Micro-Fundraising: On Tokenization and the Ability to Raise Capital in Sprints

Photo by Octavian Dan on Unsplash

Working as a project manager has given me the chance to put together teams of truly talented and creative individuals — those with a limitless amount of imagination and very little conscience when it comes to staying within the scope of the project. So believe me when I say that I’ve definitely had some very “out-there” proposals come across my desk, and have even pitched a few crazy ideas of my own. (Quick: ask me about firing White Castle burgers out of a t-shirt cannon).

Putting to one side my glory days for a moment, in all seriousness, I’ve had team members submit proposals to me that I absolutely wanted to run with, but logistically speaking, the idea would’ve required too much time, too much resources, with purported benefits that were immeasurable. By every metric a project manager could use, there’s no way I bring this kind of idea to the attention of ownership.

Allow me to give a perfect example of this. Every year, without fail, my team wants to host a concert. Every single year I have to say, “there’s no way ownership is funding this.” Usually the cost vastly outweighs the benefit, which for us is usually only exposure, and every year we’re usually on track to hit our yearly goal anyway without taking on the major risk and hassle of hosting a concert. Most businesses run like this, and while it’s not necessarily a horrible model (keeping a tight grip on the budget is never a bad thing), there is very little room for innovation. As counterintuitive as it may seem, both of these paths can result in a considerable amount of waste. On one hand, you do things “the way we’ve always done them,” except you don’t consider that COVID happened and now everything that used to work, doesn’t anymore. On the other hand, you’re just throwing stuff against the wall and Tiktoking it as you pretend this is a productive use of your time and energy.

I present to you a middle ground for both approaches. It is a method that has arisen out of one of my deepest fears since puberty, which is the “if I throw a birthday party, what if no one shows up?” nightmare. I am a person that needs very little pretense to throw a party, but I also don’t want to suffer the embarrassment of throwing a party that nobody comes to. So what do I do? If you’ve got something to celebrate, and I’ve got something to celebrate, and maybe he does and she does, too — oh snap, let’s combine our reasons to celebrate into one big shindig. Now, I’m not burdening myself and my budget with the entire cost of the party, thereby minimizing my investment and minimizing my chances of throwing a party that nobody attends. I’m sure everyone can relate to this example so let’s add some layers and actors.

Fred, Shaggy, Daphne, and Velma are GREAT at throwing parties. They love throwing parties, in fact, they don’t even mind throwing parties for other people. They throw one party per week and have all agreed to pitch in an equal amount. (These are very nice parties, so let’s say each party costs $1,000, or $250 per person). They agree to charge $10 entry fee per person and the venue capacity is 200 people, which they are always able to fill. Each person makes a profit, then, of $250.

Now, let’s say Arnold, Helga, Gerald, and Phoebe are not so good at throwing parties. In fact, their parties suck, and to make things worse, their house is huge, so all the extra space makes the party seem that much more empty. So, they ask Fred’s group for help. After determining that the cost of a combined party is $1,500, Fred agrees to combine parties, but because Fred is bringing most of the guests, he decides that it is fair that his group only contribute $500 for a 50% share of the profits. If the new venue now holds 400 people and they still charge $10/person, Fred, Shaggy, Daphne, and Velma, once again, can more than double their money, and Arnold, Helga, Gerald, and Phoebe still profit.

Becoming a part of this industrious party machine obviously has its benefits, but also some obligations. One of these obligations is that every member must pay their share of the cost upon demand (usually in preparation for the next party). If Shaggy decides he just can’t party anymore and wants out, the group can pay his portion and charge him plus interest, or they can vote him out altogether. But they like Shaggy, so they instead let Shaggy find a replacement. Shaggy finds Stan, who is willing to pay him $250 for his membership in the group (twice Shaggy’s current obligation to the group, which is $125 currently). But then, he also finds Kyle, who offers to pay him $500. Shaggy takes the better deal and sells to Kyle for $500. Kyle now pays $125 per week and starts profiting after a month or so of parties.

What I’ve illustrated above is something fraternities already do: split the cost of a keg and some booze, split the profits based on contribution. This can be accomplished by a committee led by a treasurer. What most people don’t understand, however, is that what I’ve described is also a corporation. A corporation is nothing more than an association of members brought together to accomplish a certain purpose or number of purposes, and who are bound by a set of instructions on how to operate and make decisions.

Even a small organization like the one I just described would benefit from tokenizing the agreement. Why?

1. Transparency and Immutability — Every token holder can see every transaction made on the blockchain. The operating agreement contains specific instructions on how and when members should be paid, and any new member will easily be able to verify if these promises were kept. Immutability just means that the blockchain cannot be changed by anyone, so there’s no chance for any shady accounting occurring later on.
2. Secondary Market — I have never in my life seen an instance where one friend writes a contract agreeing to pay another friend for a right to be paid by someone else. These types of agreements exist of course, but imagine trying to explain it — on Facebook, on Instagram, on Tiktok… Now imagine saying you have a token from Kappa Kappa Whatever that offers a 25% ROI per party, and all you need is a cryptowallet. As these terms become more and more entrenched in the mainstream lexicon, young entrepreneurs will become very comfortable devising and trading these tokens.
3. Expansion — The bottom line is that the movement of these tokens will ultimately make it more and more likely that small projects get funded. It is a simple way for communities to not only support one project, but an entire ecosystem of projects that support each other.

This party committee that I described would operate even more efficiently on a blockchain, but if you’re reading this, you can literally test this hypothesis without a blockchain. Take your group, committee, task force, scrum team, or whatever, and do the following:

1. Write down what the team does
2. When the team will disband
3. How much each member must contribute either monetarily or with labor, and how much each contribution is worth in proportion to the percentage stake in the operation
4. Enumerate any benefits a member should receive in addition to share of the profits (or if a member should receive none of the profits at all)
5. How the team will settle disagreements
6. What are the obligations of each team member
7. What are the consequences if a member does not meet those obligations
8. How the team will accept new members or replace existing ones
9. Now print each signed agreement and give one to each member.
10. Hold meetings every week to discuss the progress of the project and collect dues, but before doing so, provide an accounting of cash flow.
11. Encourage anyone that wants to leave the group to find a replacement, and if the replacement has questions, send them the operating agreements and the accounting reports.
12. Allow them to sit in on the meetings so they know the group is legit.
13. Allow the member to sell their agreement containing their rights and obligations to someone else.
14. Approve their admission into the group.
15. Then have them sign the original operating agreement.
16. Repeat this procedure every time you want to expand the group and have bigger parties.

Or, just tokenize the LLC and skip everything I just said.