Industrializing the “work-for-sweat-equity” model
Sweat Equity Ventures is a new venture concept that trades operational and recruiting expertise for equity in startups but it doesn’t scale.
“We are industrializing the work-for-sweat equity model” Kevin Monserrat at Consilience Ventures
A bold new concept creates win-win situations for startups and investors, giving both sides exactly what they want. Let’s find out more.
Traditionally, when entrepreneurs need money to scale their startups, they raise funds from investors in exchange for equity in the business. However, this model can leave both sides feeling short-changed.
Research from Forward Partners proves that entrepreneurs want more than money from their investors:
- 59% of founders feel duped by the value-add compared to what they were initially promised
- 49% of founders said that value-add had zero impact on their business
- 47% believe their investors had little knowledge of the sectors they invest in
From the investors’ point of view, there is a high risk of putting in long hours to help startups but not seeing a return. When you’ve been an expert in an industry for 20–25 years, you’re not interested in working for $500 per day; you’re looking for an intellectual challenge with a significant reward at the end of the journey.
So, how can we address this situation and give both sides what they want? The answer is by tokenizing sweat equity. In this article, we’ll look at how and why it works.
How it works
Sure, startups need investment to succeed, but more than that, they need publicity and profits. To get publicity and profits, you need people. But you can’t get people without money, and you can’t get money without traction, not from most European VCs anyway. You are often too early 😅.
Tokenizing sweat equity works in this way:
- Startups convert a proportion of their equity into tokens. Blockchain is the best platform for creating trust and liquidity
- Entrepreneurs can then access a network of curated industry experts across a wide variety of disciplines. They pay for their services using their tokens
- Experts now hold tokens in exchange for their work. As the value of the startup grows, the value of their tokens grows with it, giving experts ‘skin in the game’
Where it gets really smart is that multiple startups use the same token, creating a portfolio of companies. When you hold that token, you hold a share of the value of the entire portfolio, reducing risk and maximizing value.
It’s a simple solution to a complex problem — one token for the entire tech world, a currency for entrepreneurs.
Why tokenize? Welcome to Agile Financing.
Compared to traditional investment models, tokenizing sweat equity brings startups several advantages:
- Reduced risk — the experts you select have a bigger incentive to perform
- Increased speed, performance, and valuation — too many startups raise money too early in their journey, and they never get to raise any more because they are already too diluted
- More trust and liquidity — trust is the foundation of the relationship between entrepreneurs and experts. The exchange is always liquid
- Raising with less pressure on cash flow — convert your equity in tokens to get cash.
However, tokenizing also creates win-win situations where experts and investors in tokens can also benefit. Experts can invest their time in exciting startup opportunities rather than their savings — and make more money. They can also climb the VC equity ladder. Token investors can place their money in a vehicle where risk is reduced, fees are minimal and returns are high. This is an excellent opportunity for VCs, who can effectively become end-to-end accelerators without changing their models.
It all comes together to create an ecosystem where everyone is aligned and pulling in the same direction to build successful companies with big profits.
Solving challenges
The concept of sweat equity solves a significant number of the problems that startups face right now:
- Years of grinding with no guarantee of success
- Raising funds typically involves giving away a disproportionate share of your business
- Your investors may not be the right people you need to help grow your company with the right level of expertise
- Some investors tend to give more attention to the more prominent names in their portfolio at the expense of other startups
- Access to talent is vital as you create a business model that is scalable, repeatable and profitable, but talent is expensive
But when you introduce sweat equity into the mix, these challenges seem less insurmountable.
Entrepreneurs get access to a highly-curated network of experts who can provide the hands-on support they need to grow, but they can do it without money. Because experts have skin in the game through the value of the tokens they earn, they will give their startups their full attention and go the extra mile to help.
Tokenizing sweat equity is not a guarantee of success, but it makes success much more likely, along with a higher valuation when you get there. In addition, it helps reduce the impact of luck, so if you win, it’s because you found customers, not because you found investment.
Advantages over accelerator programs
Some startups will go down the accelerator program route rather than the traditional VC model. It’s fashionable, and it can deliver more infrastructure and expert input than you get with most VCs. However, accelerators have their downsides too. After being promised the world, when entrepreneurs get to their accelerators and peek behind the curtain, they’re often disappointed by what they find.
Accelerators can only offer a one-size-fits-all approach rather than a program tailored to the specific needs of each individual startup. As a result, startups will often find themselves spending time on things that aren’t essential for their specific needs, like marketing seminars and CEO round-tables. Accelerators will help you grow your network and get you in front of investors at the end of the day, but they’re not great for turning your startup into a business.
The sweat equity concept gives entrepreneurs something different — LinkedIn’s co-founder is betting big on it. But with Consilience Ventures your tokens are your own, and you can spend them whenever you like and how you wish — on the right services for your business at its current stage. You also grow a better, more beneficial network, at a deeper level. Sweat equity connects the world — and in a space where your network is your net worth, the connections you will make could be invaluable.
Why would the best startups take CVDS instead of cash when there is so much cash in the market?
Because the value of the best startups grows very fast and that CVDS is their only chance to hold a digital-currency that follows their performance. Consequently, their purchasing power increases which cash fails to do.
The mission that leads to impact
Consilience Ventures is creating the world’s biggest tokenized sweat equity ecosystem. We have the startups, the investors, the experts and the tech to underpin it. No one has pushed the model as far as we have from a technical or legal standpoint.
We’re creating a world where startups grow, experts get paid and investors make returns. We’re creating automated systems that allow startups to earn as they achieve preset milestones. Plus, the more data we capture, the more accurate our picks regarding which startups to work with. Our vision is to have more than 1000 startups on board by 2031.
As well as democratizing the world of venture capital, Consilience Ventures is on a mission to promote social mobility. The technology allows tokens to be exchanged wherever you are in the world, whatever your business model. Tokenization removes the need for capital for pre-series A startups, so if you can create something that people love and scale while making a profit, you have a better chance of success than ever before.
Whether you’re an entrepreneur, expert, or investor, there’s never been a better time to get involved in tokenized sweat equity with Consilience Ventures. If you’re in the UK, you can take advantage of R&D tax credits which can make you even more profitable.
