adds that over 10 of the company's 62 employees are working on this in order to serve three main purposes: enabling any entrepreneur or organization to develop a digital wallet and offer a local currency, facilitating liquidity and transparency, and accommodating local payments without any involvement or dependency on a centralized system like that of Colu.
The aim of developing such a quick payments network that can handle a large volume of transactions is the most significant challenge facing blockchain technology, and is one of the main reasons why bitcoin, which has not managed to overcome the problem, has not been used as a payment system up until now. The most prominent effort to solve this obstacle is by something called a flash network being developed on a bitcoin network, but this is also very new. If Colu is the first to present a successful technological solution, while also consolidating a loyal base of users, it is likely to gain a significant competitive advantage that will give it a chance of becoming an important player in the future payment technologies sector.
Published by Globes, Israel business news - en.globes.co.il - on January 21, 2019
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