Blockchain startup R3 is raising $200 million from big banks - but one of them is 'throwing stones'
But at least one of the banks signed up to R3's industry-wide consortium is unhappy with the investment terms proposed, according to two people close to the negotiations.
R3 was founded last year by Wall Street veteran David Rutter to try and bring blockchain technology to mainstream banking.
Blockchain, also known as distributed ledger technology, uses complex cryptography and the wisdom of the "crowd" to verify transactions, rather work through a traditional middleman. It has the potential to strip out huge amounts of costs from banking, with Santander estimating last year that the technology could save banks as much as $20 billion a year.
Over 40 top banks around the world have signed up to R3's industry-wide consortium, which is developing common standards, practices, and use cases for using the technology in financial services. Last month R3 unveiled Corda, a distributed ledger platform developed specifically for financial services that lets them tailor how much information to share.
Last week R3 sent out an investment proposal to banks who currently pay it an advisory fee, after several expressed an interest in investing in the company.
Financial News, which first reported the fundraising, says R3 is offering equity in a new company that would control the Corda platform, which will be spun off. R3's development lab will not be included in the new company under the current proposals.
But two sources close to the negotiations confirmed to BI that a major European bank is kicking up a fuss about the terms being offered by R3. At least two other banks are also said to have some more limited reservations about R3's offer.
A source close to the bank, which they would not name, said it is concerned about not having a stake in any of the intellectual property developed by R3's lab, despite sharing knowledge and data with the startup.
The source, who did not want to be named, said there are also concerns about the size of the cheque R3 is asking banks to write. The source said: "Banks want to diversify risk, not get locked into one single solution."
However, another source with knowledge of the negotiations stressed that it was only a small minority of voices within the consortium that are raising objections, saying: "If you have any big thing that's being created there are going to be some people who want to stand outside and throw rocks."
The source, who did not want to be named for fear of breaching confidentiality clauses, told BI suggested that the large European bank was trying to "cause waves" within the organisation to get its way.
R3 has signed up 42 of the world's leading banks to collaborate on blockchain experiments. Members include Barclays, Santander, Nomura, BBVA, Deutsche Bank, RBS, Bank of America, Citi, Credit Suisse, JPMorgan, Goldman Sachs, Morgan Stanley, and HSBC.
A third source close to R3 who didn't want to be named because they aren't authorized to speak told BI: "The initial feedback from the majority of the banks is that it is a well constructed and considered proposition and most are actively considering it.
"Everyone knows that progressing an initiative of this scope at the rapid pace being demanded by the industry requires significant capital and resources."
The source stressed that the documents sent to banks last week are also just initial proposals and are not set in stone. An executive at a UK bank that is considering investing in R3 also told BI that the deal was in the "straw man phase" with much of the final details still "to be determined."
The executive, who did not want to be named because they have signed confidentiality agreements, said it is "frustrating" that some negative noises are emerging around the investment and said it is "not reflective of where the consortium is." They added that R3 is making "good headway."
R3 said it would not comment on commercially sensitive matters when contacted by BI.