Content
@
1 reply
0 recast
2 reactions
Miles Jennings
@milesjennings
1/ We're seeing more and more crypto startups stuck with predatory terms from early-stage deals. Don't let early-stage investors set you up for long-term failure and jeopardize future fundraising rounds. Here's what you should look out for:
2 replies
4 recasts
16 reactions
Cassie Heart
@cassie
All but one of these are based around deals involving tokens. Seems like the correct route is for founders to not entertain token-oriented deals at all. Hopefully crypto VCs that want to rise above the problem will do the same.
1 reply
0 recast
0 reaction
Miles Jennings
@milesjennings
Not quite the right conclusion. Its an incentive alignment problem, and it's a solvable one:
1 reply
0 recast
0 reaction
Cassie Heart
@cassie
In equity deals, investors are stakeholders in the company: the desire is to increase the value of the company. In token deals, investors are stakeholders in the token itself: the desire is to increase the value of the token. To do so means investors and project builders are directly making an agreement for an investment of money for the token, in a common enterprise, with the expectation of profit, on the efforts of others. If a token is intended to be a security, then by all means be a security, but if a token is intended to be a utility it appears entering these kinds of agreements serve entirely against the best interest of building a protocol insofar as the value of the protocol is the primary interest rather than its utility. From the perspective of building a company that is building a protocol with a utility token it seems the correct approach is to avoid the issue such an investment contract creates by instead only taking equity deals, and letting tokens be tokens solely earned through the protocol.
2 replies
0 recast
1 reaction
Miles Jennings
@milesjennings
At the time of investment, you typically use an instrument that converts into a token, most often a token warrant. The token warrant is a security, but the token isn’t issued until a date where reliance on managerial efforts are sufficiently reduced such that you would fail Howey - in other words, when the project is ready to decentralize. That means the token isn’t a security, regardless of whether it has the potential to appreciate and function as a vehicle for investment. Ultimately, the point here is to put the investors on the same footing as the employees. If tokens aren’t issued to employees, then there’s no need to issue to investors to keep incentives aligned.
0 reply
0 recast
0 reaction
