This is Jason Choi representing the Spartan Capital team, here to offer our thoughts.
“How did you get involved with this raise?”
We’ve been speaking with 0xMaki from Sushi since the inception of the project. Earlier last month, we were approached by Maki regarding a strategic raise.
Given the uncertainty in secondary markets, we saw the benefit of diversifying Sushi’s treasury to stablecoins and onboarding strong partners that could add value to the project, and decided to help.
We committed late in the process, therefore unlike most VC deals where the lead investors set the terms, we had no hand in setting the discount or lockup for the round. The deal terms were presented to us by Maki, and we accepted on the assumption this was agreed upon by other investors.
With a growing team and wide network of DeFi projects, we believe we could be a helpful partner to Sushi and agreed to participate in the round. After we communicated our interest, we were told we would be one of the co-leads in the deal by virtue of the size of our commitment.
We responded that we would be happy to co-lead the deal with the other major VCs, and the arrangement was proposed for a community discussion on this forum.
Over the past few days we’ve been following the community discussion around the Sushi Phantom Troupe Proposal closely and we would like to share our perspective.
“Who are you?”
To provide some context, Spartan is a crypto fund based in Asia that has been investing in the space for the past 3 years.
We run a crypto hedge fund and a DeFi venture fund that has a mandated lock up for 5 years - meaning we think about our investments in that fund in years, not weeks or months.
We have been vocal and active users and supporters of DeFi since 2019, and are one of the few DeFi-focused funds with a mandate that fits a venture horizon in Asia.
“Ok good for you. But have you actually helped before?”
VCs can promise the sky when they want to get an allocation!
What matters is how they have actually helped, and how they will.
Here’s a few ways we’ve engaged before.
- Spartan has been an early holder of SUSHI and user of Sushiswap
- We actively provided liquidity to the protocol via our liquid vehicle
- We drafted one of Sushi’s earliest governance proposal around insurance mining
- We nominated ourselves as a multisig signer during Sushi’s most difficult time (Chef Nomi saga…)
- To this day, we are vocal supporters of Sushi in most of our public appearances and media distribution channels (e.g. podcasts, panels, social media)
- As Maki mentioned, one of the key priorities is to refer new projects to work with Sushi - as a purely DeFi focused fund we are in a unique position to assist with this. We have already connected a few of our portfolio companies with Sushi/Miso!
“So how do we improve the current raise?”
Overall it seems like the community feels that:
1. The size of the raise is too large
2. The list of investors is too long and selection can be improved
3. The discount offered to investors is unjustified
4. Sushi shouldn’t be diversifying its treasury when prices are depressed
5. The idea of offering a discount is contentious even with a 24 month lockup
Here are some of our suggestions re the above concerns.
A) Re size:
Sushi team should set the size of the raise itself, and communicate with some detail over how the funds will be used, and over what horizon.
As part of the raise is also done to diversify the Sushi treasury into stablecoins to withstand market volatility, not just to raise capital, Sushi team should also communicate how much buffer they require for the team to continue to expand throughout a potentially lengthy bear market.
That will help the community understand better the opportunity cost of not raising, and come to an appropriate size.
B) Re investors:
We agree the list of investors may be too long.
As Maki stated, one of the key priorities is to have a continual pipeline of quality referrals of projects for both Miso and Sushiswap, which requires the investor to have an existing portfolio of quality projects in DeFi, and a consistent, ongoing pipeline of DeFi projects to come.
Funds should also at least be able to serve as an LP to Sushiswap, as that is the foundation of Sushiswap’s liquidity.
At the risk of a community vote devolving into a popularity contest, we advise every strategic investor to list out their prior and upcoming contributions to the protocol, and for the wider community to vote on who should be on that list based on those contributions.
C) Re price and discount:
Maki has done a great job in reaching out to diverse funds in the space - from hedge funds, to prop funds, to traditional venture capital firms. These different fund structures imply different liquidity requirements and ways to compute discount.
We don’t think it’s productive to debate whether venture funds are more “strategic” than traders. The fund structure may or may not dictate investment horizons, but does not imply how helpful an investor actually is usually.
In fact, some of the liquid funds we’ve worked with before have also provided disproportionally more value than venture funds - especially in DeFi - so we don’t think that’s where the line should be drawn!
Now, the community seems to care most about the existence of a discount and the idea of having Sushi sell too many of its tokens during a depressed market environment.
One potential suggestion we’ve come across to avoid the Sushi team needing to sell its tokens too aggressively today with no promise of value add came from the UMA team: the Success Token.
We are still in the process of properly evaluating its pros and cons, and whether it meets the community’s standards of fairness, but it seems like a promising alternative.
In short, the token is a composite token that comprises 1 SUSHI + 1 call option on SUSHI with a certain strike price and expiry date. The structure allows the Sushi team to not need to sell any tokens at a discount upfront.
In other words, the call option itself doesn’t pay VCs a profit immediately via an upfront discount.
VCs do not profit unless the token exceeds a certain price by expiry (e.g. 3-4 years). Should VCs fail to inject value into the ecosystem in that time frame, the option may expire worthless.
This is just an initial suggestion, and we’re not married to this. We’ve already reached out to the UMA team to discuss more. Should there be interest in this structure, we are happy to discuss what it might look like!
Shepherding governance for decentralized protocols is not an easy task. Maki deserves credit for attracting a strong group of investors who are willing to be part of the Sushi community!
We hear your concerns that not all investors add the same value, and that preferential treatment of any community members, VCs or otherwise, is unfair.
We think that speaks volumes about how strong and supportive the community around Sushi is.
As with all partnerships, there should be extensive due diligence about the parties involved, their prior contributions, what value they can actually bring, and the investment horizon they hold.
We have been investing in DeFi for more than 3 years and have worked closely with projects and founders. We are happy to provide references to a few founders if anyone in the community wants to vet our credentials as well.
Some of you have known us for a long time, and were there with us advocating for DeFi when Aave was still ETHLend and people still called it “OpenFi”.
We’re grateful to be considered as part of this community - and if in the end the community is vehemently against any type of raise, it won’t dent our passion for DeFi one bit.