First Look at Launch Pools

Accelerate investor engagement

Andy Singleton
Feb 18 · 8 min read

DeFi is moving so fast that we are investing in offers that don’t exist yet. Launch pools give investors a way to engage early. They combine features from escrow, SPACs, Kickstarter, and DAOs, using some magic that is only available in the world of DeFi.

Investors can put refundable stakes into a “launch pool.” This gives them votes, and a place in line, with rewards for early staking. When the investment is fully defined, they can commit to it. This mechanism can reduce startup cost, risk and time.

Back and forth with investors down at the old boys club

People who are putting together an investment opportunity typically get through these hoops by going back and forth with potential investors. They may end up with commitment letters or term sheets. That process works inside a clubby old boys network. We need a different process for a crypto world that is fast paced, global, and accessible.

SPAC Attack

SPACs can raise money with a vague promise because they reduce the level of investor commitment. Investors can get their money back if they don’t like the final deal. The SPAC puts their money into an interest earning account, so they get a market rate of interest while they wait. PLUS they get something extra. In return for buying the initial offering, they get warrants which can become valuable if the deal is ultimately successful.

A vague promise works when the level of commitment is low. That’s where launch pools start.

The Launch Pool process

  • Stake: An investor gets a place in line by assigning or “staking” some assets to a smart contract. The investor keeps rights to the asset and earns its return. The investor can reclaim the assets at any time.
  • Collaborate: Discuss the outstanding questions about the investment offer. Make advisory votes weighted by stake value.
  • Propose: The sponsor makes a specific investment offer.
  • Commit: Investors can commit their stakes to the stabilized offer.
  • Convert: Swap the committed stakes for the proposed investment.
  • Reward: Investors may get rewards, with early stakers getting bigger rewards.

If the project does not go anywhere, then investors will pull out, at no cost. If the project starts to gain momentum, the place in line starts to have value, and the reward starts to have value. The investments become sticky.

This process combines features from escrow, SPACs, Kickstarter, and DAOs, using some magic that is only available in the world of DeFi. Two features stand out as improvements over a SPAC.

  • The assets remain under control of the investor, in an escrow contract. They don’t become an investment until after commitment. This postpones organizing and compliance costs.
  • Investors earn their own interest and returns. If they want to hold ETH, they can stake ETH. If they want to earn returns from a liquidity pool or a loan pool, they can buy those pools and stake the interest-earning token.

Use Cases

SPACs and Search Funds. Gather funds before finding an investment target.

Build consensus for a startup funding round.

Gather funds for a startup before attracting key team members. The community of investors can help with recruiting, and the money that they commit will make the job more attractive for team members and partners. Close the deal after the project attracts the right team members and partners.

Gather interest in a DeFi startup before understanding if it can become sufficiently decentralized for a token structure.

Qualify buyers and sort them into appropriate investment structures — Reg D, Reg S, Reg A, tokens. After we know how many investors want to go into each compliance category, we can try to accommodate them.

Organize a waitlist to reduce stress in a high-demand offering.

A sample Launch Pool offer

We are asking investors to invest in launch pools as a business.

We think that it can make an important contribution to crypto startups, fund formation, venture capital, and SPACs. These markets will grow as more finance moves into DeFi. Our goal is to lead in the design of investor incentives and collaboration, and to expand the network of satisfied investors.

Participants will only commit to an investment after the product works. If this prototype attracts stakes and reaches the point of commitment, then we will know that the product works.

The leader of this effort will be Andy Singleton. The initial programming is being done by Vojtech Hromek and our new React team.

Questions to answer before finalizing an offer

Expected minimum and maximum total committed amount

Expiration date

Something extra

This is not an investment offer. Stakers may get a future investment offer after receiving specific information about the proposed deal. Some stakers may not be eligible to receive the offer because of securities laws in their home countries.

Detailed notes about the Launch Pool process

Stake

DeFi gives us a magic feature that is not available in the world of legacy SPACs and escrow. Investors can stake the asset that they want to hold. I wrote that “investors are not giving up much return, because the SPAC invests in treasuries,” which is fine if their investors leave money lying around in treasuries earning 1%. But, our investors are smarter. They have high earning loan pools, coins they HODL for appreciation, and a desire to postpone taxable transactions. With DeFi, they can hold their own asset and stake it into the launch pool.

Collaborate

Propose

Commit

  • Do not commit (default)
  • Commit. Indicate that you will trade your stake for the investment offer.
  • Commit if enough other people commit. This is a set-and-forget feature.

If the commitment does not reach a minimum value, the proposal fails, and the group can try again, until the expiration date.

Before accepting a commitment, the pool will probably need to do investor qualification, checking things like KYC, AML, jurisdiction, and accredited and professional qualifications. The investment may not be a legal offer to investors from certain jurisdictions or qualification levels.

  • During the collaboration phase, the sponsors will be trying to satisfy all of the interested investors. If they have interested investors in several categories, they may have an opportunity to create multiple structures or offers.
  • Qualification can come at the end of the process when everyone is sure that the effort is worthwhile.

Convert

  • Claim the stakes that are committed
  • Liquidate them to get funds to invest
  • Buy the investment
  • Deliver shares of the investment

We will be working on technology to value and liquidate a variety of stakes.

Reward with something extra

Launch pools can increase the speed and stickiness of investor commitments by offering increased rewards to early stakers. If the project starts to gain momentum, the reward starts to have value, and the place in line starts to become valuable. The investments become sticky.

I have advice about how to offer something extra, and not something stupid.

If you are raising a fund or a SPAC that will buy an investment with a specific NAV value, it is important to offer rewards that do not dilute later stakers. You want to avoid a situation where you are setting up a fund, and giving extra shares to early stakers, so that the early stakers get $1.10 of fund assets for $1, and later stakers get $.90 of fund assets for $1. You will not get any later stakers and the funding will fail. Instead, you could give everyone $1 in the fund, and give early stakers shares in the fund operator (like the GP). Or, you can offer warrants (like a SPAC) with lower strike prices for earlier stakers. Those are “something extra”, not something dilutive.

You might also consider offering your product as the “something extra,” like the premium product packages from Kickstarter.

If you intend to raise startup money with a SAFE or convertible, you can offer a lower valuation cap to early stakers.

If you are raising money for a startup with scale and network effects, you might be in a situation where the value of the startup rises as more people invest in it. In this case, you will be justified in offering extra shares, tokens, or options to people that stake earlier. Later stakers may get the benefit of value created by early stakes.

Roadmap

The current minimum viable offer is just an honor-system simulation. You tell us what assets you might want to stake, and we’ll give you a place in line, and voting power.

In the next few weeks we expect to have a beta implementation with an open source ethereum escrow contract, and a UI to stake, unstake, and commit. We will also set up a Snapshot space for advisory votes.

You can help us try out this concept by signing up for a minimum viable launch pool. Please share your advice and questions on Discord.

The Startup

Get smarter at building your thing. Join The Startup’s +793K followers.

Sign up for Top 10 Stories

By The Startup

Get smarter at building your thing. Subscribe to receive The Startup's top 10 most read stories — delivered straight into your inbox, once a week. Take a look.

By signing up, you will create a Medium account if you don’t already have one. Review our Privacy Policy for more information about our privacy practices.

Check your inbox
Medium sent you an email at to complete your subscription.

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +793K followers.

Andy Singleton

Written by

SaaS entrepreneur/engineer. Founder of MAXOS, Real World DeFi. Previously founded Assembla, PowerSteering Software, on team at SNL Financial.

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +793K followers.

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store