What blockchain start-up should consider when setting up ? 2nd part pf the interview with CEO of Forctis AG, Eduardo Salazar and Isabelle Ganz former FINMA employee, Co-founder of QUORUS GmbH and COO of Forctis AG
We continue posting advice from Eduardo Salazar, CEO at Forctis. They are setting up a completely new token and developing a new asset representation model. The model is based on a middle-ground between “computational biology, statistical mechanics and the latest thinking in economic theory”. He is accompanied by Isabelle Ganz, his partner from Quorus, a legal business consulting firm handling the initial project to start Forctis.
As they both have vast experience in setting up businesses in the blockchain field in Switzerland, they will be advising us on several aspects of leading a successful enterprise, and comparing countries for the company registration.
The second article is on technical specs for starting the new blockchain business. ⬇️⬇️⬇️
The considerations when choosing the right legal and operational domain for the long-run project
Eduardo explains that potential investors in the company want certainty regarding both the team and current investors. Potential investors want leadership and fair decision making. And a tradition of legal certainty is a good indicator of the future. Additionally, in Switzerland, there is a vibrant resources ecosystem, — in a sense of providing access to technology and the community itself. Here in Zürich, right now, we have the largest blockchain hub incubator worldwide, trusted by both investors and startupers. The community here helps: — working together with other startups often bring much more to the final project than working in a garage on your own.
Eduardo is not saying that the community won’t emerge in South Korea or Singapore, though the question of geographical proximity and knowing the UNAs (Unique National Advantages) remains. It’s an element of feeling comfortable, so if Singapore feels right, then stay there and found the community. Each company needs to find the right place for it, also depending on its target market. It remains as an element of personal decision. In Eduardo’s opinion, Switzerland has the right mindset, that provides an element of certainty, and an element of a stable system. When thinking of establishing your operation for the long-run, jurisdiction comes to mind first.
Isabelle also notes that Switzerland has also a straightforward and easy system of IP-protection which covers startups. Besides the legal matters concerning financial law and tax incentives, this is another point that might be appealing for startups with high technology development.
Alternatives to ICOs to be used in Switzerland or in the outer scope
Isabelle states that we are already seeing a shift away from ICOs.When we started working with Forctis, we discussed the ICO option, and we fairly agreed that it can end up in many problems. It may have some advantages like flexibility, exposure to international capital markets, and access to retail markets. However, afterwards there still remains some legal uncertainty, even though we have guidelines and high costs.
Nowadays an ICO does not require high investment, but it will have technical traps and also banking difficulties. We see a shift to the hybrid models, beginning to develop an NVP first, or the FFF models. By the FFF models, Isabelle is referring to Family, Friends, Fools , by which she means companies acquiring primary investments from one’s close circle of acquaintance. We at Forctis also started like that : I myself was brought in by a friend.
To think a bit out of the box, even though you are a blockchain startup, you should think beyond: “blockchain=startup=ICO”. What we are currently bringing into focus is the hybrid model. The best advice Isabelle would give to a startup with classical funding is to keep it amongst the shareholders who are already convinced by the project. As you have an NVP, go out to VC. Alternatively, in a second or third round, go out for an ICO. We see this as a more natural development for funding than directly going for an ICO.
Overall trends for funds acquiring in recent time
Eduardo mentions that ICO or ITO, the token offer, became a product of high interest. Many startups would not have otherwise met the due-diligence screening standard that companies typically undergo when looking for funds from either PEs, VCs, or even outside of financial institutions. Most of the ITOs and ICOs were funded on the basis of concepts or ideas, without much of a corporate structure behind it. The proper company registration became a kind of deferred step. Right now, most participants in the ICO world resemble some formal legal entity, but originally that wasn’t the case at all.
But, it also appeals to the dynamics of the retail market, which enters or basically subscribes to a coin or a token in the modelling stage. Eduardo believes this is primarily for speculative purposes,with the expectation that the token value will multiply by several times. That raises interesting issues: at the end of the day, it is not capital that is provided by people who have their skin in the game. It’s basically a speculative inclination. And if you add to that all the other uncertainties, you should definitely avoid it on legal grounds. That’s one of the reasons why ICOs have deflated.
Eduardo asserts that we are now in a bear market, in a crypto freeze. There is a positive allowance of uncertainty, and therefore matters are naturally deflated, and returning to standard PVC funding. The mature projects coming on stream are starting to look into the security tokens as an instrument, where there is still a huge gap in a legal framework. That’s something Forctis is actually addressing in the technology being built: the presentational risk. Compared to even months ago, we are moving away from the vanilla ICOs and ITOs, towards models where security tokens are more prominent.
Right now we are pursuing models which basically go for standard equity finance, models which are traditional, tougher, and don’t give as much exposure to certain types of investors, specifically the retail ones. We are looking for those willing to put skin in the game. It’s a question of matching the objectives of the company, and finding the best way to fund your operations, on the basis the t sort of partners you want coming into the company.
Don’t miss out on the third article, where Eduardo and Isabelle will discuss tokenization! If you want to learn more about the technicalities of blockchain company opening, visit our Summit, where you will be able to hear Eduardo and many more industry leaders live.