[Withdrawn] Sushi Phantom Troupe - Strategic Raise

Hi everyone, thank you for welcoming us (Lightspeed) to the Sushi community forum on Discord yesterday. While there is a diversity of opinions, here’s what we heard most frequently:

  1. An upfront discount is not fair
  2. A call option structure may work better
  3. A longer lock-up/vesting is preferred
  4. The round should be smaller
  5. There should be fewer investors; they should be referenced for their value-add
  6. Investors should provide updates to the community on involvement

We’ve heard you. We’re discussing with the team this weekend. We remain excited to be part of this community.

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Having read the entirety of this thread, it doesn’t seem to be clear why the raise is being done, could be motivations be clarified?

The motivations could lead to a suitable path. If its for strategic partnership and help with research the choice of VCs would differ compared to if you wanted to up your game in the PR dept and needed some operating capital

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Thanks for the response @AdamSCochran. Let’s address most of these issues on the next community call, but a couple of quick takes:

  1. First, you say say:

And then you say:

So – which is it? We need these strategic investors b/c SUSHI doesn’t have them already? Or we already have these strategic investors and they are going to control the vote?

  1. FWIW — this is inaccurate

Arca “backstopping” a deal doesn’t mean we necessarily get $10mm. It means we will guarantee that SUSHI can sell at least $10mm at $7.04… but if there is more demand than there is supply at those levels, we aren’t guaranteed to get $10mm. That’s the whole point of doing this democratically with limit orders where the whole community gets to participate — we are setting the price and the floor, but if there’s more demand, we’ll be scrambling to buy just like anyone else and will likely get scaled back just like everyone else, and will then have to buy more tokens at higher prices.

  1. With regard to this:

I’m saying Maki himself has indicated that they don’t need money – if that’s the case, then they shouldn’t be selling any tokens down here. We need to understand their runway/cash needs to figure out how much (if at all) they need to raise. This started as a $20mm opportunistic raise near $15… but somehow became a $60mm raise at $5. That’s not opportunistic. If they do need to raise, we will provide a higher, better bid than what is being provided. If they don’t need to raise, then our bid is there if they need it but they can certainly choose not to sell.

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This isn’t the point of the raise - this proposal has the principle objective of onboarding institutional investors.

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This is 100% better, can’t believe they would consider giving VCs discounted tokens when they are in such a strong position. Almost feels like the puppetmaster SBF was behind the original proposal.

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This is what real conviction looks like. Props.

SUSHI is currently trading at a massive discount to its fair value, and now is absolutely not the time to be selling… For all intents and purposes, Sushiswap is a publicly traded company, with ample public liquidity. There is no reason to do a private round (PIPE), at a steep discount, unless Sushiswap was distressed and needed bailout financing (which of course is not true)

Bingo.

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so I just finished reading the forum talks …clearly there is a need for fund raising due to expansion and rising geopolitical risks… we can also secure a near term future for our lovely community driven future of France …

further more we also clearly HAVE interest in OTC deals with premium as high as 30% …

why not do a closed envelope Auction on MISO for investors ( perhaps vetted VCs ) and the top 3 in total investment regardless of sushi price get the deal ?

of course starting bid price should be around that minimum price willing to pay at 30% above current price.

this also addresses the issue of many “non dedicated investors” VS " small number of highly vested investors"

quarterly vesting is probably ideal. linear vesting tends to create more dumping events. nonetheless, its probably best that there are no discounts. there’s simply no need

Not specifically targeting you Amy. Appreciate your post.

Sushi is a proven team with product-market fit.
Often times we’re pitched as a community the value that a strategic investor brings.

A short study by this VC shows that most successful teams dont need strategic VCs to achieve success.

It would be nice if there was a sale on miso where the community can participate. More important to decentralise and leverage the community mind. This was one of the foundational principles sushi was built on and hope it can continue to be built upon

From investors like @Alex17 → appreciate you for breaking it down on a tactical level what this raise means + ways it can be improved. When it comes to strategics, defo should consider how these VCs will bring more projects to MISO, if they dont have a token, and contribute to the vibrant SUSHI ecosystem.

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Always painful to read proposals so clearly written with bias towards vulture capital.

As a pure financial asset with no brain power used Sushi’s imputed price from revenue flows should be ~$40. It’s 1/10th of that.

Diversifying treasuries is what you do when you have overvalued assets. Capitulating oops, I mean, “Diversifying” at insane lows (with an unneeded and obvious dump discount) is blatantly stupid.

These strategic advisors are just that, strategic. They don’t actually contribute to development or implementation or bring anything of value besides a quick news cycle.

UMA range tokens is the obvious solution if we need funds. If we need news cycles, we can do a partnership with major NFT groups and exchange NFTs for community volunteers to locking up xSUSHI for N months and split the yield with Sushi in exchange for limited edition NFTs.

Why do we need institutions? What do they bring? What is this obsession with getting friends of the founders in with a discount to dump on retail?

I propose a blanket ban on “give rich groups discounts b/c we want them to like us” for at least 6 months.

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Thank God for ARCA
ACK this proposal

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Some nice ideas coming from Twitter.

  • Dutch auction with a constant price but decreasing lockup/vesting time (tweet)
  • A sale with the daily vested amount of tokens variable based on SUSHI’s volume profile (tweet) or price.
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Why are you using VCs and strategic investors interchangeably in this argument?

It is a fallacy of composition, not all VCs are strategic investors, not all strategic investors are VCs.

Sushi needs strategic investors, even as Maki said, one of the largest advantages is working with VCs in their portfolio companies to increase partnerships such as inflow of new projects to MISO.

But, there are also large funds that currently own a ton of Sushi and are friendly in voting. It does not mean they are the strategic investors Maki is currently looking for.

Of course not. But, you know as well as I do, that you want to buy $10M, and would still want to buy $10M at the higher price but liquidity prevents that.

You also know that less funds operate in a liquid space, both due to capabilities and regulation, and so you have very good odds of scooping that up.

Once again I don’t fault you for that, but lets not pretend its altruism, it’s fair business, but lets be candid about it.

Once again, this feels like an unfair interpretation of words.

Not “needing” the money, does not mean there is no use for the money or that it won’t fuel growth.

But his main point was also the value of strategically added investors, which is something your model completely throws out.

So if you are suggesting the strictest interpretation of Maki’s words here in that he doesn’t need the money, and all your proposal does is get more money for the tokens then it isn’t ideal at all.

It also doesn’t address the fact that we are talking about a massive dilution.

Something that I think most community users are going to gloss over in your proposal with dollar signs in their eyes as they are just happy someone is going to help the price tag.

Taking these funds out of treasury and into circulation all at once is dilution that rapidly offsets the cash value captured by them, and leaves them in the hands of funds saying ‘trust us we wont sell’ rather than ‘hey we can’t sell’

In the VC model that dilution can be spread, and should be spread across multiple years.

You and I both know, that overall this deal is the most favorable to your fund, and once again, I’d have less issue with it if you weren’t trying to present it as some rose tinted robinhood play.

I think your criticism of the current VC proposals is absolutely fair and reasonable.

I think your counter proposal is actually worse, but will get the masses to line up as they think it will pump their price.

But, if you really think you will bid over the market and not sell, like Arca has claimed then its simple:

  • Revise your proposal to include a minimum 3-year vest with a minimum 6-month cliff on all purchased tokens at this higher price.

You’ve said you are willing to put your money where your mouth is, and that it should be no problem buying Sushi at these prices, and that you would hold long term.

So as long as you are willing to put the same lockup restrictions on your proposal and stop comparing apples to oranges, then you are actually proving your conviction.

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I just want to chime in on this part of @AdamSCochran 's post, from a legal perspective.

In my opinion, raising ‘risk capital’ by directly or indirectly selling SUSHI or xSUSHI from the DAO poses equal theoretical securities law risks to the project regardless of who the buyers are–VCs, the public, whoever. In any such transaction, the DAO is acquiring what could be seen as ‘risk capital’ which could reasonably be expected to positively affect the value of all SUSHI, not just the specific SUSHI being sold.

I could elaborate on this topic and its complexities ad nauseum, but it’s simpler just to remind people of the Telegram case: Telegram’s facts were much more conservative than what we have here; yet, nevertheless, the court held that selling tokens to VCs at a discount contaminated all of the tokens with an “investment contract scheme”. Distribution of the tokens was enjoined and the Telegram blockchain project essentially destroyed because there was no viable compliance path.

Of course, the ‘risk capital’ test is not used in every jurisdiction, and even in the U.S. all elements of the Howey test would have to be run on the full situation to decide whether or not SUSHI are integral to an investment contract scheme. My only point is that it seems highly farfetched to argue that selling SUSHI to VCs is materially less likely to render SUSHI part of an investment contract scheme than selling SUSHI to non-VCs–either way, the DAO is raising what could be deemed ‘risk capital’ which could feed into an investment contract.

Therefore, if this securities law issue is to inform the debate, it should inform the debate as an argument against selling SUSHI to raise capital, tout simple–not as an argument in favor of selling SUSHI to VCs while excluding other types of purchasers.

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This is a very fair point Lex, and actually better justifies Sushi exploring alternative fundraising means that might be more favorable, such as convertible debt that they are collateralizing with Sushi, or possibly models like UMA’s range and success tokens, or even going back to my first ever proposal on Sushi which was to have a separate Sushi Labs hired by the DAO and rewarded in Sushi. That entity is something VCs could buy equity in without directly buying Sushi.

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It’s worth stepping back and considering whether it’s a better idea to just do an outright sale as Jeff suggests or not. Setting an above-price limit order will give funds the opportunity to show their long-term support by purchasing SUSHI and I think that indicates intent to hold for the long-term well. The average joe won’t be buying those orders, but those following this thread may.

It’s certainly potentially dilutive but has its own set of tradeoffs as you suggested; for instance, a lockup with vesting creates future expected dilutive events that impacts buying behaviour, adding to the pressure that SUSHI rewards have now.

Neither have exclusively been better in the past from my observations but both are fair, and I think it’s worth putting all the options on the table.

This is fantastic.

Would set an example of a way for an institution to invest in a DAO while mitigating some of the negative aspects of VC (transparent, open to public participation).

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I am Liu Jie from MCDEX. As @0xMaki mentioned, we have closed a fundraise in this model. I’m glad to see this financing method adopted by more projects. Based on my experience, I have a suggestion:

Give the community a certain preemptive right in the raise. For example, if the total target fund is 20m, we could set a hard cap of the community sale as 15m. The community holders can commit to this raise. The VCs get reset of the allocation. Thus, the VCs’ allocation = 20m - community allocation. However, because of the hard cap, there is at least 5m for the VCs.

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In favour of this proposal with caveats.

My view on VCs
I’m generally in support of VCs / FIs given their substantial value via their networks and expertise in creating growth for early-stage startups. But what Sushi and DeFi overall needs at the moment is massively improved UX for adoption and legitimacy otherwise this whole space will fast become a sinking ship turning into a niche industry for nerds to play with their “computer money” as the media puts it. Correct me if I’m wrong, but I feel crypto-VCs (Pantera, a16z etc) haven’t really pulled their weight when it comes to legitimising and increasing adoption of crypto and DeFi.

In addition, crypto projects currently have a very serious issue of centralisation in the form of VC investment. This is already covered in above comments so I will not repeat.

Crypto-VCs have largely operated the same as traditional VCs / FIs via early stage funding and providing the right resources to assist growth but I this approach isn’t enough given the challenges with regulation and adoption in this space.

As such, I would suggest the following be taken into consideration for this proposal:

  • The list of VCs to be triaged to only include those who have a track record of taking steps to bring DeFi the masses and have demonstrated they are not adversarial to decentralisation.
  • Reduce the allocation for the incoming VCs and increase the vesting periods
  • Allow a portion of sales to Sushi holders with the exact same terms to uphold decentralisation and fairness.

Thanks for reading.

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