Blockchain startup R3 is struggling and might be out of money by 2019, two former employees told Fortune. On the other hand, the company has recently received investments from CLS, OUE, TIS, and Accord Project.
R3 launched its blockchain project in 2014, with the aim of forming a group of large banks and financial institutions to use its technology. Initially, giants like JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) backed the project, which promised to be a success. However, two years later, Goldman, JPMorgan, and Santander (MC:SAN) left the consortium as R3 accepted too many members after the release of the Corda platform.
Even so, R3 announced a $107 million funding round last year despite the previous departures. The startup was even more confident and referred to that funding as the first tranche of a total $200 million needed to develop the consortium.
However, it seems that the plan didn’t work out. A former employee said that the $107 million figure was exaggerated as it comprised consulting costs from previous years that the startup reclassified into equity as part of its partner agreements. R3 told Fortune that the number was overstated indeed and that only $98.2 million was actually new funds.
Speaking about the recent $15 million funding round that involved CLS, OUE, and TIS, the former employees said that it was actually a fail as R3 aimed for a larger funding round.
The former workers also revealed that the blockchain startup failed with the financial targets defined last year. One of them said that revenues are one-tenth of expectations while another employee said the revenue is “laughably off” the target. On the other hand, R3’s managing director Charley Cooper denied the claims, saying that the company exceeded revenue expectations, though he didn’t mention any figures.
The former employees said that R3 might have to work on its business model as they spend too much on staff and travel.
“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,” a former staff member said.
Another employee said that many of the expensive trips could be carried out through social media channels instead.
The compensation of R3 CEO David Rutter is too high, with one person calling it “outrageous.” However, the company said that the salary was approved by the board and is not exaggerated, though it didn’t disclose any figure.
Corda Platform
But the real issue of R3 is related to its blockchain platform called Corda, which the company updated late in 2017. Initially, it was intended that the big banks in the consortium would pay in fees for applying Corda, but once JPMorgan and others left, interest in the platform has been declining. Some of the banking giants redirected to competitors like the Enterprise Ethereum Alliance (EEA) or Hyperledger.
R3 skeptics note that the startup didn’t attract many developers to create Corda, which can lead to loss of confidence from potential customers.
“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,” a former employee stated, though he endorsed some of the platform’s features.
Another source from a major investment bank told Fortune that R3 was “lethargic” in sharing its code.
If R3 doesn’t win the case in its lawsuit with Ripple, in which R3 might get compensated $3 billion based on the current rate of XRP tokens, then it might find it difficult to go on without dramatic changes.
This article appeared first on Cryptovest
