Print Page - Bitcoin company shareholding structure

Quote from: MPOE-PR on March 18, 2013, 09:37:21 PM

Not sure if you've already read the various MPEx IPO contra= cts and this (http://polimedia.us/trilema/2012/sa-ne-jucam-de-a-investit= iile-n-bitcoini/#comment-78745), but might be worth your time.

Okay, I got some time to read it through. Appears that I already= digested it before. Solid work, MP. The valuation of your company seems= to exceed the combined valuation of (the 5 companies of) mine (where I = am either majority owner or President). This is in my opinion a good mea= sure of your worth as businessman. My free float is higher, but that is = not because of who is good or bad businessman, rather about personal dec= ision, how much leverage to give to others. I have grown to accomodate m= ore and more other people over time.

I think you have outline= d the "stocks" and "bonds" nicely, (although bonds w= ould need a new name due to dissimilarity with the bonds in other venues= ). The system seems to work and with all probability there are at least = some other players than you in both stocks and bonds field. What has bee= n impeding me from investment, is person risk, bitching about technical = procedures such as the clause to keep all coin which is not exactly the = intended sum, and of course the skyhigh valuation. I don't mean =80= 15 million is that high per se, but it is high for a 1-man operation.
In the next post I will try to clarify what exactly I propose f= or somebody to do, as a proof-of-concept internet company organization m= odel. I admit the OP is written poorly and thus deserves all criticism y= ou may have.

Title: Re: Bitcoin company shareholding structure
Post by: rpietila on March 19, 2013, 08:27:14 PM

The general no-equity company

Introduction

Capital in a compan= y's balance sheet is not an asset but a liability. If a company has= financial capital, it is reserving this capital from its owners' p= ockets, and keeping them from using this capital more productively in th= eir own endeavours. Excess capital invites politics, corruption and wast= e, it lets the management to pursue wrong ventures for too long and does= not bring any benefits to offset these drawbacks. Since the emergence o= f efficient financial markets, it is solely for the convenience and gran= deur of managers, to retain any capital in the company. The new wave of = enterprises must emerge, and outperform the mammoths and dinosaurs of th= e old age.

Summary

The company will have= a 24/7 trading of its shares, and every time it has expenses, it will n= eed to issue and sell more newly created shares at the bid, every time i= s has revenues, it will need to buyback its shares at the ask, and write= them off. It will keep its cash balance at a predetermined level, which= is optimally 0, and at a maximum of 30 days' burn rate. The balanc= e may not be altered at any manager's discretion.

T= he Story

Meetup in Bitcoin conference

Alice, Bob and Charles are astute business(wo)men. Each one= has a playstash of BTC10,000, other business= es to take care of, income, car, family, etc and so forth. They have com= e up with a seemingly great idea, but it must be done fast if at all, no= t one of them has too much time to pursue it, and besides they hardly kn= ow each other.

In the bygone era, their idea would probably h= ave gone waste, and somebody else would have spent $1 million to develop= it after 12 months with less customer satisfaction. Or perhaps they<= /i> would have taken the time to incorporate it, with the same results. = In either case, lots of good money and even dearer time, would have been= wasted, setting up unnecessary and detrimental corporate structures.
The emergence of the company

How to do it bet= ter? Simple. Start from nothing. Then begin to bring assets to the compa= ny and pay with them in shares. Alice offers to be the company secretary= , taking care of mail, document storage, and transactions, for a fixed t= erm of 3 months at a fixed pay of $50 per day. The general meeting of sh= areholders may cancel this contract any time, it is part of the deal. Al= ice receives 10,000 shares as a kicker, in addition to the pay that was = estimated to be at market rates.

Bob had the initial idea and= has brought in some early sketches of the code. He wants 100,000 shares= for the surrender of all the rights to these. Others try to bargain thi= s down to 80,000, but Bob is adamant. He offers to "provide pizzas = and beer for annual general meetings perpetually, or if he fails this co= mmitment, to surrender 20,000 shares back to the company without compens= ation". Others take this, after all, if the company goes down, the = pizzas are discontinued, but also the shares are worth nothing.
Our company has value!

Charles is willing to offer = his office space to the future workers (should they need any) and he ins= ists that he wants to invest BTC500 as a seed= investment. Because the company does not hold money balances, this is d= eclined, but the similar end is achieved by Bob instantly selling some o= f his stash of shares to Charles. This boosts the morale of everybody - = the first valuation of their new business is set at = BTC2200, not bad for a company 1 hour old. Further dealings with = Charles include the obligation of the company to pay a rent of $200 per = month for office space and the obligation of Charles to work as general = consultant, at the hourly rate of $70, maximum 10 hours per week, report= ing to Bob.

As the shareholdings are now Bob 75,000, Charles= 25,000 and Alice 10,000, Bob commands the majority and nominates himsel= f President. Everybody further agrees to a standard noncompete and nondi= sclose agreement for 12 months. Charles and Alice extract a nominal 2,00= 0 shares in compensation for these rights, and Bob thinks everybody shou= ld be treated equal and claims the same for himself. Other trivial but f= undamental matters are agreed and in the end the company has paid for va= rious rights and grants 7,500 more shares, and taken future financial ob= ligations.

Now with 123,500 shares outstanding, and no money = in the coffers, the company is ready to begin operations. First we need = to set up the stock market. Charles recently paid BT= C0.020 for the stock, and thinks that the company is doing well. = He offers to buy some more at BTC0.022. Alice= as a sharp treasurer wants to make sure the boyz are playing according = to rulz - she makes markets with her stash, willing to sell small amount= s at bitcent intervals from BTC0.025 upwards = and also buy BTC0.020 downwards. Bob is an in= ventor, not investor type, and wants to get rid of the controlling share= of the company orderly, but as soon as possible. He undercuts Alice= 9;s ask by putting some stock for sale at BTC= 0.024.

Operations commence

The first day of= operations is full of activity. The company burns $550 for the manageme= nt salaries, and $70 in other costs. Many things were achieved, a webguy= was hired for $22 per hour for example. In the end of day, this will re= quire the company to pay BTC10.502, but it do= es not have any. Automagically, the company trading bot goes to the mark= et, and issues more shares, selling them to Charles at BTC0.022. A total of 478 new shares were issued and sold to Ch= arles. He is still willing to buy 9522 more, unless things change. The f= irst day saw 0.39% dilution.

Now, several things can happen. = The company hinges on its own employees' trust. If some members of = the team see that the company is not making progress, they become unwill= ing to buy its shares. It must be noted, however, that we are not talkin= g about huge sums here. The actual expenditure of the first day was $70,= the rest was paying salary from left pocket to the right.

Angel saving from sudden death

After the first week, exa= ctly this happened. The initial enthusiasm had worn down a little, and B= ob had become a little too anxious to cash out his stash. Intention was = all well and so on, but Charles' willingness to pay for the shares = had gone down to BTC0.009 per share. Bob can = achieve his aim of becoming a minority shareholder just by continuing li= ke this 2 more weeks, but he has a better idea. He introduces Eric to th= e rest of the team. Eric wants to invest in everything Bitcoin and offer= s to buy 10% of the company for $50000.

Lucrative as the dea= l may seem, the others prefer that Eric buy his shares in the open marke= t, competing with Charles. He may end up gobbling the shares for less or= for more, but at least the process of price discovery benefits the whol= e company. The share price is soon back in BTC0.020.

Things get heated

As Eric is increa= sing his share, Charles starts to feel remorse for pressuring the share = price down. He decides that, at a minimum he wants to recycle his own ea= rnings back to the company, converting them to new shares at ask. Alice = has a similar thinking and the webguy, Dave, is the worst of all - he is= doubling down his salary and buying in the open market. The only seller= s at this point are Bob and the company, and the company manages very we= ll without any cash reserves, as the majority of its own employees belie= ve in it and are eager to corner a chunk of it.

In the beginn= ing Bob was thinking it to be a wise idea to sell out his majority stake= . Soon he finds out that his services are no longer as important as prov= iously thought. The buying bloc had formed a conspiracy to oust Bob, and= now it is time to strike. As the others possess 55% of shares, Bob has = no realistic way to regain the majority, nor intention to. He is left wi= th the option to sell out most of his stash at a fair price of BTC0.030, or try to sell in the open market, where the= bloc will pressure the price down. He decides to sell out, and leaves t= he 4 week old company with about $100,000 in his pocket. He settles the = unused obligation to buy beers and pizzas with the company for 3,000 sha= res.

First ~~Annual~~ ~~Quarterly~~ Monthly = Report

In one month since incorporation, the company has = seen its share price go down, bringing in new believers and offering the= m a way to buy for cheap. It has also seen a speculative bubble, which t= urned out to be a successful corner. Now the cartel is dissolved and the= product is about ready to launch. The shares are trading at BTC0.078, as a couple of friends were eager to also inve= st some. The burn rate is now about $2000 per day, which is (due to bitc= oin price double) only BTC20, which is 278 sh= ares, which is 0.22% dilution per day.

New challenges - s= hould we call banks or VCs to help?

There is a need to la= unch a massive marketing campaign. The estimate is that $150000 should b= e spent on marketing alone in 3 weeks. Should we organize an IPO or crow= dfunding round? Yes, or no. Depends on how you look at it. The method so= far will work. There is never a need to think about financing, actually= . It happens automatically. The owners of the company are well versed in= the situation and are eager to buy new shares as they are offered in qu= antity. If the willingness and price plummets, it is a clear signal for = the management to cut down on upfront spending, and trade time for money= . If the stock price goes up with the pageviews, and new investors flock= in following the publicity, there are literally unlimited funds at t= he company's daily disposal to continue advertising in the way = of the most vicious pump and dump scheme, with the exception that the co= ntrol of the company is eroded, the more shares are issued and/or sold. = Nobody can run away with the money as there is no money to begin with - = it is decided every day in the open market.

The management ha= s a daily feedback on their actions - the share price. It does work this= way in public listed companies of yesterday, for sure. But their manage= ment receives the signal, but it is not obligatory to act on it. Here th= e management is every day prompted to invest their own money (or work, w= hich equals money) to the company to keep the share price from plummetin= g, should the investor confidence be shaken. This will likely lead to qu= ite realistic valuations in the early game, which does not encourage exc= ess spending, grandeur and waste (and hopefully less politics than organ= izing "financing rounds" every so often. Rather the company ai= ms to be the most profitable the fastest. Like it should be.

= And they lived happily ever after...

When the company = starts to churn out profits, the game will reverse. Suppose this company= had bloated its sharecount to 200,000 during the marketing phase, but a= lso it has also started to make profit - real profit, after costs, wages= and salaries - say $1000 per day. Due to recent developments, this is <= span class=3D"BTC">BTC5. Per year, this is BT= C1,825, assuming no growth. The company will now expend this mone= y daily, no matter what, to buy back its own shares, which increases the= value of the remaining shares. The lowest ask will always be taken. If = the prospects of the company are solid, it is prudent to assume it shall= trade at 7 to 20 multiple of earnings, which would translate to a compa= ny valuation of BTC13k to BTC37k. The share price would therefore be in the range of BTC0.065-BTC0.185. Ever= y actor can decide (per day, if they want) whether they want to receive = salary or shares as the effective compensation from their work, and whet= her they want to lighten their ownership, take dividends by selling thei= r shares prorated, or hang on with the success.

Discussion=

The above happens to some startups, but for real, it is = generally no more than 33%. The outdated financial structures prevent th= em from moving smartly in the agile landscape of today's business. = If there were more competitors organized in the new we have unlimited= funds at not our disposal way, the elephants would have a hard time= to ever score a hit.

As startups tend to fail, and the ease = of anyone starting a business this new way, will certainly lead to proli= feration of a helluva score and a weird array of businesses, and therefo= re increase the death rate, most of the new ventures still fail. The num= ber may even grow. But the total economic cost of these failed ventures = is a tiny fraction of what the current system wastes as futile effort. T= oday startups are either undercapitalized, which translates to unoptimal= allocation of the inventor-owner-entrepreneur-cleaninglady's time,= or overcapitalized, with huge governance structures, swimming in money,= and sometimes making it big, but most often just spending away the othe= r people's money, building a platform that had a fatal flaw since t= he beginning, which was actually discovered 2 weeks after the financing = round, but kept secret from investors in favor of secure big salaries fo= r the management.

The system here proposed, will squeeze the = crap out of the organization every day, giving the most clear control si= gnals to the management. Should the level of trust in the team collapse = totally, the share price collapses as a result, and anyone can pick it u= p cheaply and set the new direction. The company, on the other hand, is = immune from financial markets collapse. Because the financing is evaluat= ed daily, there are no artificial barriers of going through the financin= g round (and going belly up if it is delayed). The workers can easily ke= ep the company running by reinvesting their salaries. It should be noted= that rarely, if ever, much money is spent to anything else in the earli= est stages of the company.

By running the daily lotto, who wi= ll pay the others' salaries today, the losers are however we= eded out in a matter of days, or maximum weeks, not months and years as = before. For the top quality inventors, investors and entrepreneurs (and = to the lesser degree, anyone who can generate value to the organi= zation in any way), this offers unparalleled opportunities to capitalize= on that value. Bob made $100,000 in a month, and has by the time of thi= s one hitting public, made another $100,000 with his new idea. Alice mad= e steady income and good gains for her stocks. Charlie, Dave and Eric al= l profited.

Had the negative outcome happened, hardly any val= ue would have been lost. After a total cost of maybe 100 working hours, = the team would have realized that they don't even trust their own i= dea, so it would be the time to move on and do something else, perhaps i= n different teams. Only Charlie would have been sour, seeing his investm= ent in Bob's shares evaporate in bright daylight, but there was an = offsetting gain to Bob, and actually the lump investment is against the = spirit of this new way. Charles should have just worked diligently and i= nvested his hefty hourly wage back to the company, if he is overconcerne= d for monetary loss. This would be insignificant for an investor who can= distribute his bets in multiple companies.

Title: Re: Bitcoin company shareholding structure
Post by: MPOE-PR on March 20, 2013, 12:02:11 AM

Quote from: rpietila on March 19, 2013, 04:30:30 PM
What has been impeding me from investment, is person risk, bi= tching about technical procedures such as the clause to keep all coin wh= ich is not exactly the intended sum, and of course the skyhigh valuation= . I don't mean =E2=82=AC15 million is that high per se, but it is h= igh for a 1-man operation.

Well, investment is by no me= ans mandatory. I think there's still some confusion at work, howeve= r. Specifically:

- Keeping coins which are misrouted has lit= tle to nothing to do with owning S.MPOE shares. You can own MPOE/MPEx sh= ares without ever having an MPEx account, and indeed many do.

- MPOE / MPEx is not a one man operation. To quote the FAQ,

=
Quote
31 (http:/= /mpex.co/faq.html#31). So did you do it all by yourself ?
Not r= eally. While Mircea Popescu has been managing the project and putting up= the capital since the very beginning, most of the code was written and = tested by a six man team (of which as it usually turns out two or three = individuals did most of the heavy lifting). The economics side is the re= sult of many a late night discussion in a small but loose group of finan= cial professionals (informally known as "the Board") based at = least in part on research conducted by a dedicated Market Analysis Desk,= which is currently (April 2012) three people. There are a couple of peo= ple working secretarial, PR, media buying and other support tasks. In sh= ort, MPOE/MPEx is about the size of a small Mormon family.

T= here has been significant support generously donated by many members of = the community, in many shapes and forms - from bug reporting and factual= error checking to financial model evaluation etc. These are, listed in = alphabetical order and with our sincere thanks : ageis, azelphur, brendi= o, ezl, cory, jurov, kakobrekla, nanotube, onefixt, mod6, random_cat, rd= ponticelli, reeses, smickles, sgornick, the00dustin, znort alongside man= y others. Bitcoin is in fact first and foremost a wonderful community of= highly skilled, intelligent and open minded people which tearfully remi= nds one of the old days of the pre-September Internet.

- You = keep referring to MP directly in your posts, which I took at face value.= I'm now thinking you maybe believe that you're addressing me = that way, whereas I'm just the forum PR. If you wish to talk to MP = directly he's often enough around in #bitcoin-assets (http://webcha= t.freenode.net/?channels=3Dbitcoin-assets) on Freenode. Alternatively yo= u'll probably get an answer if you leave a comment on his blog (the= Trilema link in a previous post takes you there - and for that matter t= hat's his head in the header).

Title: Re: Bitcoin company shareholding structure
Post by: rpietila on March 20, 2013, 07:22:41 AM

Quote from: MPOE-PR on March 20, 2013, 12:02:11 AM
Well, investment is by no means mandatory. I think there's = still some confusion at work, however. Specifically:

- Keepi= ng coins which are misrouted has little to nothing to do with owning S.M= POE shares. You can own MPOE/MPEx shares without ever having an MPEx acc= ount, and indeed many do.

- MPOE / MPEx is not a one man oper= ation. To quote the FAQ,

Quote
31 (http://mpex.co/faq.html#31). So did you do= it all by yourself ?
Not really. While Mircea Popescu has been= managing the project and putting up the capital since the very beginnin= g, most of the code was written and tested by a six man team (of which a= s it usually turns out two or three individuals did most of the heavy li= fting). The economics side is the result of many a late night discussion= in a small but loose group of financial professionals (informally known= as "the Board") based at least in part on research conducted = by a dedicated Market Analysis Desk, which is currently (April 2012) thr= ee people. There are a couple of people working secretarial, PR, media b= uying and other support tasks. In short, MPOE/MPEx is about the size of = a small Mormon family.

- You keep referring to MP directly i= n your posts, which I took at face value. I'm now thinking you mayb= e believe that you're addressing me that way, whereas I'm just= the forum PR. If you wish to talk to MP directly he's often enough= around in #bitcoin-assets (http://webchat.freenode.net/?channels=3Dbitc= oin-assets) on Freenode. Alternatively you'll probably get an answe= r if you leave a comment on his blog (the Trilema link in a previous pos= t takes you there - and for that matter that's his head in the head= er).

Good that investment is not mandatory! The dividen= d return of your company seems to be about 2.9% right now. I think it is= rather low - I could have bought an apartment in downtown Helsinki with= as low a return for my investment, but happily rent instead. Oh yes, th= e apartment was denominated in real terms, and yours is in BTC terms. If= BTC goes up a lot, MPEx will probably lose to a simple BTC inves= tment but beat the apartment hands down. I miscalculated the valuation i= n my first post, using a mere 500,000,000 shares as the dividend base. I= t really does come out as BTC0.7 million. Tha= t is impressive, but sort of.. bubblish.

It is 3.3% of the BTC market cap. If we take the market cap of go= ld, which is about 6000 billion euros (forgive me for using fiat terms).= Should bitcoin reach the market cap of gold, your company would have to= be worth EUR 200 billion, just to break even with the currency in which= it is denominated, BTC. (The analysis exclud= es dividends.) In my opinion, it is way more likely for bitcoin itself t= o reach the market cap of gold, than your company being able to retain i= ts relative position. You know, there are some established-BEFORE-2011 p= layers coming especially after the latest U.S. ruling...

So d= espite your ("you" addresses the company, the representative M= POE-PR, or Mircea Popescu, whichever is most convenient, as well as it c= an and will mean me, or a random person, isn't English fun..= ) assurance that the person risk is mitigated, I will not be investing i= n the company with the current price. It is madness. If bitcoin goes dow= n, you lose, it it goes up, you lose. Only if it stays in the current ba= llpark with volatile swings, is there any possibility to score a profit,= barring manipulation.

Also the fact that you have enriched y= our other shareholders by less than BTC2000 i= n the course of operation of this business is striking to me. Especially= as in fiat terms, it is way less than what the current exchange rate wo= uld lead us to believe. When I walk the 500 meters to my office, there a= re several businesses on the way that distribute much more profits.

Can you, or anyone else tell me, what is the surest and most conv= enient way to short the crap out of MPEx? What I am thinking is to issue= naked contracts that pay out the MPEx dividends, crash the market, and = buyback (or no). My analysis shows that the BTC price will in most scena= rios outperform MPEx anyway, and there is no possibility of a short sque= eze as I don't even claim these to represent any MPEx shares with v= oting rights, (not that there was any to begin with).

"I= " is a convenience term that represents me personally, or the syndi= cate behind, whichever is most appropriate.

Title: Re: Bitcoin company shareholding structure
Post by: MPOE-PR on March 20, 2013, 08:20:13 AM

This thread (https://bitcointalk.org/= index.php?topic=3D77550.0) is about a year old. MPEx is the first and th= e only venue to actually offer share loans for people interested in shor= ting. In spite of the very large mouth of the forum, pretty much no foru= mite has so far shown they have the capital/wherewithal to go through wi= th a short and as such that thread hasn't been maintained.
Otherwise, among actual BTC traders doing actual BTC finance (which p= ointedly excludes this forum, which mostly functions as a venue comedic = relief) shorting is a daily thing. Just like irl I guess.

Not= exactly certain how you've come up with your 2000 figure, or more = generally where you get off, but at any rate: perhaps it's time to = actually act rather than fill the interwebs with text.

Good = luck!

Title: Re: Bitcoin company shareholding structure
Post by: rpietila on March 20, 2013, 08:45:11 AM

Thank you. Care to comment my proposa= l for a company structure, as I finally managed to put it in an easy-to-= read way?

Oh by the way, if you know of many other companies = that are doing the same high finance thing as you are, which are just un= known to the general public such as the readers of this forum, it just m= akes your valuation even more bizarre.

If anyone is intereste= d in buying securities that copy the MPEx dividend payouts but do not in= volve any dealings with the actual MPEx shares (such as share loans, etc= .), PM me. About 1 million will be issued if there is demand. If issued,= the securities will be backed by an incorporated company with EUR 200,0= 00 total assets, of which 1500 BTC.

Nothing personal. But it = does indeed seem that rather few have been able to compete with you in t= he past 18 months. Not that a competition is an end in itself, but it is= fun. :)

Title: Re: Bitcoin company shareholding structure
Post by: MPOE-PR on March 20, 2013, 10:56:09 AM

Quote from: rpietila on March 20, 2013, 08:45:11 AM
Thank you. Care to comment my proposal for a company structur= e, as I finally managed to put it in an easy-to-read way?

Oh = by the way, if you know of many other companies that are doing the same = high finance thing as you are, which are just unknown to the general pub= lic such as the readers of this forum, it just makes your valuation even= more bizarre.

If anyone is interested in buying securities t= hat copy the MPEx dividend payouts but do not involve any dealings with = the actual MPEx shares (such as share loans, etc.), PM me. About 1 milli= on will be issued if there is demand. If issued, the securities will be = backed by an incorporated company with EUR 200,000 total assets, of whic= h 1500 BTC.

Nothing personal. But it does indeed seem that ra= ther few have been able to compete with you in the past 18 months. Not t= hat a competition is an end in itself, but it is fun. :)

Yes, well, you will need a lot more than a bitbillions clone to = compete with Bitfunder, BTCT, Havelock et al. Why not start small, see h= ere (https://bitcointalk.org/index.php?topic=3D124441.0).

Title: Re: Bitcoin company shareholding structure
Post by: rpietila on March 20, 2013, 12:37:50 PM

Quote from: MPOE-PR on March 20, 2013, 10:56:09 AM

Yes, well, you will need a lot more than a bitbillions clo= ne to compete with Bitfunder, BTCT, Havelock et al. Why not start small,= see here (https://bitcointalk.org/index.php?topic=3D124441.0).

Thank you. If you feel the options trading idea is bad, please = state your opinion in that thread. https://bitcointalk.org/index.php?top= ic=3D153742.0 (https://bitcointalk.org/index.php?topic=3D153742.0) = Better still, make it better! After all, this is a community effort, wi= th BTC400 already going to the ones that cont= ribute the most.

In this thread I intend to discuss the very = foundational principles of a corporation. If you have a comment on post = #7, please express it. (or anyone else with competence, for that matter.= )

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