Jesse Walden: Fundraising and Deal Structure | Summary and Q&A

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June 24, 2020
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Jesse Walden: Fundraising and Deal Structure

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Summary

In this video, Jessie Walden discusses considerations for crypto startups when it comes to fundraising and deal structure. She emphasizes the importance of community ownership in crypto networks and how it impacts fundraising and deal structure. She also explores the difference between equity and token-based fundraising, as well as the implications of dilution and token distribution. Walden provides examples of different fundraising trajectories and highlights the need for a clear plan for community ownership and involvement.

Questions & Answers

Q: What is the key difference between crypto and traditional startups in terms of production capital?

The key difference is that production capital in crypto networks comes from a community of contributors, not just the core team.

Q: What are the three sequential objectives for crypto startups?

The three sequential objectives for crypto startups are to build a product people want, build a community around that product, and give ownership to the community.

Q: How does community ownership impact fundraising in crypto startups?

Community ownership means that subsequent growth for a crypto startup comes from the community itself, both in terms of financial and production capital.

Q: Why is equity the preferred instrument for crypto startup fundraising?

Equity facilitates long-term alignment between founders and investors, allows for flexibility in achieving product-market fit, and doesn't require the immediate production of a token.

Q: How should crypto founders structure deals?

Equity with rights for tokens is a recommended structure for aligning founders and investors. This structure allows for flexibility and gives investors a stake in the network's future.

Q: How does token distribution to the community impact ownership dilution for founders and investors?

Token distribution to the community requires founders and investors to accept some dilution in their ownership stakes. This is necessary to fuel network growth and leverage the power of the community.

Q: How can founders protect themselves and the community against aggressive token sales from investors?

Special consideration should be given to deal structures and token distribution plans to ensure that founders and the community have a fair and sustainable ownership stake in the network.

Q: How can defensibility impact fundraising for crypto startups?

Defensibility, which comes from network effects and switching costs, can increase the attractiveness of a crypto startup for fundraising. It is important for founders to communicate how they plan to build and maintain defensibility.

Q: Is it possible to have multiple classes of tokens for investors, founders, and the community?

While most crypto networks have equal tokens, it is possible to have different classes of tokens with distinct roles. This can include tokens for governance, specific functionalities, or different stakeholder groups.

Q: Can a crypto startup first raise human capital through a Mutual's model before raising monetary capital to scale?

Yes, it is possible for a crypto startup to first raise human capital and prove product-market fit before raising monetary capital. The community can contribute resources and work to the network, which becomes part of the production capital.

Takeaways

Fundraising for crypto startups requires careful consideration of community ownership, deal structures, and token distribution. Equity with rights for tokens is a recommended structure to align founders and investors. Token distribution to the community is crucial for network growth and alignment. Defensibility and network effects play a role in fundraising and should be considered. Multiple classes of tokens are possible, and startups can first raise human capital before scaling with monetary capital.

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