Envisioning a cashless Philippines: BuyBitcoin.ph’s bid to convert us to digital currency

Envisioning a cashless Philippines: BuyBitcoin.ph’s bid to convert us to digital currency

The Finishers’ excerpt, entitled: “Envisioning a cashless Philippines: BuyBitcoin.ph’s bid to convert us to digital currency,'' which focuses on the journey of BuyBitcoin.ph and its founders, Sam Kaddoura.

Learn about BuyBitcoin.ph, a Crypto Exchange Company in the Philippines

The Finishers: Learn First-hand from the Philippine Founders Who Willed Their Startup from Idea to Exit was written by Ezra Ferraz in 2017. This book documents the stories of 11 local founders who were able to scale their startup and exit. This excerpt, titled “Envisioning a cashless Philippines: BuyBitcoin.ph’s bid to convert us to digital currency,” which focuses on the journey of BuyBitcoin.ph and its founder, Sam Kaddoura.


In Bitcoin we trust

When Filipino-American Sam Kaddoura first heard about Bitcoin in the winter of 2012, he was living in Atlanta and could not see how the cryptocurrency could help anyone he knew. In fact, Bitcoin struck him as similar to an in-game currency for a videogame, like something out of World of Warcraft or Eve Online.

While these currencies made for splashy headlines not far removed from a clickbait online ad—he made $3,000 in a week working from home!—they had little value for all but a handful of power users who profited off everyone else.

It was not until Sam moved to the Philippines the following year to explore opportunities in the booming economy that he began to treat the cryptocurrency, as the new category that Bitcoin fell into was called, a little less dismissively. Some of his friends in Atlanta were putting up their own ventures and they had started talking to Sam about Bitcoin and its applications for cross-border payments.

“I was like, ‘That’s pretty interesting,’” he recalled. A finance major from the University of Central Florida, Sam had worked primarily in this field since graduating. His latest stint had been at Ariba, a Software as a Service (SaaS) company.

To whet his appetite, Sam attended the early Bitcoin meet-ups in Manila organized through an enthusiast’s group on Facebook. While passion for the cryptocurrency was in no short supply among the curious cast of characters in attendance—Michael Galero, an early member of this community, described his peers as libertarians, entrepreneurs, tech geeks, or “a combination of the three”—none of them were setting their sights on what Sam believed was the killer application of Bitcoin in the Philippines: remittances.

For the most famous export of the Philippines did not leave in crates or on shipping containers—they departed in the cabins of airplanes and ocean liners. In fact, the Philippines sent so many overseas Filipino workers (OFWs) abroad every year that the Philippine Overseas Employment Administration had been set up to protect their interests, way back in 1982.

Safeguarding OFWs made fiscal sense. While the balikbayan box may have been the most recognizable symbol of the overseas Filipino worker, it was the invisible pipeline of remittances that pumped billions of dollars back into the economy. Money sent to loved ones back home was used to pay bills and utilities, buy groceries, and shop at the mall.

Bitcoin piqued Sam’s interest because it could put more money into the hands of Filipinos rather than those of bankers. Since Bitcoin was decentralized and not connected to any formal banking system, but to a public ledger whose integrity was maintained through solving complex mathematical problems in a process known as mining, remittances could be sent much cheaper through Bitcoin. It was pennies on the dollar. If a traditional money transfer service like Western Union charged upwards of 15% for a remittance, a Bitcoin transaction of the same value could feasibly be done for just 1 or 2%.

Around this same time in early 2013, Sam purchased his first Bitcoin. For his first few transactions, he sent money to friends. If a Filipino nanay toiling away in Singapore to put her only child through school could do the same, Sam thought, she could use the additional savings to improve her family’s standard of living, or even return home sooner. The same would go for the millions of white and blue-collar Filipino workers abroad—the exotic technology that many people were quick to dismiss as hastily as Sam first did could tangibly uplift their lives as only money in the bank can.

There was one major problem. Bitcoin, by that point, was non-existent in the Philippines. Sure, you could send Bitcoin to an enthusiast you met at one of the meetups, but neither you, nor him, could spend it anywhere in the country. For all intents and purposes, it was like an in-game currency in that you could use it in only a narrow window of cases. That the entire Bitcoin community could comfortably fit in a mid-sized restaurant’s banquet hall with room to spare said it all: They were up against the world.

There wasn’t even a place to reliably buy Bitcoin in the Philippines. You could seek out a small broker on an online forum, but they could only handle so much volume and not everyone was comfortable meeting someone in person that they met on a discussion board, who knows in advance how much cash you’ll be carrying.

According to Michael, another disadvantage of transacting with individual brokers was the sleuthing you’d have to do online. “Just as there is feedback on eBay, bitcoin traders can also have profiles on websites like bitcointalk.org or localbitcoins.com, where they have ratings,” he said. “So you’d have to do your research.”

The other option for Filipinos was to wire the money out of the Philippines to an international exchange to purchase it there, before sending it back to themselves through a wallet. As this two-pronged process required the customer to have a bank account, it seemed to defeat the purpose of Bitcoin, whose ostensible selling point was that even the unbanked could transact with it.

To Sam, there needed to be a local marketplace, and he needed to be the one do it.

“From a business standpoint, there is no other company you would want to start with. If there is no Bitcoin in circulation, no one can use it for anything. And you establish that foundation through an exchange where people can buy and sell Bitcoin,” he said, comparing what was needed in the Philippines to a Coinbase.

Coinbase, by then, had gained acceptance into the summer 2012 batch of Y Combinator, netting them around $120,000 in seed money and entrance into the most powerful tech network in the world, whose combined market cap reached $65 billion and alumni included the likes of Dropbox, Weebly, Reddit, Stripe, and Airbnb.

For his part, Sam had confidence that a buy-and-sell site was the right business choice for the Philippines—the gold rush equivalent of selling pickaxes in front of a mine rather than venturing inside to dig for an uncertain future—along with five Bitcoins to his name.


In Bitcoin we trust

Sam turned inward to the Bitcoin community for co-founders: developer Daniel Walton, designer James Florentino, and cryptocurrency expert Lasse Birk Olesen, who had built Bitcoin Nordic, a Bitcoin buy-and-sell site in Denmark.

Sam acknowledged that he had gotten lucky with his co-founding team, particularly with Lasse. “It would not be easy to find someone with knowledge of Bitcoin and cryptocurrency to the level that he had, and at the same time, had the right professional background and leadership skills,” he said.

Because each of the four co-founders brought such a unique skillset to the table, determining the equity split between them was difficult, and even the two-tier setup they initially agreed upon would be a source of strain later on. Sam and Lasse each got one-third of the company, while James and Daniel each received one-fifth.

With the pie to their buy-and-sell site finally divided, Lasse walked Sam through the basics of running this type of business, such as which exchanges were trustworthy. Yet even Lasse’s guidance could not prepare the team for trying to build the Coinbase of the Philippines.

“The biggest issue is that you’re trying to build a next generation platform on top of a very—I don’t want to call it pre-historic—but basic, barebones banking system. The features of Filipino banking are still very much behind what you would get in the United States,” said Sam, who began working on what was to be BuyBitcoin.ph in earnest with his team in the summer of 2013.

According to Sam, the Philippine banking system lacked everything from API integrations to online interbank cash transfers, which proved to be a huge stumbling block once they finally launched in January 2014.

To buy Bitcoin, the user deposited money into BuyBitcoin.ph’s bank account. The user was charged the market rate, or what is also known as the spot rate, plus 2.5%. As BuyBitcoin.ph maintained a float on another exchange, Bitstamp, they purchased the Bitcoin on the customer’s behalf and then sent it to him. For sellers, BuyBitcoin.ph bought their Bitcoin at the spot rate, minus 2.5%.

“Our profit is made on that spread, just how any traditional broker dealer would run a currency trading business,” Sam said.

The problem is that if the float is not large enough—BuyBitcoin.ph’s was between $10,000 and $15,000 in the early days—they may not be able to process the volume of incoming transactions, if the buying and selling was unbalanced, leading to a liquidity issue.

For BuyBitcoin.ph, the scale tipped precipitously toward the buying. The customers who queried Google for “where to buy Bitcoin in the Philippines” and inevitably clicked on the first result, BuyBitcoin.ph, were not, as Sam originally envisioned, Filipinos looking to send or receive remittances from abroad.

Instead, BuyBitcoin.ph’s users resembled Sam: males, between the ages of 18 and 35, who came from a tech, or at least tech-ish, background. They welcomed BuyBitcoin.ph because it streamlined the process of obtaining the cryptocurrency—people no longer had to coordinate and meet with individual brokers—and so they were more tolerant of its early hiccups.

“Initially, they didn’t specify if their bank account was a savings account or a checking account, but this is required when making a deposit through the BPI kiosks,” said Michael, who purchased bitcoins through BuyBitcoin.ph as a speculative investment and found the user experience smooth overall for a new site.

Like Michael, most of BuyBitcoin.ph’s users tended to speculate, snapping up Bitcoin whenever they could because they believed its value would one day appreciate to as high as $10,000. These were the kind of people who had their own fully reasoned theory for who Bitcoin’s elusive creator, Satoshi Nakamoto, actually was, and would be happy to run through it point by point.

These speculators would buy anywhere from 1,000 pesos to 100,000 pesos worth of Bitcoin per transaction. Sometimes a lot of them did so over the window of a few hours, flooding BuyBitcoin.ph with cash, and nothing, not even Sam’s uncle-like advice to avoid investing more than 2% of your overall net worth into what even he plainly admitted at Bitcoin meet-ups was risky technology, could stem the tide.

When this happened, BuyBitcoin.ph would eventually run out of money sitting on third-party exchanges with which to buy enough Bitcoin. They would be unable to give their last customers the Bitcoin they had ordered in a timely manner.

The marketplace could also seesaw unfavorably the other way. If a lot of sellers were trying to get rid of their Bitcoin through BuyBitcoin.ph, the company would also hit a point where it would run out of cash with which to buy it from them.

Sam acknowledged that this issue was one that all Bitcoin buy-and-sell sites struggled with, even to this day.

“Unless you can find a way to balance out the buy and sell demand, we’re always going to have to keep receiving the Bitcoin, selling it on exchanges, and then wiring the funds back to ourselves to recapitalize the company,” he said.

Wiring money to and from exchanges required Sam to walk into a bank, fill out forms, and meet with a teller, whose availability was generally scarce with all the in-person transactions they had to process or oversee.

The irony of the situation was not lost on Sam. “It almost defeats the purpose of using Bitcoin because you’re trying to avoid using bank-wiring, but at the end of the day, we still have to rely on a bank wire to keep the company liquid,” he added.

Payouts to sellers had to be done manually as well. Since there was no real way to send money online from one bank to another—say BuyBitcoin.ph’s account in BDO to a customer’s account in Metrobank—their only choice was for Sam or Lasse to head over to BDO, make a withdrawal over the counter, proceed cash-in-hand to Metrobank, line up once again, and deposit the payout with the teller.

A series of seemingly simple transactions could morph into a rabbit-hole in which Sam and Lasse lost significant chunks of their time to a blur of forms and lines. On heavy volume days, the two co-founders pinballed from bank to bank to bank, painfully aware that as CEO and CPO, they had more pressing matters than doing the same work as armored car guards, minus the armor and car.

BuyBitcoin.ph eventually hired a runner, one who they could trust with the growing volume of cash pouring in on a daily basis, which was only spurred on further by an edict issued by the Bangko Sentral ng Pilipinas (BSP) in March 2014 that warned Filipinos on Bitcoin’s volatility but took no concrete action.

While BuyBitcoin.ph and its users could buy and sell the cryptocurrency with free reign, the company itself was still not sustainable. “If you’re trying to grow a business that’s trying to scale, you can’t have people running around with cash,” he said.

Their only work-around—if you want to call it that—was to hunt for every hack that enabled them to move money faster. One of them was the online transfer feature on BPI’s mobile app, which saved Sam time for BPI-to-BPI deposits.

Yet BPI-to-BPI deposits were still only one permutation among the countless combinations of transactions that BuyBitcoin.ph had to do on a daily basis, so the mobile app could only do so much against all the man hours the company squandered away to banks, their lines, and their paperwork. If anything, hacks like BPI’s mobile app made the sense of loss more acute: If BPI was able digitize some of its services, what on earth was stopping their peers from doing the same?

After seeing how dependent the Philippines was on cash, Sam at least came away with a little bit of enlightenment.

“You can kind of understand why there is a bank on every corner,” he said.


The dark market

To grow BuyBitcoin.ph, Sam needed to increase the size of the float. Since he did not have much in the way of any Silicon Valley connections, he set up meetings with local angel investors and venture capitalists.

These encounters ended up turning into bait-and-switches. While Sam was eager to raise a seed round from them—what else would you meet an investor for?—these venture capitalists accepted the meetings, and in some cases called them, to get a free Bitcoin 101. They goaded Sam to explain what Bitcoin and this blockchain was, more out of curiosity as a techie than out of any real desire to make an investment in the space.

Even getting them to view Bitcoin favorably was tough. Sam was up against several stereotypes rather than a blank slate. “It was whatever they were reading in the media. It was only people using it for Silk Road purchases. It was associated with underground economy, the dark markets,” he said.

These investors were not completely wrong, and that was the hard part. One of the first use cases for Bitcoin was indeed the Silk Road, which at its height, offered over 13,000 items, mostly illegal drugs like marijuana, hash, cocaine, ecstasy, and heroin with the occasional fake ID or passport thrown in. Though it had been shut down with the arrest of founder Ross Ulbricht, aka Dread Pirate Roberts, at a library in San Francisco, the business model had risen again and again, as new entities as well as Silk Road 2.0 and 3.0. Apparently, the importance of brand equity held true even in the underworld.

Sam educated them about the uses of Bitcoin beyond the dark market and invoked the widespread support for the cryptocurrency in his presentation, but it was never enough to get the interested in BuyBitcoin.ph as an investor. “It’s already a challenging investment climate in the Philippines and Southeast Asia to begin with. To add Bitcoin on top of that, it was pretty hard,” he said.

On March 25, 2014, Sam and Lasse also became the first Bitcoin startup to meet with the BSP, who were concerned about what they assumed was the anonymous nature of the cryptocurrency—criminals would be able to move and launder money with it with the ease of someone doing legitimate business.

Like many Bitcoin enthusiasts and businessmen around the world who were also feeling the heat from regulators, Sam and Lasse argued that the cryptocurrency was pseudonymous rather than anonymous. That is, while a person’s name was not attached to a Bitcoin wallet as in the case of a bank account, you could glean a great deal from the public ledger.

In fact, Sam boldly argued that Bitcoin was more transparent than a bank. With a bank wire, you could only see where the money was sent from, whereas in the case of Bitcoin, you could use the blockchain to trace back several increments to determine where it originated from in the first place. This ability had come in handy in helping forensic investigators nab some of the dealers on Silk Road, though he smartly did not mention that.

The BSP stuck to its wait-and-see approach. Though the involvement of the national bank might legitimize Bitcoin for some, Sam found that the lack of regulation was actually beneficial.

“It allowed the space to kind of flourish a little bit and grow, to get their products out there for people to learn more about it,” he said.

On the flipside, Sam and the BuyBitcoin.ph team were left to police themselves, as untrained sheriffs in this new Wild West. They were targets of scammers almost on a weekly basis, from both buyers and sellers. As an intermediary, BuyBitcoin.ph never held onto a significant amount of Bitcoin, so they were rarely targeted for outright theft. The scams were much more inventive.

In one scenario, person A was selling an expensive item, such as a smartphone, to person B. In order to mail it, person A would tell person B to deposit the cost of the smartphone, which was tantalizingly discounted but apparently not enough to arouse suspicion, into a bank account, which happened to be owned by BuyBitcoin.ph. Person A would then put in an order for Bitcoin for that same amount. BuyBitcoin.ph would then send the Bitcoin to person A, who would disappear.

If the amount was small enough, BuyBitcoin.ph would try to compensate person B. In all scenarios, they told him to report it to the police. As a result, Sam began a strict know your customer process (KYC) on the whales—the users buying in excess of 100,000 pesos worth of Bitcoin per transaction—who now had to submit three different requirements.

Yet a more stringent KYC could do nothing to protect BuyBitcoin.ph when the breach began at the banks themselves. It’s truer in cyber security more than anywhere else: You are only as strong as your weakest link, and if the banks were any indication, BuyBitcoin.ph was right to be on high alert at all times.

In several cases, hackers gained access to the bank accounts of other customers, which they would use to fund a purchase order at BuyBitcoin.ph, which would then send them back Bitcoin. BuyBitcoin.ph was now stuck with stolen money, while the perpetrators had Bitcoin that they could launder for clean cash. Sam had no other choice but to shut down pay-in channels that routinely had security lapses.

Though Sam was already on guard from the constant swirl of attacks, he was not immune to deception.

On one occasion, someone sent Sam an email with a link leading to a landing page of an exchange BuyBitcoin.ph regularly used. The prompt there asked him to reset the password to his Bitcoin wallet for security purposes. He inputted his password and other relevant details, and in less than a minute, a couple thousand dollars worth of Bitcoin was completely drained from the account. Only then did Sam notice that the URL was a few letters off from the exchange’s real web address.

“I got phished!” he said of the incident, but in obvious high spirit now—he jokingly added that he wished banks could move money as fast as phishers.


A race to the bottom

Without any sort of official regulation on the Bitcoin industry in the Philippines, it was easy for both local and international competitors to follow in BuyBitcoin.ph’s path. All a company needed was enough capital to maintain a float, and the gall to bank on becoming the foundation of the nascent Bitcoin ecosystem in the country.

Some of these companies only sold Bitcoin to green-eyed speculators. Others only bought from users looking to cash out their Bitcoin. Still others performed both marketplace functions like BuyBitcoin.ph, surely dealing with the same circus-like balancing between buying and selling.

One of these competitors was Rebit.ph, which was one of six portfolio companies put up by Bitcoin umbrella company, Satoshi Citadel Industries (SCI). Rebit, of course, was a portmanteau of “remittance” and “Bitcoin” and it focused on the use case that initially inspired Sam, but which he deviated from as BuyBitcoin.ph grew organically with speculators: Users could send Bitcoin remittances to their loved ones. They did this by sending Bitcoin to the invoice address of Rebit, which would in turn remit, or “rebit” the money, in cash, to a pickup center or pawnshop, or a designated bank account.

Rebit competed with the sell-side of BuyBitcoin.ph, and another SCI portfolio company, xbt.ph, was dedicated completely to the buy-side. The three co-founders of SCI—John Bailon, Miguel Cuneta, and Jardine Gerodias—had also developed Bitcoin point-of-sale provider, Bitmarket; Bitcoin bills payment platform, BillNinja; and even Bitstars, a selfie site (!) that dispensed Bitcoin to the subject of the day’s highest rated photo. Apparently, once you established the buy-and-sell foundation, the sky was the limit on what you could build on top of it.

As soon as competitors like SCI hit the local landscape, Sam observed small dips in their transaction volume. To keep these from fissuring into larger and larger valleys, Sam monitored their prices and adjusted BuyBitcoin.ph’s own in accordance, trying to stay competitive by hitting certain benchmarks.

While some might think that the wider exposure brought on by more players could only help the community, Sam believed it was detrimental for everyone involved. Locked into a two-front price war—1.) most traditionally: who could sell Bitcoin the cheapest? 2.) more uniquely: who could buy Bitcoin for the most money?—BuyBitcoin.ph directed resources away from other critical functions, such as marketing to new users, in favor of minimizing sell prices and maximizing pay outs.

Users lost out, too. Yes, they bought Bitcoin cheaper and sold it for more, but these were pyrrhic victories. Companies invested so much of their resources into meeting these consumer pressures that product development effectively ground to a halt. The product roadmap for BuyBitcoin.ph in 2014 included an affiliate program, a proprietary Bitcoin wallet, and integration with the fin-tech platforms GCash and Smart Money. None of these ever became more than plans in a presentation, and all would have tremendously improved the user experience on BuyBitcoin.ph.

The price war, then, was exacting a huge opportunity cost.

“If you’re too busy trying to compete with one another, then you’re only going to get so far, especially when bootstrapping,” said Sam, who added that they struggled to meet the projections that they were exceeding just a few months earlier. “That’s what happens when you’re a one trick pony in very small market for a very new technology.”

At some point, BuyBitcoin.ph’s growth just completely flatlined. With no serious leads for investment, the company’s future looked bleak. Rather than compete on price, Sam tried to distinguish BuyBitcoin.ph through customer service, but fared no better there.

Jardine Gerodias, SCI’s chief operating officer, who had been using BuyBitcoin.ph as a normal user before they had put up their own sites and continued to afterward as a kind of competitive analysis, critiqued the timeliness of their service. It sometimes took Sam and company two to three days to do payouts, when its Silicon Valley-analogue, Coinbase, often did so in two to three hours.

BuyBitcoin.ph was indeed no Zappos, and it was never going to be at the rate they were growing, a fact Sam openly conceded to.

“At that point, it was very hard to differentiate service and show we were offering something better,” he said.

To make matters worse, Lasse moved back to Europe and Daniel moved back to San Francisco, both for personal reasons un related to the business itself. While Bitcoin worked as a decentralized technology, a Bitcoin startup would not work as a decentralized team. For the remotely located partners, BuyBitcoin.ph naturally became out of sight, out of mind, until Sam corraled them all together for their irregular meetings over Skype and tried to connect with them through the real and metaphorical static.

The diminishing of Lasse’s and Daniel’s roles due to distance put BuyBitcoin.ph in a precarious position. With Daniel in San Francisco, BuyBitcoin.ph’s stranglehold on the top spot of most Google-searches related to buying and selling Bitcoin in the Philippines, from which they gained most of their new users, was in jeopardy.

With Lasse in Denmark, Sam lost a partner in meetings who happened to be a convincing ambassador for Bitcoin and all that it signified for the future of the Philippines, a message that he could tailor to everyone from regulators to reporters. Evangelizing over Skype or teleconference was just not the same, no matter how passionate you were. “Filipinos like having that person in front of them,” Sam said.

As a result, Sam forced both Lasse and Daniel to reduce their ownership stakes in BuyBitcoin.ph. “I felt it wasn’t fair for them to be working in a half-capacity, but still have the same amount of equity. Because by then, they had taken on almost more of an advisory role,” he said. The forfeited equity was distributed between Sam and James, who were doing what they could to assume the impossible workload.

Despite the loss of these key personnel, the struggles of BuyBitcoin.ph were not always evident to outsiders. Jardine guesstimated their platform had decent volume, based on the power users who vocally humblebragged about their buying or selling activity on BitcoinPh.

“Whenever they would sell Bitcoins, they would post screenshots of the BuyBitcoin platform saying, ‘Look, I sold this amount,’” Jardine said.

When Jardine and his co-founders finally met Sam in person at one of the Bitcoin meet-ups, he was even more telling. Though no mention was made of an acquisition, Jardine sensed that Sam would be open to the idea. Sam had even alluded to the possibility of moving back to Florida.

“I wasn’t really willing to risk all of my personal funds to go after it hard enough,” Sam said of his stance at the time.

Jardine pitched the idea of acquiring BuyBitcoin.ph to SCI’s CEO, John Bailon, along with the rest of the team. To Jardine, the deal made sense for both parties. In one fell swoop, BuyBitcoin.ph would multiply their manpower and their float, while SCI would eliminate a competitor in what Jardine deemed could be done at a very favorable cost-benefit ratio.

John also felt a BuyBitcoin.ph acquisition made sense. “Consolidation made a better statement for the very young industry rather than seeing startups close down or fizzle out,” he said, noting that SCI tried to strike a similar deal with now defunct Bitcoin startup, CoinXchange.ph.

With John and Jardine at the helm, SCI proposed an acquisition in the form of an equity swap to Sam. No money would change hands, but  each company would hold a stake in the other, with SCI taking full ownership, and Sam and whichever BuyBitcoin.ph founders remained, getting partial.

Sam took the proposal back to his co-founders. He had to massage each individually, as they all had different goals. James was interested in a cash buyout. Lasse would stand by anything that preserved BuyBitcoin.ph as a company and grew the cryptocurrency in the country, as idealistic as that may sound.

Daniel, for his part, was gone in all but name.

“By then, Dan had already decided to pursue other opportunities in the San Francisco tech scene,” Sam said.

It took months for Sam to whip up the votes, as though he were campaigning for a statewide referendum. Once the co-founders agreed in principle, he had to negotiate the particulars with SCI, such as whether there would be revenue share.

As there was no real template for this kind of deal, the two parties were implicitly weighing the valuation of SCI against that of BuyBitcoin.ph.

“It kind of came down to how well we could justify what we had built,” he said.

By this measure, Sam was valuing the product development that Daniel and James had put into the platform, the continued high ranking on Google search results, BuyBitcoin.ph’s small but devoted customer base, and the goodwill of the Bitcoin community as the first site of its kind in the Philippines.

As Jardine believed that valuation was neither art, nor science, but leverage, he appreciated BuyBitcoin.ph for all of the above, but he wanted for the deal to include one more thing: Sam. Ever since its founding, SCI lacked a dedicated CFO, and Jardine, who had been filling in the role in addition to his work as COO, saw Sam as an ideal candidate. He could manage SCI’s own float and steward its other verticals to profitability.

Sam was open to the idea of staying on post-acquisition.

“I was trying to make that a separate deal, but it implicitly became part of acquisition—SCI wanted to make sure I would come on board as CFO,” Kadoura said.

Despite his willingness to join SCI, Sam got cold feet up until the deal actually pushed through. Once it did, BuyBitcoin.ph was divested of its assets and the money was redistributed to the four co-founders, based on how much each put into the original investment.

As the newly minted SCI CFO, Sam marveled at the state of the company’s financial affairs. While BuyBitcoin.ph had slow but reliable trading operations, SCI had very little in the way of formal processes, a fact to which he held no punches.

“It was a group of people in an office putting together marketing material,” Sam said of the team at the time.

SCI’s method of recording transactions was so primitive it irked Sam. “How do you expect to raise money if you’re not recording how the business is doing?” he had asked SCI’s executive team, who were then seeking their first round of venture capital.

As there was no one else on the team with Sam’s experience in finance, he rolled up his sleeves and got to work. He set up SCI’s accounts on third-party exchanges and taught the other team members how to use them, including the basics of trading and the finer points of understanding market sentiment. He created a more sophisticated system of recording tractions, one which automated some previously manual tasks. He started a finance and accounting team. He advised his new subordinates on how to book a profit via the bid-ask spread and eventually moved reporting over to a more traditional accounting system. Over the course of several months, Sam had managed to develop SCI’s trading operations from scratch.

The BuyBitcoin.ph platform also brought a lot of strategic value to SCI. With John leading technical integration of BuyBitcoin.ph and coordinating the takeover of its operations, SCI was able to improve and speed up its customer service. In turn, SCI funnelled BuyBitcoin.ph’s users into its larger ecosystem, most notably to Rebit, via email marketing. Sam estimated that as many as half of BuyBitcoin.ph’s users eventually signed up to send money via Rebit.

The above may make it sound like it was only SCI who benefitted from the BuyBitcoin.ph acquisition, and that would generally be accurate. After the acquisition, BuyBitcoin.ph largely went untouched. No new features were added to the platform, nor were any new services offered. A rebranding was done some time later, but you could argue this was largely cosmetic. For the most part, SCI contented itself with redirecting the pipeline of BuyBitcoin.ph users toward its other flagship products.

A reminder is in order: Sam was now part-owner of SCI. Which may explain why he was perfectly fine with BuyBitcoin.ph stagnating, if it meant the greater SCI ecosystem could flourish, and why he agreed to an equity swap in the first place. Most people, after all, associate an acquisition with a large, life-changing payday, not a percentage share on a spreadsheet.

Sam believed consolidating BuyBitcoin.ph into SCI would make the combined entity exponentially stronger, and from a purely survival standpoint, it has. While so many of the smaller Bitcoin players who popped up across the Philippines in 2014 have withered away and died out, SCI is still standing, rolling out new verticals and products at the pace of a factory manufacturing widgets.

Sam admitted that the breadth of SCI’s portfolio can sometimes spread the team a little thin, but he pointed out the company has managed to excel at its overall focus: remittances and cross-border payments. The truth is in the numbers.

“SCI’s size is 10 times, 12 times from where we were before,” Sam said. “And that’s why I was willing to take equity—I knew we would be able to grow it a lot more.”

SCI appears poised to grow only further. With Sam’s assistance, John raised a seed round in the realm of seven figures from KVG, the venture capital arm of South Korea’s Kakao, most famous for its chat app, KakaoTalk. SCI now employs over 40 people, a chunk of which it obtained through another acquisition, this time of Davao-based startup, Lifebit.

The kind of market consolidation that led to these new heights is not the norm in the Philippines. Startups prefer to grow on their own rather than through mergers and acquisitions. And who can blame them? In a nascent ecosystem, teaming up with the guy down the street may seem like an admission of defeat. But Sam believes that founders should swallow their pride and consider these deals, if only because they will ultimately benefit the end user.

“These small mergers are good for the startup community. It brings more focus under one umbrella so you can make a product that hits that much harder,” he said.


To learn more from founders like Sam Kaddoura, please check out the full book, available for purchase here

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