EQUI, Venture Capital on the Blockchain?
If someone had bought Bitcoin after the first bubble burst in 2011 BTC it dropped from a high of $31 to a low of $2. So let’s assume for arguments sake they bought $1000 at $10 a coin. That’s 100 BTC; at the time of writing BTC is $11 200 a coin that’s $1.12 million dollars. Of course if they had bought at the bottom it would be approximately $50 million dollars. Given that for every seller there is a buyer it’s probable that there are a lot of buyers who held onto the BTC that they bought at very low levels or to put it another way, that there are a lot of crypto millions out there. Question for many of them is this, if they originally invested a tiny amount of their wealth in BTC, their returns are so massive, it now represents over 90% of their net wealth. It makes sense for them to diversify, the problem is into what?
Sure, they can buy property, convert into fiat or give it to a fund damager who will almost certainly not out perform the market.
I live on the Isle of Man, I mention this because it’s the reason why I became aware of the following token. Disclaimer: although the founders of this token live on the island, I have never met them and am not being paid by them, this article is entirely independent, based totally on the white paper.
The idea is to raise money to invest in venture capital opportunities surrounding blockchain technologies. It’s being done via an ICO of a token called EQUI. It’s a pure investment play, they will develop an investment platform where you can direct your EQUI tokens towards particular investments. In return you will receive a loyalty bonus and 75% of the investment return in Ether on sale of the investment.
It’s an intriguing idea: you get to choose from a range of ventures, you get a “dividend” for participating. The ventures are sourced and run like a typical venture capital business. For this service you give up 25% of the upside as a fee. In addition there is an additional 3% p.a. management fee.
Token supply will be 250 million at a price of $0.50. The total supply of tokens will increase by 5% per year to cover the loyalty reward program.
You can buy at a 25% discount in the pre-sale from 1 March to 15 March 2018. It’s a minimum investment of $100 000. From 15 March 2018 till 2 April 2018 the minimum investment is just $100.
65% goes to the public; 12% to the founders; 15% to the EQUI team; 6% Advisors and 2% to ICO Bounty rewards.
The tokens can be bought via USD, EUR and BTC. In the public ICO, BTC, ETH, LTC and Ripple.
The mechanism is as follows once the EQUI platform has been completed and projects selected. An owner of EQUI tokens can use some or all of their tokens to invest. This will be done via a smart contract. The EQUI tokens will be sold to raise fiat at the prevailing market rate. This is then invested into the project. This does not give the participant a share or security in the project!
The white paper says their rights will be contractual? Participants will not be able to transfer those rights, the contract will lock the participants into the investment until maturity. When the project realizes value on sale or exit, 75% of the net profit will be returned to EQUI wallets in ETH. If you store your EQUI tokens on the platform you cannot trade them on the platform, but you can transfer them to trade on third party exchanges. If they are stored on the platform you have access to the loyalty program. It pretty clearly states uninvested EQUI tokens can be freely taken off the EQUI platform.
First thought that comes to mind: The DAO. For those not around when the DAO debacle happened, in short, The DAO was the Digital Autonomous Organization. Simply it was a smart contract that raised ether (Far, far more than expected). The smart contract would allow partcipants to vote on investment opportunities. The smart contract would then allocate Ether (capital) to each investment. If you were unhappy you could split the DAO into a new DAO which contained all of your Ether. What went horribly wrong was that there was a re-entrancy bug in the code, and that, together with some smart thinking allowed an unknown “infamous” Hacker to drain the DAO. To correct the mess, Ethereum hard forked into Ethereum classic and Ethereum.
Okay so EQUI is nowhere near as ambitious this, but the idea is similar: to invest in interesting blockchain technology startups. The DAO depended on the knowledge of the crowd, in the case of EQUI you are dependent on the EQUI Team to source the investments. I don't know any of them personally, but the founders are established very successful entrepreneurs, together with the fact, that if they raise $125m they have a source of money that should attract firms. It’s clear from the white paper that they expect to be involved in the running of the firm.
The DAO stated “The code is the law” which came back to bite it when the hacker exploited the flaw in the smart contract. The argument went as follows: The “hacker” just used the code as written, therefore it was not a hack! Not my problem if the result was not as you expected. It’s not a bug, its a feature indeed!
Regulation surrounding ICOs is a hot topic at the moment. My personal view is that the juristictions that have the will and ability to punish those that transgress their regulations are the ones that count. Which in practice means the USA. What’s interesting in this Token is that they are choosing the UK as the juristiction.
In the case of EQUI, the regulation is taken care of with the following sentence: “However, we would like to emphasize that the issue of tokens theselves(sic) in the ICO is not a regulated activity in the UK, and the EQUI token is not considered a security, which is again the opinion shared by our legal counsel” The white paper goes further to state “Purchasers must fall in to one of the categories of High Net Worth Individuals, Sophisticated Investors or High Net Worth Companies as defined in the Financial Services and Markets Act 2000 (Fininacial Promotion) Order. In addition, purchasers must not reside or be domiciled in the United States of America, South Korea, China, Canada or Singapore.”
My issue with this is, which Law firm and who in particular gave this legal opinion?
Okay so now we know what the Token is, onto my score card.
Origionality: Venture capital is an old idea, this idea is less ambitious than the DAO. What makes it original is it’s a blending of the old world and the new, and for that it is original.
Team: Doug Barrowman and Michelle Mone are the founders, I think it’s doubtful they would stake their reputations on a dog. The rest of the team look strong on the investment/financial side. The development of the EQUI platform should be straight forward.
Platform: They are doing it on Ethereum so that’s great.
Valuation: They are raising $125m which is not large. My only concern is the 3% manage fee and the 25% of Net profit, for my liking they are a bit rich.
Legal: The white paper states that EQUI is not considered a security from a UK regulatory perspective, which is the jurisdiction the future EQUI platform will be subject to. “Our opinion, supported by legal counsel, is the token itself does not constitute a security, under UK financial services regulations. The tokens utility is in providing access to the future EQUI platform and does not directly or indirectly provide any return. It is merely a Blockchain facilitator to gain subsequent access to the EQUI platform.”
Fraud: Its not a scam.
Liquidity: It will be freely tradable on exchanges so this should not be a problem, whether there will be enough interest is of course up to the market.
This is an interesting project, it’s very old school. But it’s an exciting project for Ethereum. It’s exploiting the idea of the Blockchain as a public platform. Given the regulatory uncertainty surrounding ICOs at the moment it’s nice to see established business people dipping their toes in the water. In the long run this will have a positive impact on the entire space. Personally the fees are too high for me, but I like the project, it’s nice to see the old, interacting with the new.
