Basic Research vs Equity Financing Budget Allocation

Hi Everyone, I was hoping we could initiate a discussion about possible budget allocation between R&D projects intended to originate IP and equity investments intended to initiate equity appreciation. I feel like both options are great for delivering against our mission of advancing Longevity therapeutics, but each has different risk profiles.

Questions to start the discussion

  • How should we make portfolio budget allocations between these different types of investments?
  • How might we have application and review processes that are catered to each type of investment?
    (probably more!)
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I think the initial defined budget for the IP projects was in between 250-500k. I think the value proposition for these two different categories will be more meaningful after a round of reach-outs and feedbacks. Maybe transparency is the key here, sharing the outcomes of the reach-outs with the community.

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Has anyone modelled a pro forma budget for VitaDAO operations, and integrated treasury management income generation options? Then we could produce a sensitivity analysis of the various scenarios that might be proposed.

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It would be great to have a good balance between basic research projects and equity financing, although in my opinion we should give more weight to basic research as a long term goal. Independently of the weight of one or the other type of financing, I think it would be important to focus, specially at the beginning, on projects close to produce IP (in the case of research) or close to produce equity revenue, in order to show the validity of the model for future token auctions.

I agree with the comment by @Alev above. It’s key to have the landscape of options available and share them with community, maybe accompanied with a recommendation, so it can be voted.

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There is a budget in terms of running costs made and will be shared with the tokenomics proposal - but definitely, a need also to create one for potential income of the DAO.

When we are ready, I am happy to help pull that together.

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Hi Ben - Hopefully the best projects always get funded, regardless of whether they are IP or equity driven. We could propose a simple cap to enforce a minimum portfolio construction (say no more than 80% to one category or the other), but generally I think good construction for a portfolio where we should expect power law outcomes, which is what we’re dealing with here, should focus on the best projects/teams/markets first vs the mechanism to translate value to owners.

Regarding review, I would propose four key components to assessing projects, whether IP or equity focused:

  • Importance/magnitude of opportunity - this is sort of a market question, how many people can this help x how severe is the issue being addressed?

  • Conviction/probability of success - this requires an assessment of the science and the team. Team is often underrated as an evaluation criteria in health tech investing in my experience. I would argue team is more important to the success of any given project than the science. The DAO could serve a valuable role of pairing stronger team with huge magnitude opportunities and good science.

  • Discounted financial returns for baseline success - these estimates are always wildly off, but it forces a mathematical expression of the market/science/team from above.

  • Community development/marketing - we should embrace the virtuous cycle that as we fund projects, it will create media events that can help build awareness of the DAO which could help increase our ability to fund, etc. Doesn’t mean that we should fund projects just because they might be good media, but it is worth at least considering as a benefit to our broader ecosystem.

Would love to hear how anyone else is thinking about it?

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To @Doug 's point, I think this is where there may be some tension between VitaDAO’s valuation versus innovation in funding longevity research.

I would suggest that our portfolio should reflect the fact that we are trying to get as much promising research its first chance to develop. With only ~5-6m available to start, we are not a “serious player” in the funding world - at least not yet - and do not have the capacity currently to go beyond smaller initial stage equity investments, or IP build-out. So I would say that Conviction/Probability of Success as @Doug noted above, is the most important factor on his list.

On the “business” side - I think there is both an optical and a practical approach to this. Funding good teams, and getting incremental wins in the form of research outcomes/IP will show that a DAO can be an effective partner in funding this kind of research. Showing some sophistication in terms of deal structure (IP/equity) and strong treasury management is going to show the legitimacy of VitaDAO as a vehicle for cooperative investment ventures: DAOs have had a troubled past - we have the responsibility to raise the bar.

Our sweet spot for involvement is in the pre-clinical space; it also puts us furthest from most forms of exit event or revenue stream. That means for VitaDAOs operations to continue, we must balance between self-funding through treasury management revenue streams, issue more tokens, or we are fortunate enough to have an early licensing/sale of IP in one or more projects.

In the absence of IP ownership by VitaDAO, which I think is the preferred vehicle for long-term value creation , I think equity makes sense when the science/team is strong with a high probability to succeed or if an opportunity is close to a revenue or exit event. So if a David Sinclair or one of the well know names are involved and we want to be seen as being part of the win optically, then equity may be the path.

As to the ratio of how much we spend from our current funds, that is a financial modeling exercise (which I am happy to contribute to). The decision criteria should include how well do we think we can perform in treasury management in terms of raising recurring revenue from fees, arbitrage, etc. The next question becomes when do we go for the next raise of capital - this will be where the tension between some token holders will manifest.

From a DAO valuation point of view, the valuation of IP is harder to pin down than the valuation of equity.

Once we establish our going concern budget requirements, and model the revenue streams from our current assets, the rest will be fairly easy to model and do some sensitivity analysis on.

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