ICOs before Cos

Today I saw an interesting interview with the Kik CEO, in which he explains Kik will be selling tokens in an ICO, and that this will allow them to return some capital to institutional investors. In effect, investors are getting the exit without selling equity & Kik Inc gets an influx of cash they can spend as they choose.

Kin is in a funny situation (though it’s certainly not unique) in that it’s an established company with significant capital raised and a real network/business, that is intending to transition to a decentralized token-based network. Whether and how exactly that happens will determine if token investors, Kik Inc, or both come out ahead after what is sure to be a big influx of cash from token investors.

The Kin white paper is a bit light on details (at least the english version), but based on what it says and the interview above, here are a couple changes/additions to Kik’s proposal that would make me feel a lot better about my investment if I were a prospective Kin buyer.

• Token sale proceeds go to building the network. 100% of proceeds from the Kin sale should go to the Kin non-profit, let’s call it kikkin.org. Zero dollars should go directly to Kik Inc, which should only profit as a function of long-term token appreciation.
• Prioritize the transition to decentralization. kikkin.org should use the proceeds of token sale to pay Kik Inc for the work it does on Kin at cost and/or should be allowed to hire members of Kik’s team and do this work directly.
• Developer neutrality. kikkin.org should not pay for Kik’s client development or other corporate projects. This creates an unfair advantage for Kik over other token owners/developers within the ecosystem. Kik’s comp for bootstrapping the network should be 100% token-based. Kik may even want to donate their centralized infrastructure/code to kikkin.org and operate it on a contract (fee) basis during he transition period.
• Value Alignment. Kik Inc’s tokens should be put in escrow with kikkin.org and they should vest into them over 10+ years (there appears to be some TBD vesting in the proposal), with a three to five year cliff. This will assure they are all-in on building network value beyond the current hype bubble. Existing employees, investors, etc should not be issued vested shares.
• Equity Alignment. Kikkin.org should be issued equity in Kik Inc for its token allocation. Equity will assure further alignment between Kin and Kik, and assure that if there is a liquidity event for Kik Inc, the network and its investors who helped achieve it will benefit.
• Investor Validation. Kik’s investors should not be issued tokens for free, but Kik could let them go to the front of the line. Their investment in the network would be a vote of confidence, just as any Kik equity holder or employee cashing out tokens is the opposite.

Big picture, ICOs are still a relatively small part of the overall innovation ecosystem and for all the scams, bad ideas, and poorly designed token sales, we’ll most likely net out positive on value creation. In this regard, I should arguably not be so worried about ICO shenanigans.

That said, it sure would be nice if companies/project founders tried a just a little harder to avoid situations where they make bank and token buyers get fucked.