Revenue Sharing Trusts — An Awesome Idea that’s Not Quite There

Problems with our current fundraising status quo

There are several misaligned incentives for the parties involved in the fundraising and investment process. There is no efficient way to strongly align the interests of founders, investors, the workforce, and the community around a company.:

  • Founders spend tons of hours raising money in rounds and balance the desires of all parties involved in running a company. Additionally, they give away large swaths of equity to attract investment.
  • Investors experience massive illiquidity when investing in private companies. This largely drives their need to see crazy returns on crazy odds. Oftentimes, investors push companies to make decisions against their best interest in order for them to realize profits gain from early private investments.
  • Retail investors cannot participate in any asset classes that are not on a public market. This locks up tons of dollars that otherwise would be invested. This problem is exacerbated by the huge decline in the number of public companies.
  • Early employees also receive highly illiquid financial instruments and bear a ton of risk in taking early bets which more often impacts employees.
  • Community participants (such as early users or gig economy participants) often see no upside in successful organizations and aren’t fully incentivized to participate. Companies have often explored incentivizing early users without much luck.

TEs and RSTs

A potential solution could be the creation of Trusted Entities (TEs), which are organizations that create Revenue Sharing Trusts (RSTs) to create a more fluid, inclusive, and incentivized experience for founders, investors, and all parties involved in the fundraising model.

How do RSTs work?

A TE sets up a RST that implements Bonding Curves in a Smart Contract with distinct Buy (B) and Sell (S) curves. The Sell curve is always less than or equal to the Buy curve.

Photo from the CO whitepaper
Photo from the CO whitepaper
Photo from the CO whitepaper
Photo from the CO whitepaper

A Large Secondary Market

Photo originally from CO whitepaper

Incentives of an RST

RST present interesting new incentives for participants in the fundraising process.

What’s the Issue?

The biggest question about RSTs is who is which companies are the right ones to use them and benefit from them. At the moment, they are a solution and awesome mechanism in search of a problem.

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Paul Stavropoulos

Paul Stavropoulos

I like olives. And coffee. Technology, economics, and psychology are also decent things to talk about. Cofounder of Calltend.