Tai Zen: What’s up guys. This is a Tai Zen broadcasting from North Dallas again.
In the previous video, I talked about the different ways that you can use the blockchain to improve your business and the ways that a blockchain will not improve your business. Who should use it and who should not use the blockchain.
In this video, I want to talk about the equity partners and how it works if you transition from a traditional business into a blockchain-based business.
I’m going to take for example this eSport again because, in North Dallas, there’s a huge initiative to bring eSports, AI or artificial intelligence technology and blockchain technology to the area known as the ‘5 billion USD mile’.
We’re fortunate that some of our subscribers told those people there, representatives of the city, were the go-to guys for blockchain. Therefore, they’ve invited us to set up a conference for them on January 27th to do a blockchain for a business conference.
In this video, I just want to give just a brief outline of what happens when you transition from a traditional business that involves equity into a blockchain business that involves cryptocurrency tokens.
If you’re a business out there, the first thing you’re gonna ask is how do I make my money if I’m giving up the revenues that I’m getting that I normally get. Where do I get the money from? Where does my company profit?
Let’s just look at the traditional company here. The way that works is that when $10 revenues come in, 20% of it comes in here and that’s how the business profits.
Now in a blockchain-based model, there are no revenues coming in. There’s only 1% to come in to maintain the software.
When you issue the tokens to replace the current virtual USD tokens you have in your business right now, what normally happens is this.
Let’s just say that you have 100,000,000 tokens that you create for the entire network to use.
Let’s say that you keep 50% of these tokens for all the original equity shareholders. Let’s just say that there are 20 equity partners, so these 50% would go to these people.
Let’s just say 1,000,000 right there from these 20 equity partners.
Normally what happens is the 50% here. Let’s say that you issue 40% to the public during the crowd sale, which is known as an initial coin offering.
That means 100,000,000s, 50% goes here. 40% goes here. Now, this other portion right here is dedicated to marketing.
Let’s just say that this is 30% here and 30% here for the public, so the math is easy. 30% for the partners because no one expects that these guys give up their business for nothing.
In this other 40%, 10% goes to my advisors or consultants to make sure that you’re doing all this correctly.
Sometimes, people would come and offer us a portion of the advisory. They call it the advisory tokens that they set aside to bring on people that are educated and have experience in this arena to guide them like ‘’hey you know how many tokens do we produce? What network do we use? How do we get this message out there?’’
These are sometimes called strategic partners. You usually look for people that have a huge audience. You don’t want to just get any random advisor. Usually, that 1 person has a network of a hundred thousand other people.
Therefore, not only are you bringing that advisor to consult you on how to have a successful crow sale, but they also have a network of people that can actually use those tokens.
For example, let’s just say that you have another company that is also in video gaming but they’re not competing against your business.
What you would do is you would bring them on as partners, so they can help you promote your project and everything. Hence, you would offer a portion of them to incentivize them to help you make this project succeed.
Now, be careful about the advisors. If they ask to be an advisor for your project, you don’t want them. Just remember that. You should actually go there and seek these strategic key people.
Then there’s a portion here that is reserved for marketing. Just whatever you designate.
Person 1: But I also see something called cold storage.
Tai Zen: No. Cold storage is just where you store the tokens. That has nothing to do with who is involved. That’s just a process of securing your tokens.
Let’s just focus on this 30% here because that is the equity partners’ money.
Let’s say that your company is doing 1,000,000 a year in revenues. Let’s just say someone comes in and values your company right now to buy it. What do you think they’re gonna offer you?
Person 1: 5,000,000s
Tai Zen: Down here it’s 5,000,000s evaluation.
Let’s just say that you decide that you are going to sell this 30% right here to the public.
Let’s say that you say I want to raise 10,000,000 USD to make this transition from your traditional business into a blockchain-based business.
You’re going to give up that 20% right here that you’ve been getting per month. Now, you’re only getting 1% to do maintenance on the software.
When you sell this for 10,000,000 USD, what will happen to the valuation of all of 100,000,000 tokens?
If this 30% is worth 10,000,000 USD, how much Is the entire network worth?
Person 1: 30,000,000 USD.
Tai Zen: It’s worth around 30-33,000,000 USD somewhere around there. Now, you got a 30,000,000 USD network instead of 5,000,000.
Person 1: That makes sense.
Tai Zen: Now, you’re not forced to worry about how much equity, how much profits you make each month. Your goal now is just to make the network better.
As people use it and the increase in the value of the tokens because the more demand for it, the valuation goes up.
Person 1: This makes sense. Perfect. Thanks for explaining that.
Tai Zen: As an equity partner in your company, which I invest 50,000 USD in your company when I hear you’re telling that we should stand by at least 3 years to transition it from a traditional business into a blockchain-based business to potentially make it worth 30,000,000 USD from the original 5,000,000, that is a no brainer.
I’d rather be an equity partner in a 30,000,000 USD project versus a 5,000,000 USD project.
Person 1: We have 20 new equity partners. A few of those partners can see that maybe some company would come to buy you for a number of USD. They can see that liquidity.
Therefore, when you say we’re gonna go to do this transition into the blockchain, they say they want liquidity. How do we…?
Tai Zen: Let’s just say that I’m 1 of the equity partners in this business of yours and I invest 50,000.
Let’s say when you say about the projected 30,000,000 revenue, I say I’m cashing out. I already hit my target. I don’t need any more money. Just give me 1/20 of that.
Remember censorship-resistant. It’s a decentralized. There’s no middleman. It’s permissionless.
Therefore, even though you were the one who founded this, if I want to sell my tokens, you can’t stop me. Now it’s no longer a company. It’s a network.
To prevent the original people from dumping it onto the market, you usually tell the public that you’re serious about this project and you’re no there to jack around and screw with it.
Usually, the legitimate companies will tell people that they are going to lock that 30% of tokens for like 2 or 3 years. That gives the public confidence that you’re not there to just for a money grab.
The public knows that when you put in the conditional contract, it’s automated. They can go in there and look at the blockchain to see that your tokens have not moved. They can read the code and the conditions that you put on there. Once you put it in there you can’t change it
That’s why you hear sometimes people say code is law.
To give you an example of how serious it is, there’s a company that built the Ethereum client called Parity technologies. The founder of it created a contract where there was a bug.
Then, somebody accidentally did something to it and made it froze that contract. That contract has 100,000,000 dollars in it, worth of Ethers. As a result, it’s locked. They actually locked the contract to where it can never be taken out.
The only way they can be covered is by doing what’s called a hard fork of the entire blockchain. That means they have to update and go back and change what was in the blockchain. That is something not tolerated in the cryptocurrency.
If you do that, it’s gonna devalue network and people will lose confidence and bailout.
Person 1: Cause if you can hard fork it once, there will be 2, 3, 4 times.
Tai Zen: That’s another reason why I would outsource that responsibility of somebody that is known in the community so that the responsibilities are not on you.
Because when you’re taking 10,000,000 USD from the public, you gotta do shared responsibility to make sure that money gets used to build a network that you promised everyone.
To give you some examples, some of the projects that we have invested in, they start out at the time of the crowd sale, let’s say the NXT token.
At the time of the crowd sale, it was only worth 21,000 USD. That’s not very much. Now it’s worth more than 500,000,000 USD. They’ve been building it for 4 years to get to 1,500,000,000 USD network. Then, they split into what’s called NXT and Ardor.
Now, there are 2 blockchains that came from 1. Anyone who owned the NXT tokens now owns tokens on both networks. Both of those networks combined value is around 1,500,000,000 USD last time I checked.
If I was an equity partner and a project went from 21,000 USD to 1,500,000,000 USD, I’m not gonna complain.
Does that answer your question of where’s the value for the equity partners?
Obviously, sometimes people will put a portion of this 30,000,000 tokens for their employees.
Let’s say you have 20 equity partners and 20 employees. Some people will split 5% on it for each one of these equity partners, then each employee budget is depending upon what they get paid.
Now here’s another example like Ethereum, when they did their crowd sale, they raised 18,000,000 for the Ethereum network. Now, the network is worth like 50,000,000,000 billion or more.
Let’s just say that I was one of those 20 equity partners and I understand how blockchains work as well as the potential of it. If you’re telling me that there are 2 guys that won’t budge, I would just personally buy them out myself if you have a legitimate reason to incorporate the blockchain into your business.
Now if you’re just gonna makeup to go for a money grab with the public, that would be a bad idea like. There will be repercussions from the market. People can go to jail for that. I do not recommend doing that.
As I said, whatever you do to transition from here to here, get the right consultants, get the right securities attorney to make that transition.
There will probably be an upfront cost I would estimate that. It’s probably going to be between a minimum of 500,000 to 1,000,000 USD to make that the transition.
Because you have a software engineering team already, that’s not going to be an issue. The biggest expense in any business moving from a traditional business into a blockchain-based business is usually, from my experience, legal fees.
Like in our company, the biggest expense that we have right now is legal fees for security lawyers to make sure that everything we do is in compliance with government regulations.
I highly encourage that you and other people at home that are watching this are to make sure that you do it right.
There are 4,000,000,000 USD that just came into the blockchain space in 2017. There’s a lot of money out there to be made and I would highly recommend that you get the proper legal counsel to guide you in this.
Now the problem is this blockchain industry is so new that you don’t have a lot of lawyers that understand blockchain law.
There are only a few handfuls of firms out there that are reputable, but what I would say is at least get a general counsel and get a securities lawyer to make sure that you’re following the American securities laws or the laws of your country.
Does that answer your question? Any other questions on that?
If you like these types of videos, let me know. If you want to follow us, go to www.cryptocurrency.market/newsletter and follow us on there. Thanks for watching this video and I’ll see you guys in the next video.