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Blockstack Transcript


 

Adam Chapnik:

Joining us live from New York is one of the co-founders of Blockstack, Muneeb Ali. Thanks for joining us today.

Muneeb Ali:

Glad to be here.

Adam Chapnik:

Great. So let's find out a little more about your company and the ICO that you guys just completed. I mean what an amazing video. Can you tell us from your perspective, what's the key thing that you like people to understand beyond what the video conveys?

Muneeb Ali:

Yeah, absolutely. I think one thing that I would like people to understand is that the internet is a really old technology and it's not like some aliens came down and they gave us this technology and we can't change it. It is completely possible to build something better and that's exactly what we're doing with Blockstack.

Amy Wan:

Fantastic. Well, I'm just gonna jump right into it. You know you had a very successful ICO. How much did you raise and what are you gonna use that money for?

Muneeb Ali:

Yeah, so we just closed $50 million in our sale to accredited investors. And for us, our open source community and all the developers that are already part of Blockstack, they're very important and most of them are actually not accredited investors. That's why we have a user sale where we were able to give out vouchers to these people for future payments. And that's an additional 50 million that will come in later.

Adam Chapnik:

Fantastic, interesting solution. So can you give us sort of the nature of your solution that has to do with the new kind of infrastructure? They touched on it in the video. How would you describe what makes this new?

Muneeb Ali:

Yeah, I mean a lot of people watching this, they might be familiar with blockchains, how it enables decentralization. There are many limitations to blockchains. It's not that you just put a blockchain on something and suddenly magic happens and you can build anything.

Blockchains are really good for certain things and they're really bad for a lot of other stuff. What we are giving people is the full technology stack that makes use of blockchains in the right way and gives them all the missing technology pieces that they need to start building decentralized applications on blockchains.

Adam Chapnik:

What securities regulations did you try to operate under when you were doing your offering? Were you thinking about that carefully or not?

Muneeb Ali:

Yeah, absolutely. Our startup has actually been around for four years. We raised traditional venture capital before. We raise around $5 million from Union Square Ventures, Y Combinator and a couple of other investors. And in our series A round, that was like last year fall of 2016, we actually told our investors about our plans for doing the token sale.

But we took our time. We looked at all the applicable law and came up with a new structure where in our token sale, people were actually becoming limited partners in a Delaware fund. So this is something that regulators understand very easily and that's why we were able to structure our sale in a way that is fully compliant with the SCC.

Amy Wan:

Really interesting. I remember reading some of the press around the time of your sale. And there was specifically some press around the fact that you did or did not have a pre-sale. Can you explain the changes around that?

Muneeb Ali:

Absolutely. I think we were watching a couple of other sales and trying to learn from them as well and one thing that we noticed is that a lot of sales were giving discounts to investors in these pre-sales. And what happens is that A, it gives unfair advantage to certain investors but secondly, it gives them this incentive to just dump these tokens on the market as soon as the tokens go live because they've already made profit on top.

So what we did is that we ensured that everyone who participates in the token sale, they're going to get the same price. That includes both the accredited investors who are able to just finish the payment now. And the users who just got vouchers but the vouchers guarantee them kind of like the same price.

So everyone is on equal footing. At the same time, we also have this unlocking mechanism where everyone who participated in the token sale, they will only get a certain amount of tokens per month. That means that this disincentivize anyone who just wants to come in, make a little profit and then just like sell these coins and walk away. We want people who are really interested in the actual technology, are in it for the long run to be a part of the system.

Amy Wan:

It's very wise and I think you're really trying to combat a lot of the pump-and-dump that we see in this space. Let's talk about for a second about your token. What do investors actually receive? What does the token actually represent? Are we talking about utility? Is it equity? What does the public get from the token?

Muneeb Ali:

Yeah, it's a utility token. You can think of that as the Blockstack token is your access control mechanism for the Blockstack network. If you're user and you want to register a username or you wanna build up your profile, you consume these tokens and you register these digital assets on our network.

Similarly for app developers if you want to publish an app. Right now, if you are, let's say, an iOS developer and you want to publish an app on iOS, you will pay Apple like $100 or $150. With Blockstack, what you're doing is you're consuming the token and you're converting that into a digital asset that is your app that you're publishing.

So any activity that happens on the Blockstack network, it consumes this token.

Adam Chapnik:

Through utility, it's such a visionary kind of space you come from. I love it. So shifting to sort of the structure that you used when you issued, you guys used a SAFT. Maybe can you explain what that is and how people get value from that?

Muneeb Ali:

Yeah, absolutely. So I mentioned the Delaware fund earlier. With the fund structure, this is actually different from a SAFT, people are buying interest in a Delaware fund. And then the fund itself invests in the token. We did that because we wanted to have these checks and balances in place. And so we're actually not getting all of this money up front. We're only getting 20% of it.

And the rest of the money is tied to certain milestones. When we hit those milestones, that will trigger the release of that capital from the Delaware fund to us but there are certain restrictions around how many investors we could accept into the Delaware fund. And that's why we had a SAFT that had very similar terms to what the limited partners in the fund were getting and the long tail of investors ended up getting a SAFT.

Adam Chapnik:

Got it. So what about regulations? How is the current regulatory regime impacted Blockstack?

Muneeb Ali:

I think definitely the regulations are a bit unclear and that that makes entrepreneurs a little bit nervous but I actually feel that the SCC is being very smart about this space. They're actually not being heavy-handed and they're actively just watching. And so far all the steps that they're taken, to me, they actually seem like the right thing to do.

Amy Wan:

Great, yeah. So what are the future plans for Blockstack now that you guys have raised all this money?

Muneeb Ali:

Yeah, so most of the capital as I said, only 20% of the capital will come to the company at this point. And I think that's important because we want to set up this culture where we don't want our team to feel that, “Oh, we have a lot of money now and we can afford to do things that we weren't able to before.” We want to stay humble. We want to stay focused. We want to focus on the milestones.

The first one is the network actually going live. I think any time any investor is investing in a token sale, the biggest risk that they're taking is that the team might never deliver. So that's why 80% of the capital is tied with our first milestone. If you don't hit it, investors can potentially get up to 80% of the money back.

And the second milestone is tied with the actual growth of the network. That's the next step, that okay you built it. It's actually working but are people even using the network? So that's the second milestone after that. As soon as the token goes live, meaning that it's usable on the network, it's tradable, we'll shift our focus to the growth of the network.

Adam Chapnik:

So now that the ICO is done and you can look back on that part of it, what do you think was the hardest part?

Muneeb Ali:

I think in a way, the hardest part was that no one understands what this is. And it could be like all the way from you're trying to open a bank account, to you're talking to lawyers or you're talking to your tax account and you really have to explain what's going on. And we were very fortunate that we were working with some of the top lawyers and top tax accountants who are very curious about the space themselves.

So it was a very collaborative process where they're learning something from us. We're learning the applicable law from them and then we're collaborating to come up with a framework that actually works. But I think like that thing where you just need to get used to that whenever you start talking, people have no idea what you're trying to do but you just need to have the patience of sitting through it and then coming out clean on the other side.

Amy Wan:

Fantastic. Well, let's talk about the process a little bit. I know you mentioned earlier that you guys took your time in thinking about this. How long did the entire process take for you from the time you started, to the time you guys actually finished?

Muneeb Ali:

So we started focusing on the token sale, I would say, after May of 2017. That's where we did the developer release of our browser. So I think our project is also a little different in the sense that we had venture capital, we had the luxury of taking our time and our product was already live and people could use it. In fact, the people who participate in the user sale, they would actually download our browser and use the product to register themselves on the network. That was pretty cool.

And I would say the legal framework, it took like roughly five to six months. And if it needed more time, we probably would have given it the necessary time that it needed.

Adam Chapnik:

Wow. So for everybody else, what are the companies that you had to work with in launching your ICO? Can you share some of those?

Muneeb Ali:

Yeah, so our securities lawyers were from Wilson Sonsini and I highly recommend them. I think they did a really great job and our general counsel is Cooley and they were super supportive in figuring out all these different structures. Like, we had to set up all these different entities due to regulations and and it was a pretty complicated process but in the end, I think if you need to spend time now to make sure that you are fully compliant, it's completely worth it to do it that way versus like trying to do rush things or trying to cut corners when trying to do a token sale.

Adam Chapnik:

Amazing. Well, Muneeb Ali, co-founder of Blockstack. Thank you so much for joining us live from New York for today's ICO spotlight.

Muneeb Ali:

Absolutely, thanks for having me.

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