The Otonomist - September 2023 Funding Special
This month's issue of The Otonomist is all about how we iterated on ICOs in a legit way for Otonomos' own funding round, and its terms and structure.
We wanted to change equity fundraising forever, starting with our own round
It has been said that venture capital is the least scaleable of all businesses.
For VCs, even when they invest in tech companies, participating in a round is still a very low-tech process. Think MS Word term sheets, analog deal dox and clunky fiat wires.
For Founders, raising money means knocking on countless investor doors, resulting in (mostly) rejections and (at best) a handful of one-sided term sheets, followed by parallel negotiations and dragged-out due dil, in a process that makes Founders feel their valuation is being auctioned off whilst their business is drowning.
For smaller investors, they simply do not count…
We were promised ICOs, and all we got is a lousy T-shirt?
Back in the days, ICOs were an almost visceral reaction from the crypto community seeking to change the way Web3 projects received funding.
Some were idealistic, most were opportunistic, and almost all involved a dumpster-fire of existing regs.
Since, we’ve gone through a whole alphabet of token distribution models, but the pendulum seems to have swung back to opaque SAFT, SAFE or SAFT/E rounds or traditional offline equity rounds funded by centralized capital, with tokens thrown in almost as an afterthought.
Changing equity fundraising forever
Is there a way to preserve the spontaneity of ICOs when raising equity without offending Gary and his regulatory peers?
It’s a challenge many in the community, including Coinbase’s Brian Armstrong (9.17s into his clip on X), would like to see addressed.
In this Funding Special, we share what Otonomos has been working on to solve the capital formation challenge as one of the biggest obstacles for Founders (and investors!).
> In Part I, we talk about what features a tech-centric equity funding solution should have.
> In Part II, we walk readers through Otonomos’ raise and the use of the online funding portal it built to make participation in its equity round frictionless.
Part I - How would God design a legit reiteration of ICOs?
The way we started out examining the features for an equity funding solution, we asked ourselves how how it would look like if God designed it, taking into account existing man-made regs which even He won’t be able to change so soon...
We believe such godsend design would have the following 10 features:
Entirely online: at no point should subscribers have to leave their browser.
Fully automated: investors should be able to complete the whole cycle in one go.
Legally binding: no need to sign anything, without compromising on legal validity.
Fully transparent: all data related to the round should be accessible from within the funding portal, including the round’s terms, investor deck, financials, etc.
Blockchain-enabled: Investors should have cryptographic proof of their status as investor and receive a token representing an actual equity interest.
Crypto-first: Investors should be able to pay for their equity in crypto first and fiat second.
Secure and private: Users can legitimately expect the portal to be secure and protect their privacy.
Compliant: Compliance with securities regs is enforced via the platform and the token standard.
Maximally open: Within the restrictions of existing securities regs, the portal should be minimally gated and maximally democratic.
Out-of-the-box legal stack: Any legit ICO iteration should come with a tried and tested legal stack that allow anybody to raise from anywhere.
In Part I of this Funding Special, we discuss each of the above 10 design commandments in more detail and illustrate how we built them into our technology solution by using screenshots of Otonomos’ own funding portal.
Part II - Eating what we cook: A user’s manual for investors in the Otonomos online funding round
In a second part, we share how we put our own round together and walk you through our online funding portal, with the idea to:
make it frictionless for an angel or institutional investor to participate in Otonomos’ online funding round;
share our approach with other Founders who may wish to use our tech once we’ve rolled it out for wider use.
> Read our full post to get all details on why we raise, on what terms, and how to participate.
Speaking events in London and Buenos Aires
London: Otonomos is co-hosting an event with the UK’s Centre for Digital Assets and Democracy in London. Meet some of the Otonomos team there on Thursday 12 October at 5pm local time. Full details and RSVP here.
NEXT MONTH: In next month’s issue of The Otonomist, we will have two guest contributors and report back on progress on both the Otonomos and OtoCo tech development side.