Blockchain startup R3 cuts fund-raising target to $150 million: source

Reuters News
Posted: Nov 21, 2016 2:12 PM

By Anna Irrera

NEW YORK (Reuters) - Blockchain company R3 CEV has reduced the amount it aims to raise from bank members in its first large round of equity funding to $150 million from $200 million, according to a person familiar with the plans.

R3, a New York-based startup that runs a consortium of more than 70 financial institutions, now plans to give bank members a 60 percent equity stake in its blockchain business in exchange for the funding, the source said.

Goldman Sachs Group Inc <GS.N>, one of the original participants, is not renewing its membership and is not investing, a spokeswoman said.

Most other banks have agreed to the new terms of the deal, but R3 does not expect all existing members to join the round, said the source, who requested anonymity to discuss plans that were not public. R3's fundraising comes as banks and other large institutions ramp up their investments in blockchain, which is also known as distributed ledger technology. It first emerged as the technology underpinning digital currencies like bitcoin but is now being adapted for use in more traditional financial tasks, such as transaction processing.

Other new companies are also looking to sell blockchain-based technology to banks. Competition among these startups has intensified over the past few months as they try to secure investments and deals with large institutions to provide the technology.

R3's funding will be raised in phases over the next nine to 12 months, the source said.

Through its consortium and technology development lab, R3 comes up with ways for the financial industry to use blockchain software.

According to the new terms of the deal, the banks will also acquire a stake in the development lab, which tests new blockchain-based applications.

R3 had originally planned to give investors equity stakes in a new company providing shared services for the owners. R3 would have run this utility for 10 years and retained a stake in it. The lab would not have been included in the deal.

The group's original 42 members will be able to invest first, followed by members of the company's development lab. If the $150 million target is not reached, the round will be opened to other strategic investors, such as a technology company, the source said.

Since it began operating in September 2015, R3 has rapidly gained the support from the world's largest banks, with members including UBS Group AG <UBSG.S>, JPMorgan Chase & Co <JPM.N> and Deutsche Bank AG <DBKGn.DE>. So far they have paid membership fees to participate in the company's activities.

Thomson Reuters Corp <TRI.TO> is also a member of R3.

The Wall Street Journal earlier reported Goldman dropped out of the consortium.

(Reporting by Anna Irrera in New York; Editing by Lauren Tara LaCapra and Lisa Von Ahn)