This is what angel investment should look like in the future:
Send USDC from your ENS wallet to the company’s ENS, and get the digital mirror asset back to your wallet. These assets are stored in a mirrortable, which is an on-chain copy of the main capitalization table, and is maintained in a non-chain system (such as Carta) for compliance purposes. The terms of these assets are kept regularly updated through mirrortable smart contracts.
If you understand all the concepts in this statement, you can consider researching this issue or joining a team in this field. If you are not familiar with any term in this sentence, such as ENS, please see the definition in the appendix. Or read on.
There was a recent debate on web3, which was conducted at the level of 30,000 feet and 280 characters. In order to bring it back to reality, I want to talk about a very specific issue: the entanglement of angel investors. In this field, off-chain web2 tools such as Docusign, Hellosign, Carta, and AngelList can use the mature on-chain web3 tools in the past few years–especially the Ethereum blockchain, USDC stable currency, and the Ethereum name system (ENS). ) – Make a beneficial supplement.
In order to do this, we will introduce a concept called mirrortable, an on-chain representation of a traditional capital composition table. The meaning of mirrortable to the capital table is the same as the meaning of stable currency to legal tender. In other words, the on-chain version provides 24/7 uptime, supports international wallets, and integrates with smart contracts, while the off-chain version provides legal compliance and compatibility with traditional systems. In other words, Mirrortables fundamentally improves the programmatic interaction with the capital table, just like stablecoins do with fiat currencies.
But why do we need to “simplify and accelerate the procedural interaction of the main capital composition tables”?
As a motivation, angel investment is through the top layer. As technology moves away from the physical decentralization of Silicon Valley, many technological trends accelerate at the same time, and the funds released by a series of liquidity events, more high-net-worth individuals write more checks to technology startups in more countries. This is unprecedented.
- 10 times the investor. The number of investors in each round has surged. Party round financing is now the standard.
- 10 times the number of start-ups. The number of high-quality start-ups has increased. We see amazing people every week.
- Increased complexity. The complexity of the contract is increasing. Not only ordinary SAFEs, but also various complex token and warrant agreements.
- 10 times the jurisdiction. The number of jurisdictions has greatly expanded, and places like India, Nigeria, and Latin America are now booming.
The last point is why this is not to solve the problem for the idle rich. If you are one of them, then you will continue to idle. Other wealthy people are putting their capital at risk to invest in a rapidly iterating world. And automation means we can do more…because the current PDF, email, and spreadsheet system is an outdated messy system that collapses under a strong load.
Current status, current angel investment process
From the angel investor’s point of view, the current process is like this.
- Meet the founder
- Talk to them via email or one of many chat applications, such as Twitter DM, WhatsApp, Telegram or Signal.
- They send files via email.
- Review these documents: an ordinary SAFE, a token sale, a consulting contract, or something more exotic.
- Sign these documents through Docusign or Hellosign, or print, sign and scan.
- Download the signed, time-stamped PDF file and place it in Google Sheets or Notion’s huge investment spreadsheet.
- Get their wire transfer information.
- Initiating a wire transfer is actually a somewhat troublesome process.
- Sometimes, for countries like India, there is an endless KYC process to confirm that they have received the wire transfer.
- Now, in the next few years, you will get a series of documents from startups from time to time.
- After the end of this round of financing, you will get a stock certificate in several systems such as Clerky, Carta, and Shareworks.
- If the round of financing is completed on AngelList, Republic.co and other websites, you can also download the file.
- You regularly receive new rounds of notifications, and after a few months or years, it is possible to invest and/or maintain your shares at a higher valuation. Or you will receive a notice of exit, merger, liquidation or closure, and you will need to sign the document.
- There is usually well-organized paperwork during the exit process, but you need to quickly sign and send them wire transfer information.
- It’s usually messy when a company closes, but you still want to have some documents about capital losses.
12. In addition, you need to email them regularly to obtain valuation numbers, which is troublesome for all parties involved, because it is like emailing Coinbase to understand the value of each coin.
This may not seem like a big problem, but what happens is that every investment you make is not just a one-click spending of today’s X dollars. It is the ongoing maintenance cost of Y USD. Over the years, it is not uncommon for angel investment institutions to accumulate dozens or even hundreds of investments. To some extent, the burden of maintenance has begun to reduce the time that would rather be spent evaluating new investments.
Current angel investment technology stack
What technology stack do people currently use to manage this process?
- Information transfer application. A bunch of information applications are opened on their computers and mobile phones. These can be individual applications or meta-layers like text.com. There are also some newer group messaging tools, such as getcabal.com, for investor updates.
- Shared inbox. A shared inbox has an email queue, like a shared Gmail address or front.com.
- Electronic signature application. An electronic signature tool, such as Docusign or Hellosign. Normally, you actually have to ask the lawyers of the startup company to set up a Docusign, otherwise they will ask you to download and sign the PDF, and then scan it.
- A huge spreadsheet, each transaction has a row, there are many columns, such as Google Sheets + Google Drive, or Notion.
- Shared bank account. A bank account used for wire transfers, usually a start-up bank like Arival.
- Shared cryptocurrency wallet: A shared cryptocurrency wallet, such as Metamask or MyCrypto, used in a “corporate” manner, or a shared exchange account from which USDC is sent. The entire field of corporate wallets is a relevant and critical thing to be innovated.
- Various recorded capital table systems, such as Clerky, Carta, and AngelList-if the company even uses them, there are a bunch of login accounts. Many major capital composition tables are still maintained in Google Sheets or even Excel. This complexity continues to increase, because as an angel investor, you have very little investment in the choice of which platform the founder uses. You can ask them, but you can’t expect them to use Carta only for you in a standardized way.
- A small back office. One person or a small back-office team is responsible for synchronizing all of these.
Therefore, this is a chaotic scenario because the details of the investment are scattered across many different applications. Certain seemingly simple things (such as obtaining a portfolio valuation) become very difficult because you need to contact every entity in your portfolio.
The new angel investment process in the future, using Web3
The following are the ideal new processes and technology stacks that support Web3.
Send USDC from the wallet of your ENS address to the physical ENS address, and receive digital assets back to your wallet. These digital assets are the mirror assets of the cap table recorded on the chain, which we call mirrortable. The main capital composition table is maintained in an off-chain system like Carta for compliance purposes. And entities regularly update their smart contracts in a new round of financing, so you can always know the value and terms of your assets.
The key structure here is the concept of mirrortable. Let us describe it in more detail.
Mirrortable is a way to mirror the legal and compliant main capital composition tables held in Carta and other systems on the blockchain. It includes an on-chain smart contract and a two-way interface to synchronize changes on the chain to the main capital composition table under the chain, and vice versa. At this point, it is similar to a stable currency, similar to linking on-chain assets such as USDC with a set of legally compliant off-chain U.S. dollar bank accounts.
Because a particular company usually keeps all its fundraising processes within the scope of a single platform like Carta, the platform can easily write a mirror image of a company’s main capital composition table to the Ethereum blockchain, and Maintain it during the company’s life cycle. Then, the shareholders will receive the mirrored shares to their ENS address. Please note that off-chain capital tables and related legal documents are still the main legal purpose; they are still things you use to comply with the legal system. However, Mirrotalbe will be something everyone will use.
In practice, not only platforms like Carta write Mirrotable for all companies, but also AngelList, Clerky, LTSE Equity, Pulley, and any other off-chain platform that has a sufficient number of private capital tables. All of these people will read and write Mirrotable on the Ethereum blockchain as a form of shared state. This is a bit similar to Coinbase, Binance, Kraken, etc. who are all reading and writing transactions to the Ethereum blockchain, but there is one main difference: each platform will create Mirrotable and its related mirror stocks, not just mobile pre-existing ones. Digital assets such as ETH.
Features of Mirrortable
The operation of mirror stocks involves three aspects: founders, investors, and platforms like Carta. The latter (a) maintains the two-way connection between the main capital composition table outside the chain and mirror stocks, and (b) is the founder and investment Provide the user interface.
From an investor’s point of view, what mirrortable will bring you.
- If you want to invest: The founder only needs to send you an ENS address and let you send the money (company.eth or possibly companyseedround.eth).
- Confirm recipient: You can easily confirm that this is their address (company.eth), reducing the possibility of errors in routing numbers, wire transfer numbers, or encrypted currency addresses.
- Signature and wire transfer: When sending from your ENS, the signature and wire transfer become the same thing, and only you can access the private key.
- Confirmation of receipt: Both you and the founder can confirm that they received the money by viewing the on-chain transaction on a block explorer (such as Etherscan), without sending a wire transfer confirmation letter to the bank and tracking it.
- Handle compliance and KYC on the chain: If only accredited investors or people who meet other compliance conditions can invest in this round, the platform can also handle this issue in the mirror. They can allow each investor to pass a KYC product like Jumio, and then use the product’s KYC API to write relevant verification into the custom text record of ENS. The point is that each investor only needs to pass KYC once, as long as the mirrorable format of a specific platform works with the KYC provider.
- International applicability: Once you pass the KYC check, you can theoretically invest in any founder in any country, using the mirror image of that specific KYC supplier. Then, the founders can use the local exchange to turn the received cryptocurrency into their local fiat currency. Please note that this only deals with the flow of funds; as with stablecoins, over time, there may be other legal details that need to be resolved outside the chain. However, the more jurisdictions that adopt laws similar to Wyoming’s DAO, the greater the compatibility of jurisdictions.
- Dealing with transfer restrictions and lock-in issues: The founder can configure mirrorable smart contracts through the platform’s interface, and implement various restrictions on the mirroring shares on the chain. For example, it can allow or disallow asset transfers between entity names, allow transfers under certain conditions, or only allow released assets to be transferred.
- Dealing with entities and individuals: deduct money from the physical wallets you invest in, that is, if you have two wallets, one of which holds myname.eth and the other holds myfund.eth, you don’t need to remember that you are from Which pocket investment, or fund investment or personal investment.
- Social proof: This is a selling point for you. You can find out whether other people have actually invested by looking at other ENS addresses that sent funds. The founder can also prove that people have invested, which is helpful to them.
- Deadline: You can check the deadline for ending this round in mirrortable in block explorers like Etherscan. If you need to take some actions on your mirrored shares, such as shareholder voting, you can also get a hint of your wallet from the mirror.
- Exact number of shares and terms: You can see the exact number of shares you get in a certain round, as well as the shares issued in the new round, and when.
- Record keeping: The blockchain records the date of your investment, which entity you invested from, what stablecoin or asset you sent, where you sent it, and so on. You can use this (provable!) chain information to pull out relevant data, such as the price of an asset at the exact time and date.
- Instant valuation: You can calculate the valuation of your investment portfolio instantly by looping through your digital wallet, without email confirmation.
- Contract update: You can rely on the founder to simply update the mirrortable when new terms appear. For example, if they issue new shares or the price changes, this information will be entered into the interface of the platform and synchronized to the mirrortable on the chain. Then, all digital wallets held by investors will see the latest price and number of shares of the corresponding mirrored shares, and can calculate the latest fully diluted ownership percentage and asset valuation.
- Contract history: In a block explorer like Etherscan, the details of the contract are also visible, as well as past versions, so you can see if and when the founder updated the price or made other edits to the terms (e.g. Voted by shareholders).
- Contract automation: Various complex clauses, such as lock-in clauses, liquidation, priority superposition, etc., can be encoded in the mirror.
- Legal compatibility: Unlike most equity token proposals, mirrortables do not require any changes to the law because they are built on the compliant web2 capital table platform. It’s like an Ethereum API to an existing platform.
The interface between fiat currency and cryptocurrency is a huge economic opportunity. The exchange of cryptocurrency is worth hundreds of billions, and may reach a value of one trillion. The interface between the other parts of the fiat currency system and the corresponding cryptocurrency system will also be the same. And one area is the interface between legal currency equity and cryptocurrency equity. This is first to put the online capital table as a mirror image on the chain, and to automate the back-end of angel investment by establishing an interface between web2 and web3.
Appendix A: Frequently Asked Questions
Just to solve some of the problems that appeared on Twitter…
Which teams are already doing this work?
As far as I know, the concept of mirrortable and the full feature set outlined here are new, but there are several adjacent startups and web3 projects such as The LAO, Syndicate Protocol, Sign And Wire, PartyRound, Fairmint, and EthSign. Of course, many web2 companies are also related to this issue, especially AngelList, Carta, Clerky and LTSE Equity, as well as all major cryptocurrency exchanges including Coinbase.
Why not centralized management on non-chain platforms like Carta or AngelList?
The short answer: There is too much ongoing international legal complexity for a company to manage every major capital composition table in the world. In addition, the lack of on-chain integration means that mirror stocks cannot be incorporated into smart contracts or programmed in the future like other things on the Ethereum blockchain.
I think the best analogy is a cryptocurrency exchange. There are large cryptocurrency exchanges such as Coinbase, Binance and Kraken. But there are also many small exchanges all over the world. Each exchange provides an interface between legal currency and encrypted currency, the legal system of the country in which they operate, and the interface between the blockchain system they communicate with.
Similarly, if we are talking about all the major capital composition tables in the world, in every legal jurisdiction, it seems that no single entity can win the entire global market. There are many entrants-Carta, AngelList, LTSE Equity, Clerky, Shareworks, Pulley in the US, as well as Stripe Atlas, Vestd in the UK, Ledgy in the EU, Toppeq, Qapita and MyStartupEquity in India, etc.
Finally, it provides a point of view, that is, why a company is unlikely to monopolize every major capital composition table in the world on a global scale because it covers too many different legal jurisdictions. However, a company can reasonably focus on handling all the complexities of Indian company law and manage India’s main capital composition table through mirroring.
There is an alternative method that requires every team in the world to register remotely through a tool like Stripe Atlas to achieve the standardization of Delaware C-corp, and then run it through a tool in the United States. But this does not completely solve the problem, because the founders are moving from Delaware to Wyoming and other places, and the terms have become more complicated in general. Foreign founders operating American companies from abroad often need some kind of foreign parent company to comply with. Local regulations have brought their local legal system.
And the number of capital tables may also explode, because the entrepreneurial culture has gone global, and everyone has registered as a “business, person” through personal registration. So, in short, due to the increasing number of start-ups, jurisdictions, complexity, and investors, capital table management is unlikely to be concentrated on one platform.
What if someone loses their ENS key? Will they lose control of their securities?
There are various new technologies, such as social password recovery, which are becoming more and more popular, which will make the accidental loss of private keys more difficult. Speaking of which, mirrortable has two-way synchronization, and it has a contract administrator: the company itself. If necessary, each company can cancel any mirror sharing sent to the lost ENS address on the chain, and re-issue to the new ENS address, while updating the off-chain record accordingly.
Why not just wind it up?
In order to promote the development of Mirrotable, we need to introduce the concept of subject and mirror. Think of the newspapers in the mid-90s. At that time, the main body was a physical newspaper, and the mirror was a small website. Only a few articles are online. Gradually, over time, newspaper websites have become more and more important. Moreover, new online things are beginning to appear, such as interactive charts, or integration with social media. Today, it is fair to say that the main one is the online newspaper, while the mirror image is the physical newspaper-it is basically just a printout of the newspaper website at a specific time. However, by gradually shifting the weight between the main newspaper and the mirror, this is not an overnight migration. The feasibility of technology and social precedents have time to develop. The same is true for mirroring.
Why not fully wind up immediately?
Use tokens instead of equity, use DAO instead of company, and completely withdraw from the traditional system! This is also a reasonable approach. Of course, this is also a reasonable method. Purely on-chain things are also good. Without them, we would not be here.
But think about how important stablecoins are. They are a very popular bridge between off-chain fiat currencies and the on-chain environment. There are billions of transactions every day.
Imagine how important a transaction like Coinbase is. They are a very popular bridge between the traditional banking system and the encrypted economy. If you just add Coinbase, Kraken, FTX and Binance together, today’s cumulative valuation can easily exceed $100 billion, and there is still a lot of room in the future.
This is a common theme: the bridge from fiat to cryptocurrency is undervalued, because people tend to be either 100% pure fiat or 100% pure cryptocurrency, but this is often where all the value lies. However, you need to take the right approach: corporate blockchain and equity tokens and the original DAO are all hybrids, but they were not successful because they were either too fiat currency (“pass the law first”) or too encrypted (“automated And decentralize everything”).
You mentioned equity tokens. How are these different from equity tokens? Do they need to change the law?
The short answer: Unlike equity tokens, the setup of the Mirrortable method requires zero legal modifications in any jurisdiction. As long as you have a legally compliant off-chain platform, such as Carta, which generates all the necessary documents and signatures for the update of each off-chain main capital composition table, you only need to mirror it on the chain. Regulators should not care about the introduction of on-chain mirroring, as this is just a convenience function for Carta customers. In a sense, this is like adding an Ethereum API, or a mobile client. The existing legal compliance process remains unchanged.
Detailed answer: Since the mid/late 2010s, there have been many different equity token methods, but most of them started with the goal of “let us change the legal system”. This did work in places like Wyoming, El Salvador, and Miami, but it took years and huge on-chain traction before the off-chain world could react. And this technologically progressive reform is still on the edge of the system. It is growing, but still at the subnational and international level, in US states and cities, and in small countries like El Salvador.
Therefore, most of the art is to figure out how to first gain as much traction as possible without changing the legal system, and then regularly knock on the door of the legal system in one hundred countries and one thousand cities every quarter. Looking at the chart, it shows how much traction we have. Then, a city or country covers it, decides to take the risk, and changes their minds. We have shown interest in that city or country, the crypto economy has gained more traction, and this precedent can be used in more jurisdictions.
This is the motivation behind the Mirrotable method. It accepts the existing legal systems of each country and counts on Cartas and Clerkys and Angelists in the world to handle off-chain compliance. The combination of their worldwide efforts will show the tremendous improvement in operational efficiency brought about by Mirrotables. We should see that the time to obtain portfolio valuation is reduced by 1,000 times, the time to do KYC is reduced by 10 times, and so on. It’s like digitizing any previous paper program. Through these traction charts, we can provide evidence as to why equity ownership that is entirely on the chain should be legalized.
To summarize: Unlike equity tokens, we can make Mirrotable without changing the law. We still abide by the law, establish efficiency improvements, and then call for changes to the law.
What about KYC? How do you do KYC for mirroring devices on the chain?
Short answer: We can put KYC on the chain using custom records of ENS and KYC APIs like Jumio.
Detailed answer: First, you need to know a little bit about ENS. The thing about ENS is that it incorporates the functions of domain names and open social network profiles, as you can see when you look at brantly.eth. The special function we will use for on-chain KYC is ENS custom record, which allows any website to define personal custom fields. We will use it to record KYC information on the chain. Here is a visual effect on how they work.
With this preliminary, I mentioned this in point 5 above, but here is a more detailed detail on how the mirroring KYC process will work.
Investors log in to platforms like Carta with their ENS name, so they log in as alice.eth.
Carta requires them to complete KYC, using an API similar to Jumio
Jumio (or Carta on behalf of Jumio) then uses the ENS custom record to write the API confirmation to the Ethereum blockchain. The syntax may be different, but conceptually, the three key fields are like this.
us_accredited_investor.jumio.alice.eth = true
accreditation_date.jumio.alice.eth = “Nov 12, 2021”
signature_to_confirm_with_jumio.jumio.alice.eth = “SbX_t_4Bp…”
Now, anyone who looks at the ENS record of alice.eth in the block explorer will see that Jumio is proving that (a) alice.eth is an accredited investor, and (b) the accreditation is on November 12, 2021. Effective daily, and (c) If anyone suspects this, Jumio wrote an on-chain hash value, you can put it into the Jumio.com API to confirm that Jumio actually wrote the data.
Moreover, any other online mirrors maintained by AngelList or Clerky can accept this Jumio KYC, so investors do not need to do KYC repeatedly.
There are many changes to this basic concept.
You may be able to make jumio.eth sign a custom record of ENS in some way, avoiding any off-chain verification steps.
You might express the certification date as an ISO 8601 timestamp instead of a string.
You may need to re-verify after the certification expires, maybe once a year.
In a production system, you may have more than three fields. Or you can compress it into a very compact thing to save space.
If Carta writes this on behalf of Jumio, there will be more verification complexity, and both Carta.eth and jumio.eth need to be signed.
But the problem is that after you do a KYC, the KYC and your consent are recorded in the ENS record on the chain, and you can use it to log in elsewhere. This solves the problem of international KYC for angel investment. Just write it once and invest anywhere.
This is how we handle KYC. But can we really equate on-chain transactions with off-chain signatures?
So, there are two situations here. In the worst case, the user experience of the platform allows you to click an embedded Docusign while sending USDC, which is a bit troublesome.
But ideally, sending from yourname.eth is considered logically, technically, and legally the same as clicking Docusign sent to email@example.com. why? Because you can establish a two-way equivalence relationship between an ENS name and an email address, as follows.
a) The display ENS name controls an email address. In an ENS record, you can set an email address. A specific example is bratly.eth, as shown below.
b) Display an email address to control an ENS name. Conversely, you can send a link to a given email address, so that the person with the email password can verify the control of the ENS name, similar to how DNS contact verification works. Here is a specific example from dnsimple.com:
If you know the basic logic, when you prove x → y and y → x, you have already established x ↔ y. That is, if the person who controls the ENS name can put the email address in their ENS, and if the person who controls the email address clicks a link to confirm that they control the ENS name, then you can infer that it is the same entity Control (a) the private key of the ENS name and (b) the password of the email address.
Therefore, if clicking on the link sent to the email is a legally binding electronic signature, then the digital signature information sent from the ENS together with the funds should count. If you want, you can also make a separate digital signature. In fact, the digital signature on Ethereum can be said to be more stringent than the already legally binding electronic signature process, because the control of the private key is the real control of the funds in the wallet containing the ENS… and not only Only indirect control possible through the control of e-mail addresses.
This is the logical and technical equivalence argument. You need a lawyer to support this legal argument, and you need a sufficiently enlightened judge when problems arise.
What about privacy issues? Wouldn’t Mirrotable make the main capital composition table public?
If the founders want to keep their capital tables private, the simple way is that the platform does not provide a single visible ENS address, such as company.eth, but provides N different single purpose Ethereum wallets (0xc92f8366730aFd730770f7BDA05D3a377d52b1D0 0x5250CF9B36bc15721A56a115e74c67, Cc27753C05… ), one for each investor.
Each of these N Ethereum wallets will be handed over to a single investor to send USDC to them. If they want to further protect their privacy, investors can also set up a single-purpose Ethereum wallet on their terminal, or maybe use something like TornadoCash. Most cryptocurrency transactions are carried out on the chain, including token sales, and privacy solutions like this have been proven effective in the past few years.
A more complicated method is that the platform allows the viewing key to be used to view the mirrortable, so that anyone with the correct viewing key can see the main capital composition table on the chain. You can generate different versions of view keys for detailed main capital composition tables, summary main capital composition tables, etc.
But… do you really need to maintain the privacy of the capital table? Many companies will announce all angel investors in their financing announcements. Many founders want to promote their angel investors to provide social proof to raise funds. Many investors want a single standard source to prove their investment portfolio and link to it to record all their disclosures. Many organizations, such as Crunchbase and CB Insights, have released capital tables in partial form, reporting that (for example) a venture capital company invested $30 million and angel investors invested $5 million. The S-1 will eventually disclose the exact number of shares and terms.
Therefore, a completely private capital table may not be an obstacle, at least for a V1, because the capital table will eventually become transparent. Many people are willing to sacrifice privacy for the time savings brought about by the complete automation of the recording system.
In the new round, what should I do to update the capital table and company documents? Isn’t the blockchain immutable?
Short answer: The social conventions surrounding many Ethereum smart contracts are roughly the same as corporate documents-not completely immutable, but not arbitrarily changeable, and they are highly visible when they mutate. Therefore, when a new round of financing, the founder will update the mirrorable parameters such as stock price. And now all mirror stock holders have a new number as their investment valuation.
Detailed answer: People will argue about the immutability of the blockchain. Early in its history, Bitcoin had an inflationary error and needed an emergency soft fork. The famous DAO hacking incident occurred in Ethereum in 2016. But in the past few years, Bitcoin and Ethereum have been basically unchangeable, that is, a soft fork initiated by developers without disputes to recover funds. For example, Parity was unable to obtain community support for the hard fork to get back the billions of funds currently in Ethereum.
Therefore, let us assume that Ethereum itself is immutable for our purposes. We can also add some smart contracts, such as Augur v2, which does not manage keys. This immutability is different from the infrequent change of smart contracts built on Ethereum, which retains the management key. Although people naturally argue about whether the management key should exist in the defi contract, and if so, how long should it exist, for the maintainer of mirrorable smart contracts, the existence of the management key is a feature, not a mistake. Because the main capital composition table outside the chain is still standardized, if the mirrorable contract is out of sync, the management key can be repaired.
Why is it important to expand the back-end of angel investing?
Because it is important to the decentralization of wealth creation. Why do people raise $100 million in US-backed technology companies? Part of the reason is that it is operationally difficult to make 10,000 US$10,000 investments in founders around the world while maintaining legal compliance. 500 Startups and YC and AngelList have helped in this regard, but if we get into the chain, we can do more. Realize background automation through mirrortables.
Why is it legally feasible?
Again, these started as mirrorhares in mirrortable. We are not talking about issuing new digital assets, but just mirroring an off-chain capital table on the chain.
Docusign, Hellosign, and Clerky have all spent a lot of effort to ensure that their electronic signatures and main capital composition tables are legally binding, so the main main capital composition tables and documents are still recorded in your web2 system for a period of time. In the end, you want to get something similar to the DAO law in Wyoming, allowing the main capital composition table on the chain to be legally recognized, just like we have been approved by the online main capital composition table.
Why is this feasible in society?
The early users of web3 are divided into two categories: the power users of money and the marginalized people.
The power users of money are developers and investors. They are trying to solve problems such as “How can I send $10,000 to 100 people in 100 different countries in a week”. The marginalized people are those without bank accounts, people without bank accounts, people without status, and international people. They are trying to solve the problem of “how do I get a bank account and even become part of the global financial system”.
In different ways, both are pushing the edge of the financial system. The back-end automation described in this article combines the two by allowing power users of funds to directly invest in smart people in previously marginalized countries.
What about the US Securities and Exchange Commission? Are you saying that tokens are equity?
First of all, as mentioned above, we are talking about a mirrortable, an on-chain representation of a normal main capital composition table. The shares represented by this table are mirrored shares, which are on-chain mirror images of the normal shares of paper companies, rather than natural digital assets. This is like the relationship between USDC and the U.S. dollar, the relationship between chain stablecoins and only online fiat currencies.
Second, tokens are not equity. They are more similar to API keys, as detailed in this article in 2017, I think that in today’s view, the content of this article is mostly convincing.
Third, the Internet already has a record of legalizing and decriminalizing many forms of information transmission, which may also happen to value transmission.
Fourth, cryptocurrency stocks are a natural extension of cryptocurrency. Although we are still using the Tulip story to tell us that the discussion about the blockchain is ridiculous, we are likely to completely legalize the on-chain issuance of equity in the end. The stock chain will eventually come.
The reason is that in places such as Wyoming, Miami, Colorado, Texas, New York City, and El Salvador, technologically advanced people are winning debates about cryptocurrencies. The obvious administrative simplification brought by Mirrotable will win controversy in terms of non-ideological efficiency.
Can this be done on another chain?
Can. We assume Ethereum here, but there are many aspects that can be changed. You can do it on Solana instead of Ethereum, use Solana name service, USDC-SPL, etc. You can do it on another L1 chain. You can try to do it with a smart contract service that only targets Bitcoin, such as Rootstock, which is a forked version of the Ethereum virtual machine, so it is compatible with Ethereum smart contracts. You can send BTC or ETH instead of stablecoins such as USDC.
In the next few rounds, do you need to change the mirrortable smart contract, or just its state?
This is a decision.
Although you just want to update the parameters in the mirrorable smart contract-such as the price per share, the number of shares, and the like. This is usually better than upgrading the contract itself.
However, as you do more and more mirrors, and the company develops from a clean seed stage transaction (all looks the same) to a later entity with a complex capital structure (all looks different), you will most likely need to update the mirror smart contract , To accommodate securities issued by companies such as warrants and other types of companies.
In the end, you will have a complex mirrortable library with many modules for handling the corporate law related to technology financing and exits. Because this library is on the chain, it can be used and improved by people in many countries. Eventually, by around 2030, this mirrorable library may become a global compatibility layer for the United States, the United Kingdom, India, and other legal systems. It was similar to how Skype and later WhatsApp made Internet calls “normally work”.
Is this possible to work with the web3 first approach?
What we described above is the web2 first method, that is, you start with working web2 products such as Carta or AngelList, and then link the interface to the block through mirrortable.
A web3-first approach may start from an ENS-based social network of angel investors and founders, where the main social behavior is just mutual investment. Group chats can include all people who have invested in a company. I think this kind of web3 social network can start with a small group of investors and founders, if you can figure out a way to reduce the minimum amount that people can invest, to $100 or $1,000, just like republic.co As it did. Perhaps this can be achieved by automatically setting up special purpose entities (SPV) or similar methods.
Appendix B: Definition
Angel investors are individuals who invest in start-ups and do other things at the same time, such as being the CEO. Angel investors are not professional venture capitalists (VC). They usually work for a company that raises funds from outside investors. As individuals, angels act faster than VCs and write smaller checks. However, many of the concepts in this article also apply to venture capital firms, although these reforms may initially be adopted by flexible individuals and then transferred to more formal institutional venture capital firms.
Abbreviated as the Cap table, it records who owns what securities in a company. It is basically a huge spreadsheet, with shareholders in the rows and securities in the columns. In a sense, the capital table is the most important data structure in the technical field, because it determines who gets what money (through liquidation) and who has a say in important company decisions (through shareholder voting). ). Below is a visualized capital table
Carta and major capital composition table software. Historically, although the main capital composition table was important, it was managed by manually updating the Excel file in the office of the company’s law firm. Although damaged major capital composition tables may affect millions or even billions of dollars, there is not much technology invested in maintaining them. With the advent of web2 platforms like Carta, this situation has changed, and it can manage cap tables online. Below is a visualized situation.
A smart contract is a piece of code that runs on a programmable blockchain such as Ethereum. It outlines the things that can be done on the blockchain, from simple digital asset lending, to small and real programs that can manage loans and other things, or any valuable asset.
The Ethereum Name System, or ENS for short, is a complex smart contract that provides human-readable names for Ethereum addresses. If you know how the Domain Name System (DNS) works, we will replace a hard-to-remember numeric IP address such as 126.96.36.199 with a human-readable website address such as balajis.com. The working principle of ENS is similar to this. We use a human-readable address such as balajis.eth to replace a hard-to-remember Ethereum address such as 0x0916C04994849c676ab2667Ce5bbDF7Cc94310a. ENS simplifies payment, but its role is much more than that. It integrates username, domain name, login, social profile and many other kinds of functions.
Cryptocurrencies are known for their volatility. Stable currency is a way to get all the programmability advantages of cryptocurrency and the (relative) stability of fiat currency. They are basically a way to represent U.S. dollars or other fiat currencies on the chain. USDC is a very popular stablecoin. We launched it through the CENTRE consortium on Coinbase and Circle in 2018. The design is simple: every dollar represented on the chain is backed by dollar-denominated assets, and the fair value of these assets is at least equal to the USDC in circulation, and they are all in segregated accounts of financial institutions regulated by the United States. Therefore, using USDC, you can send and receive U.S. dollars just as easily as you send and receive Bitcoin or Ethereum. As such, it is a mirror of the existing system, processing billions of transactions every week. We can extend this concept from mirroring off-chain currencies through stablecoins to mirroring the main capital composition tables off-chain through mirroring tables.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/this-is-what-angel-investment-should-look-like-in-the-future-web-3-0-transforms-angel-investment-guide/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.