Projections in the New Economy
First things first: Projections are not evil.
Today I thought that I might take a moment to talk about the role of, and limits to, forward-looking projections where token offerings are concerned.
So, again, let’s start with the fact that projections in and of themselves, are not evil.
In fact, projections are a mainstay of traditional investing in that, without a business offering projections on how the business might grow, achieve profitability and generate returns, how are prospective investors to know if the deal is worth putting money into and/or matches their portfolio expectations?
That said, now that we are moving into a new era of digital currencies, utility tokens and related offerings, the landscape is changing - as are expectations regarding when and where projections are necessary or appropriate.
Most of this new thinking is driven by the desire of ICO creators not to have their utility tokens classified as securities. Thus, if the tokens offered are truly to be considered utility tokens those offering the token for sale should not make predictions regarding the token’s future value, lest it be considered an ‘investment’ rather than a simple pre-purchase of access to goods and/or services. This makes sense, mostly.
I would argue that is is totally appropriate to outline the potential ‘lift’ in value that might be seen, provided that said potential is based solely upon ‘organic lift’ (increase in value caused purely by the regular use, and desirability of, the token relative to its supply), based upon at least one of the more well-recognized equations for computing said lift - and openly sharing which equation was used to generate such information.
The key here is the word ‘POTENTIAL.’ One can only outline what could happen, if the network or business functions as planned and the token is both used and desired. Always understand what assumptions are driving any projected or potential lift. One can never guarantee any kind of appreciation in value.
Now, equity tokens are a completely different matter. Here, one must still not make any concrete guarantees of future value, but it is completely appropriate for the business to offer projections as to how they expect the business (and thus the token) to perform. These are, and have always been, known as ‘forward-looking statements’ and investors must be advised as such. Projections may even include expected returns and/or dividends, if they are in alignment with the overall business plan. It is up to the prospective investor(s) to determine the likelihood of the business actually achieving the results predicted, or any significant portion thereof.
So, in a nutshell:
Projecting the potential organic growth of a utility token is fine, provided that said projection is in no way represented as a guarantee. It would also seem to be a best practice to disclose the specific algorithm used to project said potential. The current ‘better safe than sorry’ tact of offering no potential growth numbers is really just an over-correction in an attempt not to have one’s utility token classified as a security.
For equity or security tokens, publishing ‘estimated’, ‘anticipated’, ‘projected’, or other ‘forward-looking statements’ is simply par for the course.
Whether purchasing a utility token with, let’s be honest here, hopes for it to appreciate in value along with having access to its utilitarian functions, or investing in a full equity / security token, use good judgement. If the claimed token growth potential is extremely high, make sure that you fully understand how they expect to achieve said results.
For equity deals, early stage projections of 10x or more do not actually signify a problem, unless the managers of the business cannot adequately explain how they hope to achieve said results. In fact, most traditional early-stage venture capitalists only even look at deals where there is a realistic possibility of achieving a 10x or even 20x return. This, of course, is offset by the equally high risk of failure for any new enterprise. If 4 out of 5 deals flop but you make 20X on the one, you still average a 4X return (assuming equal investments).
HOWEVER: If anyone EVER guarantees you future results based upon an expenditure or investment today, they are either delusional or, more likely, liars. In either case, steer clear at all costs.
For more information on my current offering, BXXFEET, LLC, please feel free to click here: https://www.dhirubhai.net/feed/update/urn:li:activity:6425162711239401472
All my best,
Matt Dahl - Founder & CEO
BXXFLEET, LLC & BLOXOTIC SUPERCAR COLLECTIVE