Varanida Plans DAICO-esque Fundraising For Its New Rounds Of Investmentbr>
In January 2018, Vitalik Buterin, the co-creator of ethereum, proposed a new model of ICO called the DAICO, an acronym combining the DAO (Decentralized Autonomous Organization) and the initial coin offering (ICO).
The idea was making an ICO more secure by giving more control in the project development process to token buyers. This new structure aimed at providing more accountability to a rattled ICO market and guaranteed a minimum viable product, or investors would be automatically refunded if developers were not making enough progress on the investment.
For its ICO, Varanida, a French startup that removes intrusive ads, decided to take the best of the DAICO model and blend it with the best of a traditional ICO structure to create a hybrid model. Varanida will be splitting its third fundraising round into three sub-rounds, with milestones chosen by its token community from a set of realistic options, thus giving insight into what the Varanida community considers critical. And, while investors cannot arbitrarily demand a refund, failing to hit those voted-on milestones will trigger an automatic refund from Varanida. Whatever tokens remain unsold of the one billion token supply will be burned.
For this funding round, Varanida is accepting BTC and ETH, with the soft cap – the minimum cost required to build the protocol – set at €8 million.
Anji Ismaïl, CEO of Varanida, answered some Block Tribune questions on the plans.
BLOCK TRIBUNE: What was wrong with what Buterin proposed that you needed to modify it?
ANJI ISMAIL: Buterin himself acknowledged that DAICOs are not perfect. Flaws associated with the DAICO model proposed by Buterin include:
It is very one-sided for investors, as they can realistically vote for a refund at any point, leaving the project team both helpless & powerless. The developers and project team are placed in a very stressful situation due to the uncertainty involved.
It is not realistic: companies need cash-flow to operate and to face unforeseen situations. You cannot ask your community to fund you because you just hired a VP of Sales or decided to get a stand during a conference. Justifying every cent is impractical and inefficient.
Always “on” refund is very dangerous as some “crypto-investors” can get bored of a project or decide they don’t like the logo anymore and decide to vote for a total refund. For example, what happens to a startup that has made long term commitments with third parties?
Startups have their ups and downs, and commonly pivot their business models to adapt to changing landscapes – especially those utilizing the blockchain. This can be misunderstood by some investors, to the point where they vote for a refund. Would we have Iphones today if Apple’s funding was cut after the Macintosh disaster?
Most ICO investors are short-term traders that do not hold their tokens for longer than a year. Buterin did not define whether or not exchange-bought tokens will retain voting rights. This is still a very grey area.
A company could buy back their own token to achieve majority vote; likewise, a competitor or single entity can do the same.
A DAICO requires a constant vote on refund polls and Tap Polls (at least monthly) – Significant investment must be made into proper communication channels, smart contract setup for the Tap, and overall DAICO maintenance. This slows the process of a startup, which by nature should be fast-moving.
BLOCK TRIBUNE: You have already had several funding rounds. Are any of those grandfathered in on this new system?
ANJI ISMAIL: Yes, contributors to Rounds 0, 1, and 2 will retain the right to vote on Varanida’s Round 3A, 3B and 3C milestones so long as they hold their tokens.
BLOCK TRIBUNE: Can an investor opt-out of automatic refunds?
ANJI ISMAIL: Yes.
BLOCK TRIBUNE: What do you anticipate the effect on the ICO market being if this DAICO system takes hold?
ANJI ISMAIL:We view the DAICO model as a step in the right direction in the world of ICOs. We anticipate more projects displaying their terms, their business plan and KPIs in a more transparent way. ICOs are used in reference to IPOs, where everything is audited and transparent, even CEOs salaries. We can’t expect to raise required funds in the millions without bringing transparency and security for investors. The Wild West of ICOs might get a bit more structured with DAICO style funding.
BLOCK TRIBUNE: Are you aware of any other ICOs using DAICO? Have any reached out to discuss your model?
ANJI ISMAIL: We tend to focus on our own project. We have seen few projects such as The Abyss.
BLOCK TRIBUNE: How will the automatic refund work – will it be set by a certain date?
ANJI ISMAIL: Refund will be set for a specific timeframe if milestones are not reached
BLOCK TRIBUNE: Vendors often invoice based on 30 to 90 day payment schedules. Will they be spooked by the possibility that a company will suddenly lose all of its funding?
ANJI ISMAIL: One of the reasons why we formulated this “Hybrid” approach of a DAICO was that we will never be a “sudden” loss of funding. Otherwise, we would never be able to reach agreements with any vendors – the risk for them would be far too high.
Those operating a DAICO face the possibility and uncertainty of losing all its funding with every poll they issue, meaning their losses can be “sudden” – another huge problem with DAICOs. Refunds for Varanida only happen if we fail to reach the milestones voted on by our contributors.
That’s why we have SoftCap set and also refund is 70% of a round. 30% is the security for the company.
BLOCK TRIBUNE: Can you raise money from other sources while employing DAICO?
ANJI ISMAIL: This is not the path that a DAICO suggests. A company should be raising funds sourced from genuine interest and belief – from the community. We plan to develop our revenue as a company and this is always the best source of funding: customers.