Running an Investment Fund with Dalycoin (DLY)
Abstract. A Decentralized Autonomous Organization has created by Daly Ventures with the objective of operating as a for-profit entity that will create and hold a corpus of assets through the sale of Dalycoin (DLY) to investors, which assets would then be used to fund “investments.” The holders of Dalycoin will stand to share in the anticipated earnings from an investment fund as a return on their investment in Dalycoin. In addition, Dalycoin Token holders will have an ability to monetize their investments by re-selling Dalycoin on a number of web-based platforms that will support secondary trading. Voting will controlled by the amount of Dalycoin tokens held by each address. Similar to Bitcoin, 21,000,000 tokens have been created. In exchange for investment, investors will receive a certain number of tokens that are unique to the ICO. Investors will be able to use either traditional fiat currency or other tokens.
1. Introduction - Fund Thesis
The funds purpose is to create long-term generational wealth for token holders and contributors. Investors will own coins at the fund level. Equity will be maximized when the Fund is optimal vs. when their individual entity is performing, thus aligning interests directly with investors of the fund. What is needed is an electronic investment and voting system based on cryptographic proof, allowing any willing parties to transact directly with each other without the need for a trusted third party. This increase liquidity in the alternative asset investment class. We define a token as a chain of digital signatures. Each owner transfers the token to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership. Blockchain allows for a single, immutable record of equity transactions which is interpreted by established rules in an unbiased way. This solves data quality issues at source increasing compliance and accuracy when dealing with vesting scheduled and legal notifications.
Profit sharing and distribution criteria can be established upfront, executing automatically resulting in increased confidence and clarity for all employees and stakeholders. Administrative effort of record-keeping and reconciliation is eliminated and voting can be easily facilitated. A fixed percentage of established distribution will be donated to select non-profits. The advantages of this proposed structure, allows to minimize internal accounting and reconciliation, legal and compliance. It reduces costs, provides structure to invest and vote, which should provide a distinct advantage for Fund 1 portfolio companies.
2. Funding and Investment Process
In exchange for ETH, Daly Ventures will create Dalycoin (proportional to the amount of ETH paid) that will then be assigned to the Ethereum Blockchain address of the person or entity remitting the ETH. A Dalycoin granted to the Token holder provides certain voting and ownership rights. Dalycoin holders will earn rewards as defined by “any funding received by a Daly Ventures portfolio company generated from investments made through Daly Ventures Fund I.”
We will create a diverse portfolio whose goal is to maximize its annual rate of gain in intrinsic portfolio value on a per token basis. We will own a diversified group of businesses that generate various distributions of value to all token holders in proportion to their token holdings. All business will be conducted through separately incorporated subsidiaries whose Founders will operate with extreme autonomy. The Fund Management Team will be responsible for facilitate the voting process for investments and will also facilitate the election of portfolio company leadership. Profits from portfolio companies will be distributed as dividend or redeployed to set up / acquire new subsidiaries. This model promotes extreme decentralization of operating authority, with responsibility for business performance placed entirely in the hands of local managers and investment decisions shared across all limited partners (tokenholders). As preferred conduct, we will almost never spin off a portfolio company. Voluntary spin-offs, typically make little sense in most situations as the fund would lose control, capital-allocation flexibility and potential tax advantages.
Initial Investment terms will provide 1 - 1.5 ETH per 1000 Dalycoin Tokens. Under Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act, a security includes “an investment contract.” See 15 U.S.C. §§ 77b-77c. An investment contract is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. This definition embodies a “flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.” The test “permits the fulfillment of the statutory purpose of compelling full and fair disclosure relative to the issuance of ‘the many types of instruments that in our commercial world fall within the ordinary concept of a security.’”
Investors will own coins at the fund level. Equity will be maximized when the Fund is optimal vs. when their individual entity is performing, thus aligning interests directly with investors of the fund. Tokens can be purchased during the initial funding round where 20% of the coins will be minted immediately. Additional tokens will be mined based on the achievement reaching set goals and targets. Token holders will have the opportunity to reinvest their distributions to increase their token holdings or they can elect to receive distributions. Tokens will be purchased at the fund level to incentivize portfolio performance.
3. Investment and Deal Approval Process
One of the first votes of the Dalycoin token holders will be to approve an Investment Pitch template which . provides sufficient information to permit them to make informed voting decisions. For a project to be considered for funding, an Investment Lead first must submit a proposal to the DAO Entity. Specifically, Dalycoin Token holders expected Investment Leads to submit proposals for projects that could provide Dalycoin holders returns on their investments. Submitting a proposal to The DAO involves:
(1) writing a smart contract, and then deploying and publishing it on the Ethereum Blockchain; and
(2) posting details about the proposal on The DAO Website, including the Ethereum Blockchain address of the deployed contract and a link to its source code.
Proposals can be viewed on Daly Ventures Website as well as other publicly-accessible. There are two prerequisites for submitting a proposal. An individual or entity must: (1) own at least one DAO Token; and (2) pay a deposit in the form of ETH that would be forfeited to the DAO Entity if the proposal was put up for a vote and failed to achieve a quorum of DAO Token holders. WSKY and BoostPax will be the first 2 proposals considered for funding. ETH raised by The DAO was to be distributed to an Investment Lead to fund a proposal only on a super-majority vote of Dalycoin holders. Token holders will cast votes, which will be weighted by the number of tokens controlled, for or against the funding of each specific proposal.
Tokens will converted to a voting equivalent which is validated by a chain of digital signatures. Each owner has the opportunity to transfer their votes to a delegate by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. If invested in the Fund and the voting to approve an invest or distribution is made with 75% approval then all token holders automatically accept the investment terms and the decision is made on behalf of all token holders.
All Dalycoin holders will have access to the Dalycoin Telegram messaging group. This will also provide a forum for reviewing investment opportunities in the lead up to an investment vote.
(1) The Deal arrives and is assigned to Partner based on experience in the sector/contact with the CEO/Deal Source. Partner does some preliminary research (reference checks etc.) and then if interested, looks to recruit a second, which might be a partner or principle.
(2) The Deal becomes active when a partner assumes lead and drafts a 1-5 pages memo introducing the company to the fund and profiling the company’s market, team and technology. The sponsor of the deal team will solicit questions and feedback from the management team and work to resolve them. 3-4 key risks will be identified and mitigated before an official recommendation is made. The Lead partner in a deal will receive additional tokens for successful deals brought forward.
(3) The Deal generates positive sentiment among partners and support an investment subject to certain terms or outstanding questions. Pending further diligence performed by the management team, an investment deal will be put forward to be considered or abandoned. An investment memo is created and shared with all token holders. A vote is facilitated through a decentralized application. One vote will be received for every token owned, all Token Holders will receive a notification through the dApp. Tokenholder will have a minimum of 48 to vote and can elect to defer their vote to someone else in the group. An approval of 75% higher approves an investment decision on behalf of the entire fund and then investment is made.
As long as “every member in an investment club actively participates in deciding what investments to make, the membership interests in the club may not be considered securities” as defined in the Investment Company Act.
4. Distribution Calculations
Token holders will vote to either use the rewards to fund new investments or to distribute profit distributions to the Dalycoin Token holders.
The intended purpose of the Dalycoin is to to create a new path in business for the betterment of its members, existing simultaneously nowhere and everywhere and operating solely with the steadfast iron will of unstoppable code. Tokens built using smart contracts on the blockchain provides strong control of ownership and prevents any double-spending or voting. Investors benefit from increased liquidity in comparison to the alternative asset investments. This we believe, will provide a significant competitive advantage.
Author: Brendan Daly