The Endor Private Sale Debacle – Greed Gone Too Far?

February 2018
By Sam
Posted: Updated:

We’re too early in this ICO craze to actually have robust metrics to judge and predict future success based on original token sale metrics. Billions of dollars have been raised, but the efficacy of those raises is unknown. Thus, when I see strange token distributions, I always have to come back to the question every investor needs to ask of any project “How are you trying to screw me over?” In private equity, term sheets, pro rata and anti-dilution make terms hopefully clear. In ICO world, the smart contract for the token takes out any question of distribution and further use.

Thus, the main thing investors have to worry about is large amounts of tokens being dumped on exchanges post-ICO. Large tokens holders who could move markets significantly can be broken up into a few different parts.

  1. Crypto/Hedge funds – Are in it for the long term and usually don’t care about instant liquidity.
  2. Pools – Usually are hodlers, but will dump if the price gets too high
  3. Crowd – Will dump if price gets to high
  4. Team – Dumps for fiat as soon as tokens are unlocked

In cases 1-3 there is significant financial incentive to let one’s investment play out and or sell on exchanges for favorable prices. Team members though, have no incentive to hold. If anything they should dump their tokens as soon as they unlock. Take the fiat and run. Most businesses fail, why shouldn’t the team take their payday when they can? Well I can think of a few why not and so has the SEC.

In normal capital raises, shares are locked for over a year, plus, lead investors and VC’s damn well ensure that founder’s equity is vested over 2-5 years. It’s this type of control that empowers investors to hold companies by the balls. Something especially true in VC world. ICO’s on the other hand are not subject hard SEC rules (it’s all unsaid) so founders and other team members can have their way with token structuring.

I’m going to go out on a limb for the following, but IMHO, both teams and advisors together should not get more than 15% of tokens. If they do, they need to be vested over a 3 year period. There is no reason team members or founders should have access to their tokens before a main net launches, or before the full platform is developed. In fact, tokens unlocking should be at least 6-12 months after main net launch. This is to protect investors from dumping occuring before the end of the first major development cycle.

This is why Endor is a travesty. Below is a photo of their one pager sent out to private investors.

They plan to raise 45 mil for 20% of their tokens, putting their fully diluted market cap at 225 mil USD. Currently, they have NO MVP, no workable code or anything publically substantial. Development times are going to be a minimum of 6 months and the real use case for the platform will only come next year or the year after. Current metrics are as follows:

  • 40% retained for development long term
  • 20% team
  • 20% public/private sale
  • 20% advisors

The long term token retention doesn’t stir too many problems, they will be used for incentivization and other development plans. My beef is with the 20% advisors AND team members get. Both token % are equivalent to the entire amount of tokens sold in the public and private sale. The team gets as much value return for their time developing an untested and yet to be profitable product as the investors who put in capital. The 20% to advisors and partners, on the other hand, is probably in large part being used to return capital to the original investment firms and also pay for high priced advisors.

None of the token metrics actually detract from the project itself. I’ve read the whitepaper and if they can deliver on their promises, Endor will be a multi-billion USD ICO. But it’s not there yet. It’s an idea. It’s far away. Mostly though, it looks to be a cash grab for the team.

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