Dear followers, it’s been quite some time since we met.
Merry Christmas and Happy New Year! Let you and your families have a great 2019 with lots of good news, places to visit, friends to meet and money to earn.
Illustration: Pope Urban II Calls for the First Crusade
“What If”: Proliferation of good utility tokens
With this post, I start a series of publications under the general title “What If”. This will be a set of articles discussing possible ICOs of real world companies. Now, this may seem like a weird time to advocate any ICO given the bashing that cryptocurrency sector saw in 2018. Many prominent researchers say that ICO as industry got discredited because of too many scams and failed roadmaps. Most tokens lost >90% of their value compared to late 2017. Some blockchain professionals question the mere necessity of utility tokens.
I strongly disagree.
My true belief is that internal tokenization represents a viable strategy for many B2C services. There are plenty of examples in the world where corporate loyalty programmes work effectively for decades neither damaging the firm’s economics, nor causing any regulatory challenges.
From financial and investment point of view, issuing a utility token and selling it to the public is, legally speaking, collecting advance payments for the services (or goods) that are to be provided in the future.
Historically, two factors clouded this simple strategy: first and foremost, the majority of ICO projects couldn’t provide enough service to actually match the token issue (or tokens in circulation), second, investors buying into any tokensale were primarily motivated by future increase in token price rather than by token adoption rate and circulation speed.
Both issues (as well as many other technical aspects) will be further elaborated in my future posts but shortly speaking there are two simple solutions to address those problems. First, I strongly believe that successful utility token shall be issued by an established business running operations for some time and serving a solid client base, and second, demand for tokens can be supported economically which means that paying by tokens must be accompanied with a visible discount.
In the “What If” series we will look closer into possible benefits of ICOs and tokenization and possible costs and limitations that come along. These publications are not supported by the companies I write about; however, I try my best to be in contact with my heroes and verify accuracy of estimates and projections made.
What if pigs could fly, people say. We won’t be discussing scenarios that theoretic but rather prepare blueprints for existing businesses that may help them to expand globally and grow size of operations several-fold. Whether those plans become reality or not, it is for them (or their competition) to decide.
Timepad
The picture to illustrate this article is a painting by Jean Colombe dated around 1474 which shows Pope Urban II preaching at the Council of Clermont in 1095. I did my best to give you a glimpse of art and touch upon the topic of meetups and other gatherings.
Timepad is an online event management solutions provider founded in 2008 by HSE graduates Daria Ustyuzhanina, Artyom Kiselev and Lyudmila Pavlova. Initially, the company specialized (here and below most sources are in Russian, feel free to use online translations tools you prefer) in event invitations and automation of subscriptions and visitors lists. They soon shifted to a commission model that helped event organizers advertise and sell tickets online for a small fee. Shortly enough, in 2011, the start-up saw a break even. It was a major success from that moment. In 2012 the company got its first big outside money from Rambler-Afisha, potentially a strategic acquirer with nation wide audience. A year and a half later due to a strategy change founders found a new investor, Tiger Global which bought out the whole part from Rambler (49%) for $1mn.
In February 2018, the company was 100% bought by Sergey Solonin, co-founder of Qiwi and a well established venture investor. The deal valued Timepad’s business at $10mn allowing Tiger Global and the founders to cash out a hefty buck.
Despite being a private company, Timepad discloses a very good set of numbers to study. In 2017 (the latest data available), the service helped to arrange 208,000 of events which gathered about 5mn of visitors with 821,000 tickets sold. Disclaimer: your humble servant was one of the happy organizers to run her meetup with Timepad’s help. This translated to a revenue of c.1bn roubles (~$15mn) with an implied gross margin of approximately 12%, according to the media quotes. The ticket selling segment generated between 60–70% of the company’s revenues, the company says.
Timepad is primarily up to small and medium sized clientele, however, there are quite a few corporate clients with Oracle, Visa, Forbes, Strelka design institute, SKB Kontur and Gorky Park among them.
One of Timepad’s publicly listed peers is Eventbrite which went public on NYSE in September 2018 jumping 60% in the first day of trading and currently enjoys https://www.bloomberg.com/quote/EB:US of $2.4bn. In 2017, EB, according to its website, helped 700,000 creators to organize 3mn (15x Timepad) events in 170 countries selling 200mn tickets (40x Timepad). For sake of pure interest, these comparative multiples derive Timepad’s equity valuation of $60–160mn, no finance taken into account.
In terms of types of events, Concerts, Kids and Business lead the revenue book while Foreign Languages and Beauty and Health are the fastest growing segments.
The Timepad token
As of today, Timepad represents a monoliner with a commission thin enough for every client to tolerate. The client (event organizer) pays between 1–3% of the ticket revenue, depending on the monthly proceeds. In addition to that, up to 3% for customer support are charged from the client. The services cuts in 4.5% to cover the payments processing.
Let me state this once again, I do see multiple use cases for utility tokens but I understand clearly that in order for the token to be in demand there must be some actual utility behind it. One option is when the token allows for some exclusive service (not available for real money), the other one is when token payment allows you to cut cost, and the cut is big enough to justify your efforts to buy the token.
Another area to watch is potential token ecosystem. The more ways to spend the token people have, the lower will be their intention to sell immediately upon receiving one.
Ideally, Timepad token (let’s pretend it exists with TPAD ticker) would be used to pay for:
Commission of the service (with discount). Given the thin commission Timepad charges, this could stimulate frequent organizers or corporate clients. It feel that 40–50% discount would be hefty enough to lure corporations into pre-buying tokens to cover organization costs later.
Tickets. Now, this can be tricky. Explaining to the organizers that receiving TPADs doesn’t put them under risk and tokens have enough liquidity may take time. Timepad will have to act as a buyer to support bidding in the market, or use proper market maker. One of the possible benefits can come from payment sources: Timepad legal entities in different regions would normally accept local currencies and a limited number of payment channels. Tokens, on the other hand, would work fine in connection with PayPal, Webmoney and other payment services of all domains imaginable, and, most importantly, cryptocurrencies.
Advertising and promotion. This is relatively easy. Somewhat simplified but Timepad margin on banner advertising and direct mailing is 100% so potentially any discount is possible.
The company’s owner’s approach should be as follows:
“We do an ICO => raise some USD => introduce our internal token and allow clients to cut their payment by X% => this translates into this amount of lost profit (and margin decreasing by … forever) => but ICO helps us to add users in 10 languages and increase revenues xxx times, and we launch an internal pricing mechanism + allow for cryptocurrency payments + add gamification”
What can be done to create an ecosystem?
Room, restaurant and coworking rentals. Location rentals represent a significant part of the event budget. The more providers will allow TPADs as a payment, the better adoption rate these tokens will have.
Equipment. Same approach works well with projectors, screens, audio systems, laptops, headphones and transmittable translators, VR glasses and other technical tools to be used during the event.
Catering. Native tokens can be of some help here. Imagine your event getting a surprisingly high turnout when you need an extra 100 people to be served with canapes. Timepad could cover for you in its tokens and even provide a short-term internal loan (which you could settle later in fiat or tokens), based on you track record. The catering company would avoid the risk and receive liquid payment instantly.
Assistance services. People at the registration desk, hostesses and navigation servants, translators, photographers and camera operators — many of those people are freelancers open to direct payments in cryptocurrency or TPAD tokens. They will be interested in holding the token (not selling it immediately) in case there is any reason in retaining the asset.
There is a solution to that which is gamification. Private contractors (freelance individuals) will be keen to take part in internal competitions, randomly distributed prizes, voting contests and “candy machines”. There is a window for collaborations with other online services and even offline loyalty programs, like language schools, online games, theatres and book stores.
Conclusion
Normally, size of an ICO would be close to 1x-2x of the project’s annual revenue. There are different vesting schedules typically ranging from 6 to 24 month. Thus, Timepad can be targeting $15–30mn fundraise in its hypothetical tokensale.
I cannot give accurate predictions but let’s assume that $50,000 gives you a perfectly polished language version of the product, and $1mn will do for one year PR and marketing campaign online to make the market aware of the new player.
At least $2–3mn will have to be kept in liquidity reserve to facilitate token circulation and internal conversion mechanisms. Another $3–4mn need to be allocated for gamification and internal incentification activities to cement the ecosystem.
This means, Timepad would be able to enter between 7 and 20 new markets establishing local representation with a complete set of corporate billing and accounting services. Here goes even more guessing but 1 new market 1/10 the size of Russian with ½ of the margin will add $1.5mn in revenues and $100K in net income, and 20 markets of that size will result in $30mn/$2mn, respectively.
To wrap this up: a happy coincidence took place. As I was finishing this post, I suddenly ran into the Timepad’s Daria and Olga next to their Moscow office. So, lucky you: yours truly and shining beauties of Timepad in one picture, enjoy the view))
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