Global banking consortium R3 has closed the largest funding round in the history of distributed ledger technology.
Revealed today at Consensus 2017, over 40 financial institutions participated in the $107m round, including top member investors SBI Group, Bank of America Merrill Lynch and HSBC. Additional major investors include ING, Banco Bradesco, Itaú Unibanco, Natixis, Barclays, UBS and Wells Fargo, plus more from around the globe.
The funds are expected to be deployed as part of plans for global technological development and, eventually, a push to bring what the firm calls Corda Enterprise to institutions around the world.
R3’s founder and CEO, David Rutter, told :
“We’re ridiculously excited that this massive group of competing financial institutions could be so excited about what we’re building, to look beyond the competitive nature of the industry and the personalities that were involved, and really rally around a common theme.”
Notably, the announced funding comprises only the first two tranches of a Series A round, which was opened primarily to firms who were among the R3’s initial members. A third tranche, planned for later this year, will be open to other members and entities outside the consortium, meaning the final amount of the Series A will likely be even larger.
The round did include two strategic investors that are not members of R3: computing giant Intel and the private equity branch of Singapore government-owned Temasek Holdings, an investment firm with $242bn on its portfolio.
The major investment could be seen as a sign of confidence from the banking industry in R3’s distributed ledger model, which was designed from the ground up to give the banks originally threatened by blockchain a way to capitalize on the benefits of the technology, while maintaining or advancing their market position.
Details about the share structure are not being disclosed, neither are details about the division of the intellectual property built atop the open-source Corda platform. However, Rutter did explain that while Corda itself is being open-sourced, the results of experiments conducted with partners within the R3 lab would be guarded more closely.
The investment participants themselves largely mirrored the initial recruitment push in 2015 that saw a global geographic spread of members, with investors consisting of banks split between Asia, Europe and the Americas.
Going forward, the firm intends to build on its more than 110 employees working in nine offices around the world by both hiring new talent and opening new locations. Specifically, the firm will be using part of the investment money to develop Corda Enterprise, a paid-for version of Corda with additional features for regulated institutions.
“We will license a Corda Enterprise,” said Rutter. “Which will come with service contracts and throughput and latency guarantees that wouldn’t otherwise be available through Corda open source.”
Prior to the closing of the first two tranches of the round, Rutter said R3 was supported by membership fees from approximately 80 members that paid between $240,000 and $500,000, with free membership provided for regulators. New members are expected to continue to be added, providing additional revenue.
“We tried to achieve a balance from a geographical perspective, but also to balance out the investments so that no particular firm had an outsized influence over R3. [That way] we can continue to move very quickly and continue to roll out solutions.”
While the investment is the largest single round in the brief history of distributed ledger tech, it was reportedly originally much higher.
In May of last year, reported that R3 was raising a $200m round, which would have dwarfed the $60m investment raised by competitor Digital Asset. By the end of last year, that number had dropped to $150m, following the departure of founding members Goldman Sachs and Santander.
In an exclusive interview with earlier this year, Rutter confirmed the round would still be what he called “the largest round in the industry”, adding that it would close by the end of this quarter.
Then, last month the much-rumored exit of a third high-profile member, JPMorgan, was confirmed – a departure that helped define the borders between the different models seeking to bring the efficiency and accountability of using a shared distributed ledger to the banking industry.
“Banks and other financial firms that are going to process trillions of dollars of notional value across a network need a very high level of service level agreement,” said Rutter.
A different model
As R3 has developed since it launched in 2015, it has helped define a series of distributed ledger consortia vying for the right to help define the future of finance.
While companies like Ripple and Axoni are creating custom solutions internally and bringing together small groups of banks for different trials, and industry agnostic platforms like Hyperledger work on a variety of business solutions using blockchain, JPMorgan released its own Quorum solution, which has become a central component of the recently launched Enterprise Ethereum Alliance.
By contrast, Rutter focuses on the fact that Corda was built from the ground up specifically for banks, but R3 is not itself a bank. This, he hopes, could give the members a sense of ease.
“We’ve kind of proven to a degree that we’ve never seen before that the collaborative model works very well,” he said.
Earlier this month, Japanese bank Mizuho announced that it has hired consultancy firm Cognizant to build a platform using Corda, and in April, investment software firm Calypso revealed it was working with ING, BBVA and three others to build a trade-matching service on the platform.
Mincing no words about the media’s focus on the departures compared to the overall cooperation the investment round evinces, Rutter said:
“It’s been slightly annoying that we have such a massively successful, unprecedented group of investors and members that have come together to build something in a collaborative manner that hasn’t been done before and instead people have focused on one or two banks here and there.”