The Crowdsale Analyst: ether.camp — the altruistic hackathon platform?

ether.camp is launching their crowdsale in just two days (hack.ether.camp/sale). This is one of the most loudly debated projects in recent weeks, mainly because of their 50 million USD cap on the crowdsale. 50 million? Yes, they have actually put a cap at 50 million on this thing. I don’t know Roman Mandeleil and have never used any of the products ether.camp have developed, so I’m looking at this crowdsale purely based on the information given on the website, the white paper, the ether.camp blog and recent ether.camp Reddit discussions.

I’m very subjectively scoring each section on a scale of 1 to 5, where 3 should be neutral in the eyes of a potential investor.

Project: ether.camp crowdfund

As described in the white paper:

ether.camp is a project aimed to create the ideal innovation environment for startups by utilising blockchain technology for the release of the Virtual Accelerator.

ether.camp is a recurring hackathon event, with the second hackathon coming up shortly. According to a blog post they have 1700 hackers and fans (what does that mean?) signed up for the event. Before the event developers have been able to pitch ideas and form teams, and the goal during the five week event is to create products out of these ideas.

Team/Founders 1/5

Do these guys have what it takes to succeed as entrepreneurs? Track record and previous projects? Experience and formal education? 1/5
This is tricky — because the only publicly known member of ether.camp is Roman Mandeleil. After a software dev career he join the Ethereum project and was the EthereumJ (Java client) lead developer in 2014, after which he left to start ether.camp. At ether.camp he has led several Ethereum based projects, such as Ethereum Studio, Ethereum Harmony, Ethereum Java Peer and live.ether.camp. To my knowledge none of these are commercial projects, so we have no real information about the teams ability to run a commercial platform. Roman has delivered on several projects and seems very well respected in the community (as seen by the judges they have attracted to the ether.camp hackathon). But, there is no mention and no information about the team in the white paper which is a huge miss. As I’ve said before — the team and their ability to execute on product, business and company formation is the absolutely most important part of any project.

During the recent (Reddit AMA) several red flags was raised from my perspective:

• Roman said there is a dedicated team solely working on hack.ether.camp — but on the hack.ether.camp website only two people are listed to work on hack.ether.camp (Mikhail Kalinin and Anton Maximov)
• ether.camp governance, or lack thereof as stated by Roman in the AMA:

<ether.camp> is private company so we keep the inernal strucure private for now. I can be seen as a responsible for any project we do.

Since the team is the most important success factor this lack of transparency is a huge issue for me.

I’m sure Roman is a very competent person, but the answers given does not provide any assurance. This part of their proposal is downright bad.

Market Potential 1/5

In the (Reddit AMA) the answer to monetization of the platform is very vague:

(Q) Thanks for your answers. As a follow up: Do you automatically expect the great user experience and startup ideas to turn into revenue and salaries for your team to go forward? Revenue is crucial for the sustainability of any business in the world — be it blockchain or normal.

(A) I do agree that revenue is crucial for any buisness, but a startup can focus on the platform for some time and leave the monetization part for later. Google and Facebook are just 2 examples of such a story.

So no market vision in sight, which is another problem even if there surely are ways to monetise a successful platform. But, since this is not on the map currently we can at least be sure this is some (a long) time into the future.

Product/Business/Operating Plan 2/5

Proof of concept available? How many iterations are done? MVP available? Is the product validated by outside users? 2/5
The first hackathon is already done, but I cannot find any information on the website that describes the outcome of this event. Did any of the projects or teams live on after the event?

For the Virtual Accelerator platform itself it seems like some code is available (github). But, the web site and white paper are still (2 days before the sale goes live) not complete and has only empty space where they are supposed to put code examples. But, since 50 % of all funds raised will go to platform development (from 0.5 to 25 million USD) this platform clearly has a lot of work left to do.

What is the current operating plan and why do they need funding now? 1/5
They need funding in order to continue run the ether.camp hackathons, continue to expand their scope and finish development of the platform. But, very weak arguments are given for why they need money now and how much they really need. In the minimum funding scenario (still a wide span of 1–5 million USD) they say they will focus on platform development and move quickly to platform monetisation, which in my opinion sounds like a sound idea as it will show the viability of the platform as a commercial project sooner rather than later.

Further, I have serious doubts about the ability the use funds efficiently given the very wide span they go for. Let’s say they reach the max of 50 million USD, in this case 25 million USD goes to platform development. The website says they will spend this over three years before financing the platform with monetisation. 25 million USD equals a staff over 104 people (given a cost of $80 000 per employee per year) over the full three years on platform development alone — and this is for a platform without any public road map, vision or goals.

Another lacking point is that they have no plan or description of the team they are aiming to build. How many people are they going to recruit? In which positions? Who will the people leading this venture be?

What is the go-to market strategy? 0/5
None in the white paper, which needs addressing.

Roadmap 2/5
A roadmap for the 2nd hackathon is given, but none for the platform development or other activities for which they raise money.

Competition 3/5

Do they have a clear view of the competition? How do they plan to beat them? 3/5

They don’t address the competition directly, but given the level of interest in the hack.ether.camp I would say this is the most well known hackathon in the Ethereum space. However, the ambition is clearly to reach outside of the Ethereum space and no clear strategy or who will be responsible for this is given.

Valuation 1/5

Is valuation sane? 1/5
For some reason I cannot understand they have chosen to set a maximum cap in the fundraise of 50 million USD. Five Zero Zero Zero Zero Zero Zero Zero dollars. They describe their project as doable with as little as 1 million USD, but have set the mega cap in order to avoid a crowdsale that ends in minutes, hours or days. Also, it’s very important to note that the HKG token does not entitle to anything on the ether.camp platform (ether.camp blog):

As it’s important for us to comply with US security regulations backers don’t have rights on any other part of the project — no IP, no revenue stream and no shared ownership.

The only right given to holders of the HKG token is the possibility to participate in the first phase of crowdfunding for projects in ether.camp hackathons and vote on the use of funds in these projects.

As a token holder you can be an early adopter in hackathon projects, by exchanging HKG tokens for specific tokens released by the project (if I understand it correctly). This way the project gets HKG tokens that can be sold (for seed funding) and the token holder is now a first round investor in the project. This process is a 1:1 exchange between HKG tokens and project tokens. After the hackathon event the project can release 5 times as many tokens as released in the first round and these tokens will be available to the public for ether. Nothing is said about the pricing mechanism for this, or how the project will be able to mint and sell additional tokens at a later stage for further funding. Or does it stop there? This whole process seems a bit unpolished and not complete. Also, nothing says the project tokens will have any value at all.

This means that the value of HKG tokens will come solely from what people are willing to pay for them in exchanges for the ability to participate as early adopters/backers in future hackathon events. This value will be balanced by the selling pressure from all hackathon projects selling HKG tokens in exchange for ether/bitcoin in order to fund their projects.

Crowdsale and token structure 1/5
The crowdsale mechanism itself also have several of the usual issues we have seen in the before:

• All money is available upfront
• No way of raising more funds through the HKG token, either if the project have difficulties or if it becomes a huge success
• Investor vesting is not even considered since there is no issuance of tokens to the ether.camp team — meaning there is a very low level of alignment of interest with the crowdsale backers and the ether.camp

If the max cap is only set because they want to give anyone interested the possibility to join, this could have been solved in so many other ways (e.g. pro-rata issuance, Dutch auction or something else) and instead they could have put a sane cap of 2–3 million USD which would still be a lot of money for a project like this.

Legality 5/5

As an investor? 4/5
As noted above they have taken care to avoid being considered an SEC security. However, this is not mentioned in the white paper or on the sale website, only in a blog post.

Legality of the business 5/5
Nothing strange here

Security 3/5

Proof of external security evaluation? 2/5
To my knowledge one external security audit has been made, which was made public today (2 days before the sale starts) by Manuel Araoz (Zeppelin Medium). To me it looks a bit like the security audit published by Slockit on theDAO. They go through one of the contracts and give some general and some specific comments on the code. So far so good. What I don’t like is that they start the audit by saying:

We’ve been asked by our friends at ether.camp to review the code for their soon-to-launch Hacker Gold (HKG) token, and to publish the results of our work.

I would like security audits to be performed by hired, professional unrelated external auditors, not friends of the team. Further than that, what is interesting is not to only audit one specific contract, but how all contracts interrelate should also be audited.

EDIT: The Zeppelin team contacted me and explained they were in fact hired to do the audit, it was just the blog post that had a misleading introduction.

Special security needs for this project? 3/5
In general I would say no. But, given the extreme max cap on this projects it makes it another to big to fail project (if they raise the full amount). Can the community afford another security breakdown of this size?

Conclusion 2/5

With the information available in these sources I have a very hard time understanding this project. They have a nice website and clearly ambitious plans, but they do not seem connected to reality. The tone I see in Romans AMA answers remind me of the tone Stephan Tual held before theDAO debacle. I think a lot more openness, transparency and community engagement is needed.

I have several direct issues with the project:

• They don’t give backgrounds of the team and only two people seems to be working on the project
• They don’t give any information about the governance of the company that will be in control of all funds
• Very vague rationale for how investors will get an ROI on their investment
• They have no strategy for how funds will be efficiently used in the wide range they are asking for
• No company formation strategy, no market strategy described and no plan for an efficient team setup
• The only security audit so far is done by a friend of the project/team
• The token issuance model could have been made much better in order to allocate funds to everyone interested
• The white paper and the website are still unfinished and are missing content

On the other hand, a successful ether.camp could mean a lot to the Ethereum ecosystem. I just wish they could follow some of the best practices developed in the real world. Raise some seed money, build a first version, prove that the team can execute and then go from there.

Another important note, it seems like the HKG tokens and the project tokens they potentially can be exchanged into are never intended to carry any value — meaning that investing in ether.camp is not to be done if an ROI is expected on the investment.