Particl For Investors #5 – Money To Fund The Particl Development

Tai Zen: What’s up guys. This is Tai Zen. Today, I have some very special guests from the cryptocurrency community with me. To my right, I have the Honorable Grandmaster, Legendary, LeonFu.com. Say hello Leon

Leon Fu: Hi

Tai Zen: We also have Michael Spruill. He’s one of the advisors to the Particl cryptocurrency projects. Say hello Michael

Michael: Hello

Tai Zen: Joining us live from South Africa, we have Rhino Mattei. He’s the lead core developer for the Particl project. Say hello Rhino

Rhino: Hello

Tai Zen: In the lower a video screen here, we have Paul Schmitzer from the city of Columbus, Ohio, which is located in the Northern part of the United States of America. He is the communications manager for the Particl projects. Say hello Paul.

Paul: Hey guys.

Tai Zen: In the first video of this series of Particl for investors, we talked about the background, the history of Particl. In the second part, we talked about the technology and the need for that Particl technology. Then, in the third part, we talked about the value of the Particl project and Michael gave us a potential valuation of. After that, in the fourth part, we talked about the technical team, business and marketing team, and the advisors.

In this part, which is one of the most important parts, we want to talk about the money to fund the Particl development. Without funding, no cryptocurrency project is going to last very long.

How is the project going to be funded? Just give the audience a quick summary of the seed round and the primary round fundraising.

Michael When we met together before establishing and creating the project, we decided that the most responsible thing to do would be to kind of mimic the way they do in legacy markets like with VC, where if there’s not much of a product and the project is still in its infancy, you don’t go out and raise $5,000,000 or $10,000,000.

That’s just not how you attract serious capital and what you often see with projects that get massive valuations …..

Tai Zen: just like the Wavesplatform or the Lisk platform.

Michael Yeah. I won’t say whether that was right or wrong, but when you do that, you value your project really, really high. What you’ll see sometimes is down valuation. Once it hits the mainstream market, people will sell their tokens and try to take profit.

What we’re trying to do with this is basically raise the bare minimum amount needed to fund the project for 6, 10, 11 months and do it in a way that did the least amount of dilution.

If you have a $10,000,000 project and you want to raise a $1,000,000, it usually follows that you’re going to need to dilute people by about 10% because you’re going to have to sell 10% for $1,000,000 of the $10,000,000 valuation.

What we want to do is we wanted to raise as little as possible that is needed.

Tai Zen: The bare minimum

Michael The bare minimum while the evaluation of the project is still relatively low. In that way, we didn’t have to create a large number of Tokens. We just wanted to create the bare minimum amount that we needed to fund the projects.

What happens is when you release your minimum viable product such as the beta release to the marketplace, you get a legal structure in place. Things like that in some ways necessary for running a professional project like having a product, having a legal structure in place, having a team that’s hired by some central authorities. Those types of things will attract more serious investors later on.

Therefore, what we want to do is get the money in a place that we needed to fund it for the foreseeable future. Get the product out there and get the legal structure in place. Then, we could show an auditable track record saying we’re going to pay these guys this much, spend this much on our budget for PR marketing. All these things can build trust with the team and the community.

Then, we can go to the contributors and the donors that put in the money to fund the project and say we did exactly or nearly exactly what we said we were going to do over the last 9 months, and we want to do a primary race.

Now the project is let’s say going from a $10,000,000 or $15,000,000 valuation to like $30,000,000 valuation. You expect that as you do what you say because when you get the product out there, the valuation will follow up.

What we would do then is releasing a similar amount of tokens as the primary round, but now those tokens are a lot more expensive.

At that point, you’re bringing in more serious capital from investors who wouldn’t bother investing in a project that’s only raising $250,000 or $500,000. Now, the larger investment would come in and say: “I do my due diligence on them. They’ve done what they said they were going to do and now I’m more comfortable as a serious investor or donor to contribute to this project.”

That’s why we broke it up into 2. You want to plateau where you’re at and then you do another round.

Tai Zen: We’ll get to that in a minute when you go into detail. Let’s talk about what happens to the ShadowCash tokens that are collected for this seed round.

I’m going to direct this question towards you Rhino. Why not do a proof of burn like counterparty did? Why do this exchange token system? Because when we consulted with our colleagues, Charles Hoskinson, the former co-founder of Ethereum, he was asking why you were doing this, why not just burn it.

Rhino: It’s a proof of state coin, so we obviously need to keep the network alive.

First of all, we wanted the investor to get the coin to make sure that transition. Now, since we’ve gotten 51% consensus, it’s obviously clear that people want to move up and people want to transition. Therefore, the actual Shadow Cash blockchain is no longer decentralized. There are no useful people to carry on with it.

Tai Zen: Explain why you guys accepted only ShadowCash token and other coins

Leon Fu: Why couldn’t they buy Monero and buy this back?

Michael: The reason for this was twofold. One was an illegal reason and one was team choice or community choice.

The reason for accepting only SCC goes back to what we’ve talked about in a couple of the previous sessions where we were trying to solve this issue of migrating to a new chain and doing an ICO or something similar.

The legal counsel we were consulting with said now regulators were looking at these ICO and saying you were creating value out of thin air and selling these things that are arguably were marketed as security.

That’s what it is. When you create security, stock or tokens and sell them, you’re creating value out of thin air. Regulators are really looking at this and saying you can’t do that. For tax reasons, you’ve just created all this value out of nothing, so it can really come back to bite you for taxes depending on your jurisdiction.

We’ve had people arguing that they don’t like how we did that or they don’t agree with that. However, the problem is you have to work within the legal system and you can’t just say they did it last year because the whole the crypto community was rapidly evolving.

As a result, the safest thing for longevity purposes, the team and the community are to do what your legal counsel advises, kind of be above reproach and stay as far away from any potential legal pitfalls.

There are somewhere you can kind of dance around and they’re a gray area, but we didn’t want to kind of go there. Therefore, what they said is one of the cleaner ways to do it is to mimic the network or fair distribution of another network.

There are other coins that have done this where they say if you can prove that you have this token or you submit this Token, we will give you one back in return.

Overall, what we’ve done is we’ve mimicked an already provably fair distributed network. People have mimicked the Bitcoin network and other networks to do this.

Furthermore, instead of just mimicking Bitcoin or one of the others and creating Particl, which not only hurt the community but also hurt ourselves as holders as well, we wanted to give SDC holders the first right of refusal to say what you hold is a ticket and we value that ticket. We want you to say whether or not you want to participate.

If you believe in the vision and the choices of the team, you have the first right of refusal to participate. If you choose not to participate, you can go to the market and sell it. If you do choose to participate, wonderful. Bring it in and we’ll give you one Particl exchange or there’s a bonus incentive structure to it as well.

I won’t get into it, but there are ways that you can contribute to the project above and beyond just submitting your ShadowCash.

That’s the reason we did it. It was legal to issue we’re running into and we wanted to be as far away from that as possible. It was also preservation of community to say:” Hey, we value the network itself.” We wanted to adopt any kind of absorb the value that was already there with ShadowCash and bring that onto the new one.

Therefore, any guy with Bitcoin or Ethereum can’t just come in and do it. You need to go source the SDC first and bring it to us.

Tai Zen: Talk about 15% dilution. I think this is for…

Michael: I can answer this one.

Anytime you’re raising capital, there has to be a sacrifice of the networks. It is similar in stocks. For example, when you have $1,000,000 shares, you can’t have investors give you money. What are they getting in return? Therefore, you have to create additional shares in order to give them something that they’re going to get back in return.

In this case, with Cryptocurrencies, in order to be legal, it has to be handled in donation, where you’re getting a token and exchange it for donating Tokens because you’re legally not allowed to be an investor and expect returns.

What we’ve done in this case with the seed round is we created an extra 15% tokens. For that percent of tokens, you can donate in Bitcoin to get an additional 15% in Particl.

If you go to the main page, you can see total contribution amount with the milestones that we’ve hit and that’s where the 15% additional tokens have gone to pay for.

Leon Fu: When will this happen?

Michael: This has already happened. You’ll see the additional 15% tokens on the Particl network that mirrors the ShadowCash network plus 15%. On the Particl Token, the total outstanding shares or tokens will be 15% of that greater than Shadow Cash.

Leon Fu: This is already like…..

Michael: It’s already baked in.

Tai Zen: So somebody hard code it into the software?

Michael: Yeah. On the genesis block, there’ll be an additional 15% of tokens created. For that dilution, you’re getting a whole suite of additional features such as brand new project, double size team, full-time members, professional contributor as advisors, better branding and other actual marketing strategies in place, legal counsel, the minimum viable product (the beta features).

Tai Zen: It’s not just the 15% dilution for nothing. Now there’s actually a lot of value that you guys are bringing.

Michael: If someone says it is going to cost you 15%, I would say I’ll take it because I want all those things. This Particl project is going to be what ShadowCash could have never done. Just professionally and with capital, I would gladly take.

In other projects that I’ve done, you participate in ICO and things, the project takes 50% of the Tokens for themselves.

Tai Zen: without any value added?

Michael: Right. Because they’re saying these are the terms, so you can either play or not play.

Speaking of the terms, we try to be as fair as possible to where the team is taking is the bare minimum amount that they need to fund the project. That’s what we want the community to see.

Tai Zen: because you had a question about the fact that it is hardcoded into the software…?

Leon Fu: Yeah, I did.

Michael: For the seed round, that’s already in the genesis block. When we do the primary round, we expect it to be around 15% dilution. That’s the current plan.

Leon Fu: Are these tokens just going to be issued to the foundation?

Michael: Yes. We’re expecting about 9 months in the future an additional 15% of tokens will be relinquished to the foundation. The foundation will take those tokens under the terms and conditions that they’ve shared with the community and the current donors and announced that we’ve delivered on the minimum viable product, the beta release market, the public release to the community and the establishment of a legal structure of the nonprofit foundation.

Once we’ve done those 2 things, the team will inform that they’re going to take the additional tokens that have been released to you to do a primary round where it has a much higher valuation, and sell those in exchange for donations to the community.

Now that it’s proven itself as a track record, which will show all the things that we’re going to do over the next 9 months. Then, you have new money come in and maybe current money comes in. They would be the ones purchasing those additional tokens. That would fund the project for an additional 3 to 5 plus years.

It would be the purpose of that. We just want to responsibly grow into that.

Tai Zen: When I looked at the Particl.io website, I was seeing how many people were contributing to your project. I just want to make a note here because I’m sure that other investors will have the same question.

How is the number of participants counted that are participating in the Particl exchange program?

When you look down the Shadow Cash Blockchain, it shows that there are thousands of transactions in there. Do you count it by the number of transactions that went through? If that’s the case, there are thousands of participants. However, if you count the number of accounts that signed up to participate, that number will be significantly lower.

Michael: I think Rhino can answer. I think it’s base on the addresses.

Rhino: (15:43 – 15:48)

Michael: There aren’t even in a thousand participants. It’s like 900 something

Tai Zen: So they have to sign up for the account and actually send SDC in there. They can’t just sign up. That’s not counted as a participant.

Let’s talk about the seed around here. You summarized earlier the difference between the seed round and the primary round.

In the seed round, you have 3 milestones. Talk about what the purpose of each milestone is for and what that money is going to be used for.

Michael: We’ve touched on this a little bit so I’ll kind of go through it quickly.

Basically, milestone 1 was the bare minimum needed for the project to be viable. If we didn’t hit milestone 1, it obviously meant that the community wasn’t onboard. If milestone 1 wasn’t hit to cover salaries and legal expenses, it wouldn’t have been viable.

Fortunately, we blew through that one. We’ve seen over 51% of SDC be converted.

Tai Zen: It was like 60%.

Michael: Yeah. That’s a great amount of consensus by the network. We’re never going to have 100% because there are coins that have been on purpose burned or had hard drives crash and things like that.

Anyway, we think is a great milestone. It also shows a majority consensus, even to the point that when other projects have chosen to do transitions, they haven’t even had that much consensus.

Reaching milestone 1 was exciting. That covers salaries for the next 9 to 10 months. It covers the legal expenses that we’re incurring not only before we’ve done this transition leading up to it for legal consultation, but also afterward get the foundation and everything set up that we’re planning to do, then the business consultation expenses that led up to the Particl project.

Milestone 2 will allow for additional developer onboarding. Rhino and the team were looking for people and they found a really competent developer that’s going to be helping out. I think he starts pretty soon, right?

Rhino: Yeah.

Michael: That’s really, really exciting. I mean you’re going from the Shadow product which just had …

Tai Zen: bunch of couples…

Michael: guys volunteering to now full-time developers and additional new developer. That’s not going to stop it. We’re going to keep finding more people as we raise more money. As it goes further in the future, we’re going to be adding as many people as we can afford.

Then, obviously, there is the professional PR and marketing budget that we funded out of pocket. PR is already going on right now while the funds are not available. However, now that we’ve hit milestone 2, we’re going to be able to ramp that up and really start increasing how much we’re pouring into marketing and PR.

Tai Zen: Talking about milestone 3 – $750,000

Michael: We’re inching into milestone 3. We’ve still got 2 more weeks to go halfway through. We’ve done milestone 1 & 2. Milestone 3 is not far out of reach.

What this would help us in the next 9 to 10 months as expected would be some sort of third party code audit so that we could have an outside group come in.

It’s not saying that there are no problems with the code. We’ve seen groups where they’ve had code audits and they later found issues. This isn’t a full proof thing.

However, when projects can do code audits, it at least has a second, third or fourth advisor to just look over things. I think that’s the responsible thing to do.

If it doesn’t happen because we don’t hit milestones 3 now, it’s going to happen at some point. That is a huge priority on our list, but we at least got to make sure the funding is there. It’s very expensive, o that would maybe come after the primary round once we had the funding from that.

Then, we also really want to open up a grant with the university. We’re talking to a few professors already right now in the computer science departments. These guys are cryptographers by profession. This is what they do. We would be basically hiring 1 or 2 cryptographic advisors if we can get to this milestone. That’s the plan.

Tai Zen: I know you’ve summarized the seed round versus primary funding round earlier, but why there are 2 Particl funding rounds? Why not just do one just like everybody else is doing and you mentioned about the legal reasons, right?

Let’s talk about the reason why first.

Michael: I’ve touched on this a few times. If you look at, again, these legacy markets like the venture capital world, private equity world, the stock market,…

Leon Fu: What would have happened. I think with the environment that we’re in, you could have just gotten $5 million right now. We believe it’s possible. We believe. What would have been the repercussions of that if you had done…?

Michael: Repercussions would have been higher dilution to the Particl holders. I mean we’d had to give up a lot more than the network. I think that also sometimes you can overshoot your evaluation when you use something like that.

When you go to market with these new coins where you’ve raised $10,000,000 if you don’t have a product out or any sort of legal structure, people might just decide they’re going to do a quick flip or dump and then just move on. That’s what we don’t want to do.

Leon Fu: So you’re trying to protect your investors.

Michael: Yeah, the community, the donors and all those people.

We are really trying to be responsible with this because if you down round later like when you overshoot your valuation, it can take a long time to recover from that.

Whereas, let’s says I’m in a crypto investor. If I compare this product with this project and I see that they plateau, then they raise in a staggered method versus just raise $10,000,000 upfront and go, I understand this is great.

I mean when you raise that kind of money, that makes total sense, but the market is expecting a real product. You can’t just raise $20,000,000 and then put it off till next year or not even have a white paper.

Tai Zen: You are the first token exchange program or a new project that we’ve covered that is doing it in this manner, where it’s split up into a seed round and primary funding round.

I believe it is good to protect the early investors that are willing to take the risk because I want to see that you show me your product or something before we give you more money.

Michael: and we want to see how we spend the money.

Tai Zen: Yeah. When we invested in the Lisk project, they raised a bunch of money and nothing happened for nearly a year.

Leon Fu: It was very little.

Tai Zen: Then people were dumping their tokens and everything.

Michael: They’re still not back to where they were on launch day.

Leon Fu: Sure.

Tai Zen: Looking back in history, that was very risky for us to do that.

For this, it is a little bit less risk because we know that if you can’t even do the 1, 2 or 3 milestones, you don’t deserve another $10,000,000. Therefore, prove to the investors and the community that you’re able to take a small amount of seed money and do something with it before you ask for more.

Michael: All that raising money with no product and vaporizing. It’s just marketing. All they’ve done is they have really advertisements and announcement threads. That’s it and that’s not going to last very long.

Tai Zen: Okay. Is there anything else you need to add to that? There was one more thing that was on my mind about this seed round and the primary round.

When you guys do this, was everyone on board or was this just something that the lawyers made you do? Was the community happy with doing this?

Michael: We had kind of split opinions on that. I mean lawyers are everyone’s like least favorite people in the process because they always tell you what you can’t do, but they’re doing that for your protection.

There were some people that have voiced saying:” I don’t like how this is done”, and some others said:” I don’t either because there are constraints”.

However, they’re somethings that are necessary. You’ve got to look beyond 1 or 2 weeks or a few months out. Cryptocurrency traders have a terrible habit of expecting gratification and they’re not willing to see the bigger vision. When it comes to legal things, especially for the team and the project, you have to be able to take in the legal considerations.

With that being said, there are people upset and wanted massive speculation and the best deal possible. They wanted all these bonuses, but that’s just not how it works. It works right now because the everything’s in such boom, but I don’t want to just try merely take advantage of people’s free money and do it in a way that’s risky to the teams later for legal repercussions.

Anyway, it’s great to get feedback from the community, but at some point, you’ve got to make an executive decision as a team and say that’s not how this is going to work because it can’t work that way. We had to work within those confines.

Tai Zen: Thanks for watching this video. For more information about the Particl Project go to www.Particl.io. We’ll look forward to seeing you in future video.

 

Learn more at www.Particl.io

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