Fund Raising & Business Roadmap

Is seeking external fund raising a good idea?

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Hi everyone -

The business is resource constrained and it's affecting our ability to progress; I want people to start thinking as a startup would. We had some investment but are essentially out of runway before we made it to breakeven. It happens all the time.

I'd like to lay out a business roadmap to recovery. This could run alongside our technical and governance goals.

What we need

To bang out the technical roadmap.
To give us time to deliver solutions with pronounced usage.
To build non-core infra & tools.
To bring teams into the ecosystem. Not drive them away.

Current Tokenomics
Our tokenomics are actually great. Companies buying FCT to run their services. But they only work at scale, once we've got that traction. Now we all thought at M3 that Inc were about to announce 30+ F500 firms out of NDA and they would sustain us under the proposed burn & mint system.

Unfortunately that didn't happen, and today's slow bleed to $1.50 is the downside of our tokenomics - of not having any usage to prop up the token price against inflation over time.

That doesn't mean our tokenomics don't work when we do have usage. We were just premature (misled) in launching this system.

At this point, we should be very open with investors. We have a great base here; we have the ideas, the skills, the people, the services, the contacts - but we need funds to push down our roadmap. It's going to take 3+ years before we see usage organically take over on the tokenomics. Then I think we're on to a winner. And from these lows - it's a potential moon landing.

What we need is 3 years worth of reasonable funds. That will require ~$10m. After that, we should have enough usage to become self-sufficient under the burn and mint model.

What we need is a fundraising. To achieve that - we need to clearly lay out what we will spend the money on, and what the value proposition is.

This thread is to discuss our options.

Business Roadmap
Currently our roadmap is technically orientated; There's nothing for investors there. I'd like us to step back and look at the bigger picture.

I suggest we tie an investment initiative alongside M4. Q1 2021. We take our time to make a proper plan, and build awareness.

From now until M4 (4-7 months)
We focus on creating our long-term value proposition, defining our roadmap, how we're going to do it and then finding this capital.

M4 - M5 ( 3 years)
This period is about getting to breakeven. Delivering on the technical & usage roadmap we have planned.

This period is about growing token price and returning investment. This will be the milestone in which the tokenomics change, and that the incentives from each part of the program are in place to ensure the token price will be healthy.

What do they want? They want the token value to grow. They want a clear vision of how that will happen. Who is working on the project? How will it be spent? They don't mind if it's years away. They don't mind if it's a vision, rather than a reality. They want to be inspired. They want to see the future. They want to be part of something.

They don't want their investment to be sold into by current token holders or wasted on a Super Bowl ad. It needs to go to specific, pre-defined areas and teams, not the grant pool. And it's not to pay for inflation either. We also don't want the open market flooded with tokens.

So what is the one thing we have to sell that people want? Inflation.

[ A traditional business sells a portion of equity. We will sell a portion of future inflation ]

The Deal

We create a 'De-Fi' token on FAT with fixed supply. Fixed supply 10 million. These are available for purchase in our fund-raising, price of $1 each. They can be traded. These are not FCT.

We are not selling a security. We are selling an allocation of future FCT inflation that is already established.

Each $1000/1000 tokens entitles the owner to 3 FCT/month for life of total inflation after M5. This will require 30,000 FCT/m set aside in M5.

This token is also tradable. So if you don't want it anymore, you could sell. As we get closer to M5 - the token value should increase as we are closer to that inflation payment.

With a target price of $50/FCT for usage balanced from burning FCT from sustained usage.
This aligns incentives to get these people to evangelise the protocol up to $50/FCT.

A ~$150/m for life retainer, that's a great investment opportunity worthy of the risk of purchasing. Even at $10/FCT, it's very attractive.

Maximum $50,000 each. We want as many participants as possible to get the word out. Current ANOs have to partake.

Investors with >$10,000 are also given priority to become an ANO in M5 when we increase up to 65. So it is another opportunity to gain further sustained returns.

Keywords: De-Fi. Passive Income.

How do we use the $10m over the 3 years?
We have a team of 8 core devs working. Salary $166,000 each -> $4m total. These are people like Paul S, Brian, Who, Sander, Paul B, Michael, Tom, Adam, Matt Y, Matt W, Clay etc who already know the code. This is a full-time job.

They are given the technical roadmap with the goal of getting us to reliability, scale, smart contracts, ID frameworks, additional standing parties, sharding, FCT/FAT bridges, distributed restarts etc over the 3 years.

$1.2m is set aside for Tier 1 exchange listings, market makers fees.

$0.5m is set aside for non-core infrastructure. E.g Wallets, libraries, and other tools. Things a bigger community would expect.

$1.5m is to Seed fund 5 commercial products/services from ANOs that in 3 years time should get significant usage needed to sustain FCT price. We can come together to build these. These teams then go on to raise external capital after 2 years. The third year should be spent scaling ready for M5.

$1m is an accelerator programme to attract startup teams to Factom. Hackathons are run yearly which then fund the best teams. 9 (Top 3 x 3 years) teams - $110,000 per team. Which awards money at key milestones in their development across a 12 month programme. They can go on to raise external capital.

$1m is a marketing, PR, social media campaign for everything going on in the Factom Protocol. They will support our Investors, Core Dev Milestones, Thought-Leadership, Seed funded teams and Startup accelerator teams across the 3 years.

$0.3m set aside to secure key partnerships and working capital.

$0.5m set aside to build 5 separate prototypes of a solution on Factom.

The $10m does not have to be raised at once.

We start with 20 from our current batch. At M5 we have 65.

Each of the 9 accelerated startup teams is given a spot in M5. Each of the 5 seed funded team is given a spot at M5. The Executive Committee is given a spot at M5.

The other 30 spots are reserved for our investors. Who are given priority to applying into M5. If 30 capable teams/ppl are not found, then we can re-allocate the spots. This provides further return on investment and attracts bigger players.

Future Tokenomics

Remember almost all costs until M5 are covered by the $10m.

Inflation remains at 73k FCT. 10,000 to a Leadership Team (Must be staked min 1 year). 30,000 fixed across 20 ANOs (Must be staked min 1 year). And 33k to the grant pool. (Can be saved, or used as needed).

This cuts out the immediate sell pressure of the token for the next year ad limits it going forward. This also requires ANOs to be committed/invested for a year before realising any rewards.

Inflation lowers to 60k FCT per month. We are now into token growth mode. This helps us equalise the tokenomics under the burn & mint model.

We move to a widely distributed protocol of 65 ANOs. Infra-only and fixed payouts of 200 FCT per ANO = 13,000 FCT/m.

10,000 to the Leadership Team.

30,000 FCT/m is set aside for the 'inflation investors'.

7,000 FCT/m goes towards maintenance of the protocol by key personnel.

What do we lose?
We lose a portion of our future inflation that will be returned to investors. The idea is to have turned a corner by that point, so the FCT price should be sustained or increasing based on our tokenomics alone. We should have many self-sufficient teams by then, and a healthy community.

It would be great if we didn't need to raise money, but we do.

We also take a risk that the FCT price stays low.

Our minimum target price needs to be $10 FCT at M5 for this to cover future Infra needs and be a decent return for investors. A floor price of $10 against 60k FCT inflation still requires significant usage.

But what happens to startups who run out of money and don't raise funds? They disappear. And that's where Factom is headed right now unless we do something about our funding situation.

Example Returns for $1000 Investors = 3 FCT/m from future inflation.

FCT is $10. From Year 3: Inflation earns me $30/m or $360/year. Payback in 33 months.
FCT is $1.5.From Year 3: Inflation earns me $4.5/m or $54/year. Payback in 216 months.
FCT is $50. From Year 3: Inflation earns me $150/m or $1,800/year. Payback in 6.5 months.

On top of this - I can also sell my original 1000 tokens to someone else at anytime.

This gives huge incentive for our inflation investors to buy FCT and evangelise it to hold up the price.

Or we could place a third of the tokens at $1. The next third at $1.5 and the last third at $2. This would create an incentive to buy earlier and lock in funds.

In Summary

The aim is to:
1) Bang out the technical roadmap
2) Support projects gaining usage.
3) Provide incentive for investors
4) Make ANOs invest in the future.

Why will investors buy this token?
  • It provides passive income, a portion of inflation for life.
  • It is tradeable. The closer we get to M5 and investor payouts, the higher in price it should go.
  • Own equity in the commercial products we build.
  • Become a server less ANO in M5. Further revenue opportunity plus governance rights.
  • The effective stopping of sell pressure until M5 to support FCT prices.
  • M5 lowering of inflation backed by upcoming projects raises chance of higher FCT prices.

This is billed as a 'De-Fi' token using our own tech. It promotes our abilities with tokens.
Also 'Passive Income' which is a huge goal of crypto investors.

We also don't need to sell all these tokens at one time. We can sell for example a third each year. Giving us more attainable goals of $3.3m per year. We can also increase/decrease the amount based on demand.

Let's hit the trail for investment. There are several parties in our group that are proficient at raising large funds.
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Hi Colin,

I have quickly scanned your message. Personally I get a bit overwhelmed with everyone writing these kind of proposals and I feel we aren't focussing on what we should now and that is governance. At all times, this need to be fixed now.

Generally speaking I am not in favor of using a second token for raising capital. The grant system has given this ecosystem multiple 10's of millions USD for development and look where we are today... why would 10 million more bring us to a situation that FCT is going to rise? Didn't we think that many millions of dollars ago also?

I am a large FCT token holder and have painfully watched ANO's/Grantees draining the token for own good or pay for development. I bought more on the way down and kept supporting price but it's worthless now.

Now when we are at price levels that these same entities aren't getting value out of the token anymore we just start creating a new token? Isn't that another stack in the back with a big knife for all the holders? I wish ANO's would open up and show how much they actually still own (I bet almost nobody does), so we understand proposals like these and other decisions.

Nothing against you personally, but I guess you understand after all these years that I don't buy stories anymore like: "if we do this then FCT will rise or with xx million we are reaching what we need to reach". This ecossystem has burnt money like crazy without getting anywhere, except for a more stable network.

I want FCT to rise now, not in 3 years from now. So we need a better governance and some sort of staking involved. Every year people keep saying that in 2/3 years we 'are there'. It's vague.

Also tokenomics aren't great. Just do the calculations about how much usage you need to let price rise due to usage. You'll quickly reach a point in which the network likely isn't supporting that number either, next to realism.
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Thanks for your response. We cannot just expect a miracle to happen here; If we do nothing, we die.

If we are to turn this around - we absolutely need to push down our roadmap and that will take money. Money that we cannot and will never be able to afford now without change. We need to look for ways to raise funding.

Complaining about the token price and lack of network capacity or where previous funds have gone shouldn't get in the way of change that can correct those things.

This is not a competing governance proposal. It is purely from an investment perspective. It is open to work alongside existing or proposed changes to Factom governance as part of an M4 type of event.

This proposal seeks to:
1) Finish our technical roadmap so we can sustain usage.
2) Attain that usage to support a high floor price.
3) Gives inflation back to investors through incentives in return for less ANO inflation in 3 years time.
4) Raise FCT token price for current tokenholders.
5) Stop all sell pressure for 3 years, whilst providing funds to progress.
6) Lowers inflation to make the floor price more attainable.

It also promotes our tech capabilities, tapping into the 'De-Fi' market with FAT.

We'd be trading a future % of the funding stream for a chunk of funding now. It's not too dissimilar to a traditional equity investment. I'd argue without that injection of external funding soon, we won't have much of a revenue stream to share.

Isn't this everything you want? Please take the time to read it through.
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We could start small and raise the price for successive batches.

Sell the first 1m tokens at $1m.
Sell the next 1m tokens at $1.1 each and use the spare $100k to buy FCT on open market.
Sell the next 1m at $1.2 each and use the spare $200k to buy FCT on open market.

This would create a wave of momentum and word would spread fast.
With the stopping of sell pressure from grants/ANOs, and spare funds raised being used to buy FCT the price would increase. This increases the return to investors via future inflation.

As investors begin to see the potential large returns they accept the progressively increasing token price.
The last batch is sold at $2 per token. And the spare $1m used to buy FCT on open market.

After 10 million tokens have been created and sold - the raise is complete. Whenever that is. At M5 the holders of this token start being allocated a relative portion of the FCT inflation.

From a legal point of view: We aren't creating money. We are selling a portion of existing inflation. We already flexibly hand that out to different parties that are voted for.

If FCT inflation is legal, then I can't see an issue with how and who we allocate it to.
Overall, there's always a need in emerging technology for new funds and its hard to see how just token sales are enough to advance the protocol. Where I don't see a path forward on this is the actual framework that people will invest into. Who are the potential investors (not 'who' but the persona), why would they invest, what's the value proposition, who will they legally invest in? Or are we trying to basically re-ico?
This is an ITO. Where the buyers/investors gain the right to an existing coin supply.

I think generally it’s better under a NPO, and we can follow up on that.

But if the law is happy with Factoms existing circulation and inflation - why does it matter who it’s allocated to?

The token has no additional monetary value of purpose other than that already created. It just dictates how it’s split up.
I think we would find it challenging to raise nearly 80% of our current market cap given the trajectory of the project.

If investors are not willing to use $1000 to buy 740 FCT right now, why would they use that same $1000 to earn 36 FCT/year in 3 years time? If someone were to ask me to make that investment, the answer would be a hard no.
Sure @Alex - which is why I suggest breaking it down into 10 x $1m batches.

If the grant pool was given $10m and had a strict plan and team to deliver it - It’d be a far different prospect to randomly buying some FCT now on an exchange.

Additionally - they can sell those $1000 of tokens for ~$1000 to recoup the original investment at any time.

The idea is the value of those tokens would also rise the closer we got to payouts.

The bet is - after $10m and 3 years work directly into development, 3 FCT/month would be a great ROI. Better than buying 740 FCT in isolation.

But I agree - a tweak could be to bring forward the payouts to whenever the investment was complete. I.e a $1m batch.

My concern with just having ppl buy FCT, is it mostly gets pissed away on servers and admins rather than directly to development. That’s the reason I’d not buy FCT.

Every $ I invest into FCT only results in ~10c of progress. There is no way to effectively invest in the protocol, only gamble on its future.

By selling a token - we increase the value of FCT by efficiently giving significant extra resources to the protocol, temporarily avoid all liquidation of FCT to support the price, and we can strictly determine how and where funds are spent rather than have others offload bags into the rise.
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It is refreshing to have a proposal that has statements about what needs to be done and how long time it takes. I certainly think that should be explored further.

Another thing I think could be healthy is to chase larger investors. It would force the community to be more concrete and thorough, as larger investors will put suggestions through more scrutiny.

@Colin Campbell I assume the 3+ years and 4M USD you mention are off the cuff statements to get the discussion going?

On the legal side of things:
  • The FCT token has utility, whereas the new token would not. So the new token i exclusively a vehicle for investment. I am certainly not an expert on AMerican financial regulations, but if the new token is launched in the US it seems like it would be at odds with the Howey test.
  • Furthermore, what guarantees do investors have that they get their payout? If you invest in equity you can take someone to court if you do not get you money. With FCT it seem unlikely that the basic utility of the token would be changed. But with the new token you will have to rely a loosely governed interplay between the people who run the new token network and the ANOs. If things do not pan out as expected, adjustments might happen.