The Cryptoventure
David Rangel & Vijay Sundaram
In our last few posts, we covered how information networks and platforms expose the limitations of the corporation and how crypto presents a “native” model to address them.
In this post, we start sketching out the central entity to making this model work: the cryptoventure. We believe it could become the spiritual successor to the corporation and, ultimately, spark a new mode of capitalism for the Information Era.
Unbundling the Corporate Entity
Looking back, the joint-stock corporation was a powerful mechanism for the Industrial Era because it bundled and simplified activities that were otherwise practically impossible for sole proprietorships or simple partnerships:
- Fundraising
Capital was scarce and it was difficult to raise in large amounts for large-scale outlays (e.g., railroads). - Governance
Rules and frameworks were needed for strategic decision-making given the separation between principals (owners) from agents (managers). - Coordination
Managing a large and geographically extended workforce was too costly without a strong overarching structure and employment relationships. - Economic Distribution
Shares, closely held and valued on future cash flows, were the primary, albeit imperfect, means to participate in and distribute economic value.
Fast forward to today, and the context for these activities has dramatically changed, partly due to the economic success of industrial capitalism and partly to the rise of information technologies, especially crypto:
- Fundraising
Capital is abundant and far easier to aggregate, and moreover information-based projects require relatively little capital. - Governance
Key aspects of control and strategic decision-making can be encoded in open, ecosystem-driven, and algorithmic protocols. - Coordination
Management is dramatically easier and cheaper with the rise of information work, the Internet, and a global population of contributors. - Economic Distribution
Well-designed tokens reflect value creation/demand and accurately distribute it to every participant in the ecosystem.
When it comes to information-based networks and platforms, the joint-stock corporation may well be solving for problems that no longer exist. What’s worse, it may be hurting our society and economy, as we and others observe.
This raises a tantalizing question: what is the right venture entity for the Information Era?
A New Kind of Venture
It’s way too early to say exactly what a venture entity designed for next-generation information networks and platforms looks like. We expect the concept to evolve rapidly along with the ecosystem, but there are important ideas in DAOs, utility ICOs, and, now, DAICOs as well as in crypto foundations and Benefit Corporations.
What we can say with confidence is that (i) this entity will have crypto at its core and (ii) we’ll have the opportunity to shape it for the society and economy we want to live in. Here’s a comprehensive, even if not exhaustive, outline of aspirations to work towards:
Philosophy & Ethos
Creators operate with full openness and transparency. Systems are designed to tightly align creators, employees, users, and other ecosystem participants, ensuring that all the stakeholders pull in the same direction and get equitably rewarded for their contributions.
Entity Structure & Incentives
The new structure is designed with the flexibility and limited liability of a corporation while eliminating equity so it’s not at odds with tokens as the value capture mechanism. Creators and employees are compensated via tokens instead of equity, including long-term vesting and lockups.
Product, Protocol & Token Design
The underlying protocol and token mechanisms are designed in concert with, and deeply embedded into, the product/service. All three elements interact with, and reinforce, each other in one coherent system.
Ecosystem Economics
The token’s “monetary policy” is designed to motivate participation and usage by customers rather than (only) speculation and hodling. It also inspires confidence in the broader ecosystem and provides the necessary incentives for third parties to join instead of building competing entities or being forced out of the market.
Financing
Operations are funded by selling tokens, with a bias towards distribution to real users and partners of the project over just investors and speculators. Financing strategy should tie into ecosystem economics and entity governance to give the ecosystem confidence in the project’s long-term stability.
Governance
There are explicit, enforceable rules at multiple levels: the entity itself, the protocol, and the network and ecosystem around it. For example: how entity/ecosystem decisions are made, how/when forking can take place, what recourse participants have in the case of disputes, etc.
Legal, Tax & Regulatory Compliance
Projects follow all legal requirements of the jurisdictions where they operate, and pay careful attention to when, and why, tokens are considered securities or currencies and therefore subject to additional restrictions and regulations.
Lifecycle
Stating the obvious, there are new dynamics in how projects fundraise, define milestones, and achieve liquidity. Once the current madness subsides — or even in the face of it — good actors gravitate towards a process where:
- Pre-Token: Creators raise a round or two of high-risk capital to hire a core team, experiment with ideas, and build out the v1 network and product.
- Token Launch: Teams look for indicators of product-market fit to hold a customer-focused token sale and open up the network to the public.
- Post-Token: From this point onwards the project can sell tokens in the market to fund growth, operations, etc.
The lifecycles for cryptoventures vs. corporations seem much more alike than different at the earliest stages, but they potentially diverge sharply at product-market fit and raise new questions about M&A and end-of-life.
The outline here is just a start, we’ll expand on each of these topics over time.
So far we’ve been pretty abstract, focusing on the frameworks and mental models we’re using to make sense of crypto and its potential economic and social impact. Next, we’ll start applying them to explore new kinds of social contracts, value propositions, business models, and organizational structures.
As always, feel free to reach out to either of us anytime or subscribe below!
