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If Cryptocurrencies Became Useful: Raising Seed Money

Posted on September 15, 2017
Tags: blockchain, cryptocurrency

It’s 2030, and you’re an entrepreneur raising the very first round of funding for your new venture. The pitch you gave today went really well, and now you’re discussing terms with a very interested investor. You both agreed on some numbers and timelines, and now it’s time to wrap up.

In the very early 2000s, this would have involved signing a meatspace paper contract and setting up your bank wire. Now, everyone simply uses ANGEL contracts on the blockchain. They were the logical next step after early organizations like S3 Ventures began standardizing fundraising processes and when the supporting technologies matured.

ANGEL contracts evolved from the convertible note, a kind of “I Owe You” that can be converted into ownership of a borrowing company some time in the future. Convertible notes helped companies raise money with just a team, an idea, and a prototype; it didn’t require agreement on a company’s market valuation before investment, which is problematic to ascertain so early.

Like a convertible note, the ANGEL contract takes several parameters, including discount rate, valuation cap, interest rate, and maturity date. However, instead of writing these into a spreadsheet or paper document, they’re inputted into the ANGEL mobile application.

Signing

You watch the investor populate values in the collaborative contract view on your mobile device. Once it’s completed, you both activate the lock icons on your displays, which must both be then unlocked for any further edits to the draft. Because both views are locked, the investor can now fire off the contract with a specifiable acceptance window, 48 hours by default. If both of your digital signatures are received within that period, then the contract begins. Otherwise, nothing happens.

At this point, you contact your friends and mentors for advice on your decision. For a reasonable fee, anyone can access an official and certified ANGEL contract specialist to review their understanding of the terms in any language. They are able to leverage anonymized market averages in their advice. Their credentials and contract volumes are immediately verifiable on the blockchain, but no one will know if they helped with any particular contract.

48 hours later, both of you have already signed the agreement with your digital private keys. A processing fee is collected from the investor’s account–about the price of a good coffee. The funds are escrowed into an interest-accruing account for release upon the contract’s specified beginDateTime parameter. Follow-up messages asking for transfer timelines are a thing of the past.

Review

To view the contract, you need the contract identifier and a participating private key to sign a viewing request. Depending on contract settings, these requests may be logged or not. This is rarely done except during litigation. These days, everyone has an account with a document store provider, which stores and organizes all their contracts and transactions in real time through integrations with thousands of protocols.

The backoffice work that used to cost each party half a working day now happens in five minutes. Hours spent with expensive lawyers are reduced to under an hour with a contract specialist–the usefulness of a standard and well-understood instrument really shines. The investor now has more time and mental capacity to focus on picking good investments, and the entrepreneur can spend extra effort on their pitch decks and product.

Introspection

Here are some analyses on different aspects of this scenario, and how it relates to cryptocurrencies and processes today.

New Benefits

Cryptocurrency Features Used

Why a Centralized Solution May Not Be Enough

The biggest point is that a public network hosts and executes these contracts instead of a centralized entity such as a digital contract company:

Disadvantages

Barriers to Entry Today