DeFi startup launches platform that lets people invest in startup revenue instead of equity
Fairmint, a decentralized finance (DeFi) startup, has launched a platform that lets customers invest in startups based mostly on their revenue efficiency.
The San Francisco-based agency has been creating the platform for over a yr and raised a $1.2 million pre-seed spherical from Boost VC, IDEO CoLab Ventures, TinyVC and others final May.
The platform was designed based mostly on a brand new fundraising mannequin for startups, named Continuous Securities Offering (CSO), that expands the potential investor pool from founders, VCs, and staff to anybody to provide these buyers publicity to firms’ future revenues.
“CSO is this new financing model that we are pushing because its much healthier than venture capital or than ICO. ICO was way too founder-friendly. Venture capital is too investor-friendly. So the CSO model is this interesting balance between the two,” mentioned Fairmint CEO and cofounder Thibauld Favre.
How it really works
Specifically, an organization trying to elevate cash by way of a CSO will first decide to placing a sure proportion of its future revenues right into a reserve (held in escrow) for a set interval. Investors on the Fairmint platform can then purchase claims to the reserve, represented by ERC-20 tokens.
The preliminary worth of the tokens will likely be calculated based mostly on the dimensions of the reserve by an algorithm. Investors can then commerce these tokens by way of decentralized alternate Uniswap and the worth will subsequently be decided by market demand. They may select to redeem these tokens from the corporate, and the redemption worth may also be calculated based mostly on the reserve and alter because the reserve measurement fluctuates.
Each CSO will final for a interval of time set by the corporate. During the interval, buyers can repeatedly commerce these tokens based mostly on their confidence in the corporate and their prediction of its future revenues. Once the corporate decides to finish the CSO, it’s liable for shopping for again all of the excellent tokens on the worth paid for the ultimate token minted.
Money raised by way of the CSO will fund the corporate, and if the corporate chooses to, it might probably direct a portion of the fund again into the reserve.
Why it issues
Although many various matrices can measure an organization’s success, Fairmint believes that a give attention to revenues can foster wholesome firm development.
“Working with equity is extremely hard, while working on revenue is much easier and much more healthy… And to rely on revenue generation, we think it’s a very positive and healthy thing. Revenues are also very easy to audit,” mentioned Favre.
This ethos is felt throughout the startup ecosystem, because the WeWork Initial Public Offering (IPO) fiasco serves as a cautionary warning to many founders and buyers in opposition to the growth-at-all-costs mannequin fueled by enterprise cash.
As such, Fairmint targets firms that have viable enterprise fashions and might generate revenues. Conducting CSO additionally doesn’t forestall the businesses from elevating equity rounds or getting publicly listed, since no shares are supplied by way of CSO.
Starting on Feb. 6 at 2 PM EST, any firms and people can register accounts on the Fairmint platform. The first CSO will start on Feb. 19, and Fairmint itself would be the token issuer.
Since Fairmint is a U.S.-based firm and it considers its CSO an providing of securities, the tokens will solely be obtainable to non-U.S. customers and accredited buyers in the U.S. to be compliant with the securities regulation.
“The value of the token is really in the token, it’s not like in an STO (security token offering) where the value of the token is just a piece of paper saying that you have a share somewhere. Here the token has its own value,” mentioned Favre.