Decentralized finance (DeFi) startup Fairmint has launched a platform that lets users invest in startups based on their revenue performance. The DeFi platform is based on a new fundraising model.
Fairmint’s DeFi platform for investment in startups, dubbed Continuous Securities Offering (CSO), expands the potential investor pool from founders, VCs and employees to anyone to give investors exposure to companies’ future revenues. The San Francisco-based firm has been developing the platform for over a year and raised US$ 1.2m in a pre-seed round from Boost VC, IDEO CoLab Ventures, TinyVC and others last May.
“CSO is this new financing model that we are pushing because its much healthier than venture capital or than ICO. ICO was way too founder-friendly. Venture capital is too investor-friendly. So the CSO model is this interesting balance between the two,” says Fairmint CEO and co-founder Thibauld Favre.
How CSO works
A company seeking to raise money through a CSO first commits to putting a certain percentage of its future revenues into a reserve (held in escrow) for a set period. Investors on the Fairmint platform can then buy claims to the reserve, represented by ERC-20 tokens.
An algorithm calculates the initial price of the tokens based on the size of the reserve. Investors can then trade these tokens via the decentralized exchange Uniswap and the price is to be subsequently determined by market demand. Investors can also redeem the tokens from the company, with the redemption price calculated based on the reserve and change as the reserve size fluctuates.
Each CSO will last for a period of time set by the company. During the period, investors can continuously trade these tokens based on their confidence in the company and their prediction of its future revenues. Once the company decides to end the CSO, it is responsible for buying back all the outstanding tokens at the price paid for the final token minted.
Although many different matrices can measure a company’s success, Fairmint believes that a focus on revenues can foster healthy company growth. “Working with equity is extremely hard, while working on revenue is much easier and much more health,” says Favre. “And to rely on revenue generation, we think it’s a very positive and healthy thing. Revenues are also very easy to audit.”
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