Facebook Takes the Wraps Off Its Secretive Libra Project: Term Sheet
INTRODUCING LIBRA
Facebook published its white paper and took the wraps off of its secretive Project Libra.
Libra is a new type of digital currency designed for the billions of people using Facebook’s apps and social network. Users will soon be able to shop with and send their Libra currency via Messenger and Instagram, as well as use it with a wide variety of other merchants like Uber, Spotify, and MasterCard.
Facebook did not provide specifics about exactly when and how consumers will get ahold of the currency, but executives suggest it will first be distributed on Messenger and WhatsApp in mid-2020.
Another thing to note is that Facebook is playing the long game. The company is also launching a subsidiary called Calibra, which will act as a digital wallet. It serves to protect users’ privacy by vowing not to combine users’ Libra payments with their Facebook data so they can’t be used for ad targeting. In other words, your real identity won’t be tied to your publicly visible transactions.
Facebook’s goal to create a new global currency is an audacious one. According to David Marcus, a former PayPal executive who is leading Project Libra for Facebook, one of the initiative’s main goals is to reach the 1.7 billion people worldwide who lack access to the banking system.
“It’s an anomaly that the Internet has no protocol for money,” Marcus tells Fortune, adding that Project Libra will also provide more competition in financial services, along with increasing access to capital.
Unlike Bitcoin, Libra will be backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks. The New York Times notes that to acquire Libra digital tokens, people would probably have to show government identification. That would make it unappealing for illegal activity.
Last week, I posed some questions about Project Libra in Term Sheet. My colleague Jeff John Roberts wrote two articles that helped answer these questions. You can read the detailed overview of Libra here & the Q&A here.
Who is backing Libra?
While Facebook has been driving the project, the company is framing its role as one member of a federation of dozens of companies and non-profit organizations that will together manage the currency through a Swiss foundation. Corporate members of the organization, known as the Libra Foundation, will be required to contribute a minimum of $10 million to help the currency gain traction, an effort that will likely see users receive a small amount of Libra to test it out.
Initial members of the foundation are Facebook and 27 other partners, including Visa, MasterCard, PayPal, Coinbase, and venture capital firms like Andreessen Horowitz and Union Square Ventures. Marcus hopes as many as 100 partners will be onboard by the time the currency debuts, by which time the group will have crafted a formal charter that sets out voting rights and other rules.
The Libra blockchain—like other blockchains—will provide a tamper-proof record of transactions on the network. But, unlike Bitcoin and other public blockchains, only authorized bodies—in this case, foundation members—will be allowed to run a node.
In addition, members will also maintain the supply of Libra in response to demand—meaning they will issue new Libra as needed, and destroy the digital currency when people redeem them.
Members are also required to support a reserve fund to keep the value of the currency stable. In order to avoid the notorious volatility of cryptocurrencies like Bitcoin, each unit of Libra will be backed one-to-one in a basket consisting of dollars, pounds, euros, and Swiss francs.
Is Facebook trying to be a financial services company now?
In launching the currency, Facebook appears to be betting that customers will treat it as a financial service. According to Calibra’s head of product Dante Disparte, customers in the U.S. will be subject to so-called “know your customer” requirements, meaning they will have to provide detailed personal information to use the service.
This raises the question of why Facebook is leading Project Libra in the first place. Based on conversations with Facebook executives, the company appears to see an opportunity to cut into the remittance market by offering users an easy, low-cost way to transfer funds across borders.
Disparte noted, in particular, that many low-income people already use WhatsApp to photograph receipts as part of a process to collect remittances from local money changers. He says this project could be expedited enormously by building the ability to transfer money—in the form of Libra—directly into WhatsApp.
Initially, Libra would be used for payments — but in the future, the NYT notes, it could be used for lending and investing.
What about privacy?
Facebook is setting up its new Calibra wallet as a separate company, and is promising not to combine user data with its other apps, like Facebook and Instagram—unless you give it permission. So, in theory, only Calibra will have a record of your transactions. But many Calibra users may decide to use its integrated Facebook friend-finding feature, and if they do, their data will be combined. Libra may be stored in competing digital wallet apps built by other companies that provide higher levels of privacy.
And finally, why does this matter?
If adopted by companies and users, Libra can become a more convenient way to pay online. Facebook likely plans to sell products on Instagram and WhatsApp, but other websites could also use the cryptocurrency for e-commerce. But beyond e-commerce, especially for people in developing countries that lack a banking infrastructure, Libra could be useful for storing and transferring money, without paying high fees. So, if you want to send money to another country, Libra may be a cheaper way to do it than what’s currently available.
More broadly, it Libra is successful, it could become the foundation for a new financial system not controlled by central banks or today’s power brokers on Wall Street.
FEEDBACK: I am eagerly awaiting your thoughts on this project and whether you think it has a shot to disrupt financial services as we know it. Email me at polina.marinova@fortune.com with the subject line “Project Libra” and note that your responses may be used in a future Term Sheet.
BRAINSTORM FINANCE KICK-OFF: Fortune’s inaugural Brainstorm Finance conference kicks off tomorrow. We’ll discuss Libra, Bitcoin, and so much more. You can watch the livestream here or follow Lucinda and me on Twitter for some added commentary and snark.
THE LATEST FROM FORTUNE…
• China Is Creating Its Own ‘Entity List’ to Avenge Huawei and Punish Foreign Firms (by Eamon Barrett)
• Facebook Reveals Its Cryptocurrency Play (by Alan Murray)
• Beyond Meat’s Next Product Will Be ‘Ground Beef’ (by Chris Morris)
• Ripple Takes $50 Million Stake in MoneyGram in Push to Deploy XRP (by Jeff John Roberts)
VENTURE DEALS
• Optimizely, a platform that offers tools for A/B testing and personalization on the web and in mobile apps, raised $50 million in Series D funding. Goldman Sachs Private Capital led the round, and was joined by investors including Accenture Ventures. Read more.
• Zego, a London-based insurtech firm, raised $42 million in Series B funding. Target Global led the round, and was joined by investors including TransferWise founder Taavet Hinrikus.
• Token, a San Francisco-based turnkey open banking platform, raised $16.5 million in funding. Investors include Opera Tech Ventures.
• Black Sheep Coffee, a London.-based coffee shop chain, raised 13 million pounds ($16.3 million) in funding. Investors include Tellef Thorleifsson, CEO of Norfund and co-founder of Northzone Fund and Bill Shultz, president of Coca-Cola Canada and board member at Coca-Cola Global.
• Ironscales, a Tel Aviv-based automated phishing prevention, detection and response provider, raised $15 million in Series B funding. K1 Investment Management led the round.
• Aptible, a Denver, Colo.-based provider of secure, compliant infrastructure hosting, raised $12 million in Series A funding. Maverick Capital led the round, and was joined by investors including Thrive Capital and Western Technology Investment.
• NewtonX, a New York-based real-time expert search engine, raised $12 million in Series A funding. Two Sigma Ventures led the round, and was joined by investors including Third Prime Capital and Xfund.
• Payveris, a Rocky Hill, Conn.-based open API-based intelligent payments platform, raised $7 million in Series D funding. Mosaik Partners led the round, and was joined by investors including Connecticut Innovations, Advantage Capital and Black Dragon Capital.
• Symetrica, a London-based radiation detection and identification specialist, raised £3 million ($3.8 million) in funding. Parkwalk and Nesta led the round.
• PredictiveHR, a SaaS platform company that enables people analytics by utilizing machine learning to predict talent trends and their financial impacts, raised $1 million in funding from angel investors. Investors include Silicon Valley Growth Syndicate.
HEALTH AND LIFE SCIENCES DEALS
• Quartet, a New York City-based healthcare technology company, raised $60 million in Series D funding. Investors include Centene Corporation, F-Prime Capital Partners, GV, Oak HC/FT and Polaris Partners.
PRIVATE EQUITY DEALS
• Kayne Partners invested $25 million in Elevate, a provider of consulting, technology and services to law departments and law firms.
• Great Point Partners recapitalized SteriPack, an Ireland-based contract manufacturing and services company serving the medical device and pharmaceutical industries. Financial terms weren’t disclosed.
• Bobit Business Media, a portfolio company of Gemspring Capital, acquired Warranty Chain Management Conference, an annual forum for warranty professionals and executives. Financial terms weren’t disclosed.
OTHER DEALS
• MeatEater, Inc acquired First Lite, a Ketchum, Idaho-based direct-to-consumer technical hunting apparel and gear company. Financial terms weren’t disclosed.
IPOs
• Karuna Therapeutics, a Boston-based Phase 2 biotech developing therapies for schizophrenia and other CNS disorders, plans to raise $70 million in an offering of 4.4 million shares priced between $15 to $17. It has yet to post a revenue, and posted losses of $17.5 million in 2018. PureTech Health, ARCH Ventures, and The Wellcome Trust back the firm. Goldman Sachs, Citi and Wells Fargo Securities plans to list on the Nasdaq as “KRTX.” Read more.
EXITS
• Liberty Hall Capital Partners agreed to sell AIM Aerospace, a Renton, Wash.-based designer and producer of composite structures, systems, engine components and thermoplastic technology for the global aerospace industry, to Sekisui Chemical Group for $510 million cash.
• Butterfly acquired Bolthouse Farms, a California-based provider of natural, healthy products, from Campbell Soup Company for $510 million in cash.
• Peraton, which is backed by Veritas Capital, agreed to acquire Solers Inc, an Arlington, Va.-based provider of software development and systems integration for space situational awareness, satellite ground systems and operations, cybersecurity engineering and enterprise cloud-based solutions. Financial terms weren’t disclosed.
FIRMS + FUNDS
• InTandem Capital Partners, a New York City-based private equity firm, raised $250 million for its second fund, according to an SEC filing.
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Polina Marinova produces Term Sheet, and Lucinda Shen compiles the IPO news. Send deal announcements to Polina here and IPO news to Lucinda here.
