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Blockchain Consortium R3 under Fire for Burning Capital, Lack of Noteworthy Developments

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Cryptocurrency startups and ICOs face the onus of retail investors who rightfully expect working prototypes of the former’s ideas. However, a significant blockchain player could be the first to succumb to poor business tactics and go out of business in 2019.

R3 Close to Biting the Dust

In a startling report by Fortune, the institutional-backed blockchain platform R3 is buried in the red and has reportedly eaten through its raised capital without a substantial product to show.

Founded in 2014, the New York-based collaborative aimed to help banks conduct transactions in a faster and more secure manner. R3’s profile was raised when Goldman Sachs and J.P. Morgan joined as founding members in 2015.

In 2017, the startup raised $107 million to propel its mission further. However, R3 is under fire for its business strategy, including its questionable tactics which resulted in the burned capital. The company’s core product, Corda, was touted as a game changer at the time and quickly added hundreds of partners after launch.

Turning Point

Things turned sour after 2016, however. Goldman Sachs and Santander left the founding consortium, with Goldman stating that a large number of founding members made the “arrangement less attractive.”

Despite the departures, R3 went ahead with its plans to raise $200 million from several funding rounds and successfully raised $107 million in May 2017, as aforementioned. However, two former R3 employees have now blown the lid on the company’s workings, including its faked revenue figures and overpaid executives.

As stated, the $107 million figure was inclusive of significant “consulting fees” for R3 executives, which were classified by the company as equity. Reportedly, the only influx was of $98 million, with the remaining paid out.

The ex-employees laughably dismissed R3 revenues, and stated that they are “10X short.” They additionally claim that the company frequently missed several internal financial targets.

A Tech Firm Acting like a Bank

Another whistleblowing development was of the amount R3 executives spent on themselves instead of their business. One of the former employees, understandably speaking under anonymity, stated:

“Just look at the public information. You see their hiring plan and the number of people on their website. There’s also expensive real estate in London and New York.”

The ex-employees added that R3 executives frequently flew to meetings around the world in first class flights. However, many of the trips were redundant and could have been conducted online instead. Additionally, the staff described R3 CEO David Rutter’s salary as “outrageous.”

david ruttet

R3 CEO David Rutter
(Source: Financial News)

While R3 maintained that its founding team was compensated by CEO pay scales standards across the world, a few job titles immediately strike off as unnecessary. For example, the company has a “Chief of Staff to the CEO” role, which does not fit in with the business model. A former employee added:

“Instead of hiring tech people, they started hiring bankers and guys in suits who don’t know much about technology.”

Waning Interest

R3 was initially conceived as a consortium that provided blockchain systems to its partners. However, the departure of banks – even J.P. Morgan has dropped out – suggest waning interest in the company’s products.

The strategy is also questionable from a fundamental viewpoint: Banks are not structured to make rapid decisions on new forms of technology.

Industry observers note that the company Corda software has failed to attract and excite banks. Additionally, the lack of developers working on the software is a sign of concern. Undoubtedly, the lack of talent in a project can be fatal to its development, courtesy of the lack of applications. Another former employee stated:

“Although R3 will say 1,300 architects are contributing to Corda, if you look at the public release notes of R3, there will be no more than three people listed. The public version of Ethereum had 10,000 developers contributing.”

R3 Raises Additional Funds

The challenge for R3 would be to develop a sturdy product and cut down on costs. However, the two former employees estimated that the scenario looks grim, and the company only has enough capital to survive until Q1 of 2019.

Meanwhile, R3 seems to be raising additional capital quietly. On June 8, 2018, a press release stated that the blockchain company raised an unspecified amount from Japan-based TIS ventures. The latter said that it looks forward to implementing Corda in the Asia-Pacific region across several companies.

The post Blockchain Consortium R3 under Fire for Burning Capital, Lack of Noteworthy Developments appeared first on BTCMANAGER.

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