CONSILIENCE VENTURES RESOURCES & NEWSROOMS
Thoughts and opinions on industry topics and company updates.
CV is membership platform for tech start-ups/early stage entities, experts and investors.
Start-ups can swap a percentage of their equity for tokens issued by CV (known as CVDS), which they can then spend on expert services provided by other members of the platform.
Experts are more willing to work for ‘sweat equity’, as CVDS gives them exposure to the entire CV start-up portfolio, rather than just equity in the start-up they work for. Therefore, working for CVDS is less risky. Experts can sell their CVDS within the platform, so they do not have to rely on the relevant start-up having an ‘exit’ event (IPO/trade sale etc.).
Investors can buy CVDS from start-ups (who may have excess CVDS not yet spent with experts) or from experts themselves. In the early stages, investor members can also acquire CVDS from the UK operating company (PK2M Limited, FCA authorised) which is itself a start-up on the platform. The company has swapped 10% of its equity for CVDS and acquired additional CVDS in return for services provided to CV (development of the blockchain and other infrastructure, marketing of the platform etc.).
IMPORTANT: Consilience Ventures is NOT a for-profit BUSINESS; its ONLY GOAL is to generate high returns for members and CVDS holders.
CV has invested in 4 start-ups as of June 2020, including the parent company PK2M Ltd. This means that all CVDS holders have a financial interest in the company behind Consilience Ventures.
In the start-up world, timing and time-to-market separates the winners from the losers. Start-up founders spend more time raising capital than growing their businesses – and they cannot focus. Additionally, every actor (start-ups, investors, service providers) in the start-up economy has a different, incompatible agenda. The CV model resolves these issues.
Start-ups benefit from a curated network of experts with a vested interest in their long-term success. It’s easier and more efficient to pay with CVDS than raising capital. In the past, start-up CEOs were focused on raising capital before accessing talent and expertise. Today, CV helps them to focus on growing their business and winning market share.
Experts work for CVDS, which appreciates with the performance of the portfolio, providing significant upside if the companies perform, with very little downside risk. CVDS is the ultimate response to address the lack of liquidity in the private market. Experts benefit from larger upsides and a bigger return on time invested. Plus, they can forget about late payments and running after their money.
Investors can leverage a network of curated experts to select and accelerate companies for free. They can sell CVDS without distracting the portfolio companies and without expensive legal fees. If the investor prefers to be sector specific, he/she can invest directly in companies whenever they wish.
The premise of the CV model is to enable angels/investors to:
● Invest in more high-growth companies faster, at lower risk and cost
● Monetize your time when adding value to CV in areas such as:
○ participating in start-up DD (CVDS from above)
○ working for the portfolio companies (CVDS from the companies)
● Benefit from a larger pool of experts to work with your portfolio companies
We are a community. The health and success of this community is dependent on the depth of your involvement, interaction, and contribution. We all need help to grow and get smarter.
The benefit to you? Spending time with other top professionals, helping to grow CV (increasing the value of your investment) and learning by working with exciting new start-ups.
CV network operates on the CV platform, which is built to:
• reinforce the integrity of the network
• improve efficiency of dealing with large and multi-stage deal flow
• enable safe CVDS transfers
• unlock a unique data-set that serves the whole network
• pick better companies to invest in
• better support their growth
It means a few things:
• Access to diversified risk (skin in the game, but with less risk)
• Access to what we forecast are industry beating returns.
But, it also means working for an asset that is illiquid at the moment and will be for the next 3-5 years while we build (the same as start-up sweat equity). As a rule, we ask you to keep to a maximum split of 70:30 CVDS to cash for your work. Just like sweat equity, your time is an investment – it carries risk, but also potential reward.
Time is a factor, of course. But, we also value speed and volume. More start-ups, faster means more momentum within the community. This creates more data which leads to more knowledge, which leads to better results. Our current focus is on getting this machine going.
While CV could operate with a minimal amount of cash, there are early signs that large institutional investors are interested in deployed capital (investment and grants) via one single platform across the EU. Getting the interest of institutional investors would greatly enhance our capacity to impact entrepreneurs.
CV’s success is ultimately measured on the value of one CVDS, and the growth in CVDS value will grow CV itself.
The investment is expressed in fiat currency (primarily GBP). The minimum investment is £25K, up to £250K maximum during year one, to maintain a homogeneous balance in the network.
This will evolve as CV gets exposed to bigger deals and receives more interest from much larger investors. The number of CVDS that an investor can acquire is determined based on the current known value of the CVDS and the amount of capital invested.
The CVDS is a portfolio token. It’s an equity-backed security. Investing in CVDS means getting exposure to the entire portfolio. However, investors have the right to invest in the underlying start-ups without going through the CVDS – getting direct equity. However, in this case, they won’t benefit from the inherent advantages of CVDS:
• More liquidity
• Diversification at low cost
• Increased transparency
To date, directly investing is a manual process happening away from the CV platform. But, CVDS investors have the right of first refusal. The priority is established by the amount of CVDS held by the investors. The more CVDS the investor owns, the higher the investor will be in the waiting list. As CV platform develops, all direct investments will be handled in one place and digitized.
● PK2M have budgeted the cost building and maintaining Consilience Ventures Operations for 10 years – in accordance with the PK2M and CV Software Development Maintenance and Support Agreement.
● We estimated that the value of CV was worth £10m, including IP, business model, network, branding, technology, legal framework. (IP Inventory document available)
● CV has issued 2 years of CVDS equivalent to PK2M to build and support CV platform. CVDS was valued at £10 the unit to define the number of CVDS that PK2M had to receive. These CVDS are managed and not owned by PK2M to serve the development of CV. PK2M pays CV operations handled by CV members in CVDS in accordance with the PK2M and CV Software Development Maintenance and Support Agreement.
● Each time a new start-up issue shares to CV, the value of the start-up’ s shares are divided by the value of the CVDS pre-investment to calculate the number of CVDS to be issued.
● The new value of the CVDS is equal to the total value of the portfolio (AUM) divided by the number of CVDS in circulation.
● The value of the CVDS does not go up when CV makes a new investment, the CVDS is only more diversified and exposed to more growth potential. New investments mean less risk.
• CV is democratic, designed to decentralize decisions on essential matters including:
- Admitting members (Start-ups, Experts and Investors)
- Investments made in Start-Ups
- Distribution of income and gains received by CV, following a liquidity event in the Start-up portfolio
• PK2M may form sector-specific committees for enhanced effectiveness. This committee (e.g. G8, MedTech and Fintech) will define the appropriate processes and execute them accordingly.
• A Process Review Committee may be formed to assess the conformity with the defined process, with a view to achieving standardization of decision processes across the board.
• All committees have a defined mandate.
• Once the committee process has been completed and a decision made to recommend a Start-up, Expert or Investor admission, investment or disposal of a portfolio company, the members vote on such recommendation.
• The CV portfolio valuation is currently based on events. E.g. a start-up fails and goes into litigation or closes a new round at a new value.
• The roadmap to increase the frequency of CV portfolio valuation is as follows:
o Bootstrap Year 1: The portfolio is revalued on a yearly basis. However, there are checkpoints to control the process of the portfolio – tickets and sprint financing.
- Bootstrap Year 1: The portfolio is revalued on a yearly basis. However, there are checkpoints to control the process of the portfolio – tickets and sprint financing.
- Year 2: Use the Sprint Finance as a period for re-evaluating each start-up and re-evaluate the CVDS accordingly.
- Year 3: Data-driven re-evaluation based on a dynamic start-up valuation, tickets, risk, and maturity profile.
• PK2M received CVDS in exchange for 10% of its equity. It is also entitled to CVDS for its work in developing, maintaining and operating the CV Platform under a Software Development Maintenance and Support Agreement.
• The CVDS PK2M receives under the Software Development Maintenance and Support Agreement is designed to enable PK2M to meet its annual expenses. Rather than receiving cash, PK2M must sell its CVDS to generate cash.
• PK2M will receive the distributions from CV like any other member for the CVDS it holds pursuant to the equity swap, but has waived its entitlement to distributions in respect to CVDS issued to it under the Software Development Maintenance and Support Agreement.
• The amount of CVDS created for software development and network building under the Software Development Maintenance and Support Agreement will be less than 3% of the Total Asset Under Management over 10 years.
• CVDS issued for the development of CV Platform and network adds value to all members, as it re-enforces the CV value proposition.
• CVDS received from the PK2M under CV Software Development Maintenance and Support Agreement are also used to pay CV members to operate and maintain CV network and the CV platform, including:
- committee members
- special projects
- CV directors
- review committees
- due diligence etc.
• PK2M may set aside no more than [10%] of the CVDS it receives under the Software Development Maintenance and Support Agreement to incentivise [the founders, employees, consultants] and such persons will be entitled to distributions from CV like any other CVDS holder.
The investment period is expected to be 3 years. However, this cannot be guaranteed.
We estimate this period on the assumption that larger investors will acquire CVDS from members when it manages more than 100 investments. At this time, CVDS will be less risky than investing in a VC fund of 20-30 companies – too concentrated. Investors can sell part or all their CVDS to one or many buyers at the same time. The liquidity depends on the potential of the portfolio. The bigger the portfolio potential, the easier it will be to find a buyer. Nothing prevents CVDS holders from selling CVDS to a buyer before the estimated 3-year period.
Whilst CVDS are more liquid and less risky than shares, their economic value is remarkably like traditional start-up shares, without the same dilution effect.
CVDS are secured equity acquired from the start-ups by Consilience Ventures in exchange for the investment. The CVDS are created only when a new start-up joins the CV network. The amount of CVDS are calculated based on the value of equity acquired at the time of investment, divided by the value of the CVDS prior to the investment. This works exactly like any normal investment (pre-money and post-money investment). The only difference is that investment is made in CVDS instead of fiat currency. The total value of CVDS is equivalent to the total value of the entire portfolio.
The safety nets for managing risks are as follows:
• A built-in diversification approach covering several dimensions:
- Start-ups development stage based on the maturity of the product and business model (we have a detailed assessment process to qualify the stage)
- Business sectors (Fintech, Healtech, Agritech…) versus General Purpose Technologies (AI, Blockchain…)
- Value of the start-ups, correlated to the two above items while providing another diversification factor
• We mitigate the risk of token valuation by investing only small amounts of CVDS in start-ups – by tranches, to validate that they hit their milestones.
• If the venture company fails, its value is withdrawn from the CVDS value. For example, 100k investment made in CVDS will have created 10,000 CVDS (at today’s value). If the start-up fails and goes down to zero, these 10,000 CVDS will fall to zero. But, that 100k is part of a pool of 1.1 million CVDS today – so CVDS holders are only impacted by 0.009%. Of course, if CV portfolio companies have grown by 0.009% in total since CV invested in the start-up that failed, the CVDS value will still be the same.
• CV de-risks investments by surrounding them with highly-curated experts and investors. Additionally, we run a data-driven approach to systematically monitor and assist the start-ups. This mechanism provides early signals for identifying risks and the need to help start-ups. The ecosystem (community) is not only aware of the “health” of the portfolio but becomes active in helping where needed.
(For example, if the entity no longer operates, how are new CVDS issued and what is the impact on the current digital tokens in issuance?).
If PK2M fails, does CV fail? How do investors get comfortable with the apparent conflicts of interest here?
CV was created to exist without PK2M Ltd. This is reflected in our corporate structure.
CV is not owned 100% by PK2M. The legal documentation is structured so that PK2M initially controls the governance of CV. But, longer term, once the Platform achieves maturity, control will be transferred to the CVDS holders. Until this time, all economic rights belong to the CVDS holders – they control all distributions of assets from the CV Portfolio of start-ups and which can only be made to such holders and not to PK2M or any other person (save in their capacity as a CVDS holder and pro-rata their holdings).
Specifically, PK2M holds 100 A Shares (carrying all voting rights, but not entitling the holders to any economic interest in CV). The Consilience Ventures Foundation owns 100 B Shares (currently non-voting and holding all economic interests in CV). Although PK2M has voting control of CV at present, this effectively gives it governance control only, in the sense it can appoint the directors of CV. The directors must, of course, act in the best interests of CV (not PK2M) and the majority of the directors are independent of PK2M.
When a ‘Conversion Event’ occurs, the CVDS holders (in their capacity as beneficiaries of the Consilience Ventures Foundation, each CVDS holder automatically becomes a beneficiary of the Foundation) have the right, by passing an Ordinary Resolution, to convert the Class B Shares into voting shares which will automatically result in the Class A Shares becoming non-voting. A Conversion Event is defined as the earlier of (i) the aggregate number of Start-Ups on the CV Platform at any moment in time reaching 1001 (one thousand and one) and (ii) the 10th anniversary of the first issue of tokens by the Token Issuer.
In any case, the Deed Poll (whereby CVDS are constituted by CV (the Issuer)) gives CVDS holders effective economic control of the start-up portfolio held by CV by giving them the following rights:
• “To vote on the following matters in their capacity as CVDS holders and in respect of which each CVDS holder shall be entitled to one vote per CVDS (or fraction thereof) held:
- the distribution of any net income or net gains or any capital distribution by the Issuer to all CVDS holders out of the CVDS Portfolio (including on a solvent winding up of the CVDS Portfolio);
- the distribution of any net income or net gains or any capital distribution by the Issuer to the Consilience Ventures Foundation as holder of the Class B shares of the Issuer out of the CVDS Portfolio;
- any proposed sale of or the creation of any mortgage, charge or other security over, the CVDS Portfolio or any portion thereof by the Issuer; and
- any proposed offer by the Issuer to repurchase, redeem or ‘burn’ all or a proportion of CVDS held by all CVDS holders.”
CVDS are issued by CV pursuant to a decision of the Board of CV following approval by the CVDS holders.
Although PK2M performs a significant role in identifying start-ups, experts and investors for membership of the CV Platform, CV can continue to operate without PK2M – in practice it would need to appoint another entity or hire individuals to perform PK2M’s role as CV does not have any staff (other than its directors). But, PK2M ceasing to be involved would not technically affect the existence of CVDS already issued, nor CV’s ability to issue further CVDS in exchange for shares in new start-ups etc.
Moreover, under the Software Development, Maintenance and Support Agreement between PK2M and CV, CV owns the IP developed and CV can terminate the contract if PK2M is in breach or goes into liquidation. It can then engage someone else to continue the development and operation of the Platform.
Although in principle PK2M (or a liquidator) could sell its shares in CV to a 3rd party, in practice, any such sale or transfer is subject to approval by the CV Board of Directors. It is difficult to see why any third party would buy such shares (as they have no economic value) without also negotiating some kind of contractual agreement with CV to act as software developer in place of PK2M nor that the CV Board would approve a transfer in favour of a person who was not adding value to CV and the CVDS holders.
Finally, the Board of CV can compulsorily repurchase or redeem its shares and so effectively cancel them. If the Software Development, Maintenance and Support Agreement were terminated (due to breach or liquidation of PK2M) the Board would likely do so. Also, it is worth noting that the majority of the directors may remove a director and appoint additional directors – so the independent directors could remove the current single PK2M representative if they so wished.
We believe the combination of the structure outlined above and the legal documentation which supports it means CV and the CVDS holders are as well protected as possible. It is certainly true that CV is currently dependent on PK2M to build the Platform and undertake a lot of the day to day operations but CV has the ability to appoint someone else to do this if PK2M defaults for one reason or another. Worst case PK2M’s default does not affect the CVDS Portfolio of start-ups which belong to CV and only CVDS holders may participate in the proceeds of sale of such assets and any income received. Hopefully, this is an academic point, but in practice perhaps little different from the position where the GP of a VC Fund is terminated or defaults.
We would be happy to provide all the supporting documentation if that would be helpful.
PK2M did a first pre-seed round to validate that Consilience Ventures’ four pillars were possible:
• Growing the network and market research
• Building the right tokenomics model
• Structuring PK2M and CV with the most appropriate jurisdiction and legal framework
• Overcoming technical challenges to grow globally
PK2M Ltd was valued based on:
• The amount of CVDS received to grow CV for the next ten years
• CV’s potential to transform the start-up economy
• The return on investment it will get from growing CV and developing unique tools for Investors, Experts and Start-ups.
It has also raised equity from angel investors.
We have benchmarked PK2M’s valuation with Entrepreneur First, 500 Start-ups and TechStars companies at the same stage as us. None of these broadly comparable companies have a technology-first approach that lead to the unique data sets that will continuously improve our selection process.
CVDS are only created when new investments are made. The more CVDS, the more diversified and less risky the CVDS becomes – the value remains the same, but the potential is bigger. The CVDS created to run and grow CV network globally are capped to 3% of the AUM for the next ten years. This makes CV a far more attractive asset class for investors as it is more cost-effective and more aligned with allocators’ interests.
All members have the possibility to take roles within CV to earn CVDS too.
As CV grows and expands into new countries, we would seek to make investments in the local market with the currency of the investors. For example, if we have lots of RMBs (the currency for China), we would seek to invest in Chinese companies – reducing the transaction and exchange rate costs.
Less than 50% of employee remuneration is paid in cash. The rest is paid in CVDS on the same scale as other Experts in CV. This incentivises and aligns employees to the success of CV.
The CV platform will capture significant data that current insights providers like Crunchbase, Pitchbook, Beauhurst and others do not have access to. These insights providers only capture static, survey-based data. This makes their data irrelevant very quickly, and added with the information asymmetry, it can often be misleading or simply not up-to-date.
CV platform is an entrepreneurial ecosystem that captures real-time behavioural data through the ticket system and Sprint Financing. Combining such insights with other financial information automatically pulled from accounting software puts CV in a unique position to see what works and what doesn’t much quicker than humans can see. Putting these insights at the disposal of our founders should help them make better decisions.
CV offers 3 core benefits to corporates and VCs.
• Knowledge & insights
• Insights and knowledge about new tech trends
• Early insights in funnel for potential partnerships (for tech providers)
• Data access (long term)
• Expertise / services
- Due Diligence (CVCs)
- Network access
• Business & Marketing
- Co-investment opportunities
- Co-partnership with start-ups
- Marketing (newsletter, website, social media, PR)
- Co-branding industry specific events
- Feature on our member on-boarding pack
The founders of CV are all EU/UK citizens and residents and would have preferred to form CV in the EU, UK or Switzerland. However, a combination of legal, regulatory and tax considerations made this impractical as explained in more detail below. If and when such circumstances change we will consider redomiciling to the UK/EU and or establishing an onshore parallel vehicle.
CV was established in Cayman for the following reasons:
• Tax neutrality at the CV/issuer level: If/when CVDS holders receive distributions (by way of redemption or dividend type payments) when a Start-up has a liquidity event (trade sale, IPO etc). and they will, depending on their country of residence and or domicile and own tax status (pension fund etc.) pay tax at that time – just as they would if they had held the position in the underlying Start-up directly or through a typical venture capital fund. However, since CV is a corporation (and would not get a tax deduction on making distributions) it was necessary to establish CV in a jurisdiction which did not impose tax on gains made by CV as there would otherwise be double taxation. As an investment company CV was not be eligible for any low or zero tax regimes even in countries such as Ireland, Luxembourg or Malta as CV is not a ‘fund’ nor a passive ‘holding company’ (both of which are sometimes able to take advantage of local tax exemptions).
• Decentralised Structure: To create a decentralised structure (where the CVDS holders ultimately own and control CV) it was determined to form a ‘foundation’ to own the CVDS issuer, consistent with many other decentralised blockchain structures and we concluded Cayman had the most appropriate foundation law for our purposes. Having decided to form the foundation in Cayman it was more efficient to have CV formed their also rather than in some other offshore jurisdiction.
CV has invested 100,000 CVDS in PK2M for 10%. PK2M is both a portfolio company and a service provider of CV. So CVDS owners are also benefiting from the success of the management company.
CV does not hold cash and will never do. CV only creates the CVDS, while PK2M acts as a temporary buffer between investors and new investments. PK2M sold CVDS to investors and used that cash to acquire newly created CVDS (when new investments are being made).
Yes. Investors that introduce us new investors get a success fee. Also, members referring opportunities can get a maximum of 3% of the total number of CVDS invested during the first year.