Date: 06 June 2022
Author: Consilience Ventures
Start-ups rely on sweat equity – the non-financial investment individuals receive in recompense for their contribution – for loads of reasons, with lack of cash the most obvious one.
However, too often the sweat equity model leaves everyone feeling short-changed. Founders end up disillusioned that the required level of ‘value-add’ is lacking, and they’ve lost a portion of their company for too little in return. At the same time, investors and the talent brought in to build the business end up feeling their hard work isn’t fairly rewarded.
Soon, sweat equity becomes a lose-lose proposition. The founders have an inflated idea of what the equity in their start-up is worth (which may never be realised), while the investors struggle to see the short-term incentives of playing the long game while missing out financially in the interim. Talk about blood, sweat and tears.
So, how can sweat equity be converted into win-win?
Through the blockchain, or more specifically, tokenisation. Just like any other asset, sweat equity can be converted into a token to be recorded, stored or transacted. Here’s how it works. The start-up converts a proportion of their equity into tokens (digital assets), stored and traded on a platform.
The start-up’s founders can use their pot of tokens to pay for the services and business expertise of anyone within the network happy to earn tokens in exchange for their work. As the start-up begins to scale, bringing in more investors and trading more tokens, the start-up’s value grows, and the value of the tokens grows with it, giving every expert ‘skin in the game’.
At its core, the tokenisation of sweat equity is about turning equity into money. It gives founders the cash and expertise they need, without diluting their stake too soon as the value of the token grows, and helps them reduce the risk involved in scaling up.
It also gives investors something separate from the start-up that is worth investing in, while also incentivising them to deliver genuine business-building value to the start-up itself.
The tokenisation concept really starts fly when multiple start-ups use the same token as currency, creating a portfolio of start-ups served by one pool of investors and experts. Each token is a share in the value of the portfolio, reducing risk and maximizing value.
It’s every early-stage investors’ dream; instead of buying a stake in one start-up, you get to own a stake in diversified portfolio where the success of one multiplies returns for all. It’s also a simple solution to a complex problem: one token for an entire start-up community, a digital currency openly traded by entrepreneurs.
Tokenizing sweat equity is not a guarantee of success, but it makes success much more likely, along with a higher valuation when you get there. It also helps reduce the impact of luck, good or bad, for anyone who wants to be rewarded for taking a chance. If you build something people love, you stand a better chance of success, because everyone in your ecosystem is pulling in the same direction.
It’s now possible to see a world where start-ups can thrive, experts get paid and investors make returns. We know, because we’ve already built it. Consilience Ventures is the world’s biggest tokenized sweat equity ecosystem, with £2 million invested since launch in a Fungible Asset-backed Security Token (‘FAST’) that is HMRC-approved for tax purposes.
But more importantly, Consilience can help tokenise other start-up communities with a FAST of their own, one that can be traded on the secondary market, giving investors vastly improved liquidity.
So, whether you’re a founder, investor or hands-on expert, there’s never been a better time to realise the benefits of sweat equity.
About Consilience Ventures
Consilience Ventures is the first start-up market network to fully align the interests of start-ups, venture capital investors and experienced and talented experts to help turn innovative ideas into high-growth businesses.
Our business model proves expertise is the currency that defines start-up success and being part of a democratised network leads to better outcomes for every participant – founders, start-up investors and experts alike.