A web3-sized asterisk has been placed next to the long-awaited re-correction of private tech company valuations and fundraising expectations. While many funds are returning to more cautious check-writing, focusing on profitability and business fundamentals, crypto continues to be a hot topic, attracting dedicated billion-dollar funds with investment conditions that are more 2021 than 2022.
So, is it hype, the promise of crypto innovation, or a combination of the two? Venture capitalists and entrepreneurs from different levels of the fundraising process discussed current investment tactics for this batch of businesses. Technical disparities in cap tables, the culture of communities that many enterprises in this area are based on, and, of course, the non-crypto world’s fear of losing out explain the divergent approach.
Future equities, tokens, and the future of tokens, Chris Matta, president of 3iQ Digital Assets, highlighted to TechCrunch that Web3 cap tables often fall into four categories. The standard cap table, which is similar to typical technology businesses and follows a traditional business strategy that is more “accessible and intelligible by investors,” but does not feature a token model, is the first option.
The second is a hybrid cap table, which includes a core list of traditional stock holders as well as certain token conversion agreement investors who will get token allotments once the company’s token is issued. “These business models are centered on the token, but equity is used as a transition framework,” Matta explained. The third option is a token-first structure, which includes a “lean cap table” of company founders as a stopgap on the way to a fully tokenized structure, i.e., the principal capital-raising vehicle, according to Matta. “These structures were popular during the [Initial Coin Offering] boom of 2017-2018, but they’re becoming less common now.”
Finally, decentralized autonomous organizations (DAOs) that have emerged in the last year lack a centralized body but do have the same rights and governance structures as a standard non-web3 firm. According to Yida Gao, general partner at Shima Capital, there’s also a simple agreement for future tokens (SAFT), in which investors don’t hold stock in the firm but perceive value in its token and will ultimately receive the company’s native coin. Simple agreements for future equity (SAFE) are an alternative, in which a corporation grants an investor rights to future ownership without stating the price per share at the time of the original investment.
