SCIENCE — Modern incubation brought to the Blockchain
So I’ve spent a LOT of time looking at the upcoming SCIENCE ICO (https://science.tokenhub.com/). I’ve asked, and been asked countless questions. The offering memorandum is quite lengthy and some of the specifics can be a bit confusing.
Let me try to break it down.
SCIENCE is offering 100,000,000 SCI tokens at a price of $1. It’s accepting BTC, ETH, EOS, USD ($25k minimum for USD payments), and the sale structure breaks down like this:
- Presale: Runs from September 11th to October 1st.
There’s a $250k minimum for US residents and $50k minimum for non US residents.
- Public Sale: Starts on October 2nd with no restrictions other than the $25k minimum for payments in USD. No minimum for crypto based payments.
Notice what I didn’t mention here. “Where are the discounts???” “It’s +1500% bonus for tier 1 right?” Nope. None of that. SCIENCE is Regulation-D compliant.
“Regulation D (Reg D) is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.“
So what does this mean for purchasers? It has a few implications:
- There is a maximum of 99 US Accredited investors involved in the sale.
- US based investors have a 1 year lockup on their tokens.
- Some exchanges may be less likely to list a security token even if it’s compliant with the US regulations.
And now, on to the good stuff.
Here’s how SCIENCE tokens (SCI) work:
After SCIENCE is done “incubating” a promising young company, the company will go on to have their own ICO. SCIENCE expects to own about 25% of an incubees equity as well as 25% of its total tokens at the end of its ICO.
There are 2 events that can impact a SCI token holder:
- An incubee has an ICO
- An incubee has an M&A (Mergers & Acquisitions) event
In the first case, SCIENCE owns 25% of our incubee’s tokens, and those tokens break down like this:
- 30% are sold off (at the discretion of the SCIENCE team) to replenish the funds in the Incubator and to continue to incubate new companies.
- The remaining 70% outflows to SCI token holders that will now hold tokens from the Incubee’s ICO as well as SCI. The tricky part here is that SCIENCE manage/equity holders will actually own 30% of all SCI, used mainly to incentivize future management and team members at the end of their vesting schedules. However this means that of the 25% of the incubee’s tokens that are owned by SCIENCE, only 49% of those (i.e. 12.25%) are outflowing to SCIENCE tokensale participants.
In the second case, when an incubee has an M&A event, if the value of the fund is less than 80% of the amount raised at ICO, SCIENCE takes 25% or $20M (the lesser of the two), to refresh the fund and churn out more companies. In reality here SCIENCE can keep as much of it as they want to funnel back into the incubator, or it can keep 0%. 70% of the amount that was not put back into the incubator is used to buy back SCI tokens on the open market and “burn” them. This act permanently destroys them and makes the remaining SCI tokens more lucrative since there are fewer in existence. Additionally, 30% is paid out to equity holders in the SCIENCE company.
So ok, let’s walk through some actual numbers here. For some background, I’m told it takes roughly $1-5M to bring a company through the incubation process, depending on the complexity of the business. SCIENCE plans to incubate between 25–50 companies with the initial funds from the token sale, and they hope to launch one ICO each month.
So let’s say we are one of the 99 US accredited investors who get in and we put in the minimum of $250,000. We should now have 250,000 SCI tokens of the 100M SCI tokens sold, and the team has another 30% on top putting 142.85M tokens in existence. That leaves us with 0.175% of all tokens.
Of the 12 ICOs coming out of the incubator each year, I think reasonable amounts would be ~$30m, which could be something like 4x$15m, 4x$30m, and 4x$45m. This is a big assumption, and we’ll address this later.
We need to assume the % of the tokens each incubated ICO will take. For this example I’m going to use 35%, but this could vary a lot.
So if a company is raising $30m for 65% of the tokens, It puts their implied market cap at $46.15M. Of this 46.15M we should receive 0.175% of the 70% that goes to SCI token holders, which puts it at a value of $14,133.44 per ICO.
To get to this number we had to make the following assumptions:
- 12 ICOs/yr
- $30m average raise
- 35% of tokens are kept by the team
- 0 ICO token appreciation/depreciation
- 0 SCI token appreciation/depreciation
Based on these assumptions, we got this number by using the following calculations:
- SCI gets 25% of $46.15M = $11,537,500
- 30% of this goes to funding the incubator =$3,461,250
- We receive 0.175%, or $14,133.44 of the remaining $8,076,250
at 12 ICOs per year this equates to $169,601.25 or 67.8405% of the original investment.
In line with Occam’s Razor the less assumptions we need to make the better (or at least the surer we can be about the strength of our conclusion). I’ve made a simple template where you can play with the assumptions yourself, just go to file -> make a copy.
(1) In reality here SCIENCE can keep as much of it as they want to funnel back into the incubator, or can can keep 0%, however the intention is for the token sales to sustain the fund’s initial levels (or above) and M&A events to be used for buybacks and to pay out equity holders in SCIENCE
Disclosure: I am a Science Blockchain advisor and I am financially compensated for that position. I was not asked to write this article by Science Blockchain (and in fact wrote ~90% of it before I had my advisory position).
Disclaimer: This article is a personal opinion written for informational purposes only. This article is not intended as and does not constitute investment advice or legal or tax advice or an offer to sell any securities to any person or a solicitation of any person of any offer to purchase any securities. The information in this article should not be construed as any endorsement, recommendation or sponsorship of any company or security by me. I make no representations as to the accuracy, completeness, suitability, or validity, of any information in this article. You should always first assess your own personal and financial situation and consult a financial professional before investing. My thoughts and opinions will also change from time to time as I learn and accumulate more knowledge. If you do not agree with this disclaimer please stop reading my article.