VDP-113 [Governance] - Incentive Structure Framework for IP-NFT Deals and Equity Assessments in VitaDAO

Proposals
1

Summary

This proposal aims to outline a comprehensive incentive structure for sourcing, evaluating, and executing on IP-NFT deals and equity assessments within VitaDAO. The goal is to ensure the highest quality deal flow at the most cost-effective price, leveraging the network effect of DAOs and incentivising individuals to actively source and evaluate potential projects.

TL;DR: Dealflow and Incentives Timeline | Miro Board

This proposal amends Section 5 of VDP-26.1

Team

@gweisha

Implementation

The proposed incentive structure covers the following steps:

  1. Sourcing
  2. Evaluation and Diligence
  3. Deal Terms and Negotiation
  4. Minting IP-NFT, IP-Ts and Funding Projects
  5. Milestones and Research Management
  6. Successful Spin Out and Licensing

1. Incentivising Sourcing

This incentive structure is designed to reward quality. Rewards are given when the project passes through multiple quality checks and when a funded project hits its milestones. In order to encourage quality deal sourcing, incentives should be aligned with high quality scores (average aggregate score of 4 or more according to this framework).

The incentive structure for sourcing projects through to spin-out creation is as follows:

  1. Project referral: The individual who brings in a project and completes the application form is designated as the Project Referrer.
  2. Initial quality check: The project undergoes an initial quality check. If it passes the phase 1 vote in Discord, the Project Referrer is rewarded (1st quality step, see Figure 1).
  3. Selection Process: The Project Referrer can choose to participate in the selection process if they can serve as Project Shepherd. If not, a Project Shepherd can be assigned by the DAO dealflow working group.
  4. Project Evaluation: Once the initial phase 1 quality check passes on Discord, the project is evaluated and shaped by the Project Referrer/Project Shepherd to close knowledge gaps and define important areas for further evaluation and due diligence.
  5. Information Sharing: The Project Referrer shares more (confidential) information for review or connects with researchers/TTOs.
  6. Independent Review: An independent senior review is carried out by 3-5 domain experts.
  7. Iteration: Feedback from senior reviewers is used to make recommended iterations to the project
  8. Quality Check Reward: If the project receives an aggregate score of 4 (post-incubation) or greater with a confidence interval of 3 according to this framework, the Project Referrer is fully rewarded according to the 2nd quality step. If the Project Shepherd is not the Project Referrer, the rewards from Incentive Milestone 2 will be split in a 60:40% ratio between the Project Referrer and Project Shepherd.
  9. Project Funding Reward:

  • IP-NFT: If an IP-NFT is minted and the project is funded, the Project Referrer, Deal Squad, and (if applicable) Project Shepherd are rewarded in a combination of cash, tokens, and IP Tokens (IP-Ts) as part of the minted IP-NFT. If the Project Referrer is not the Project Shepherd, the rewards from Incentive Milestone 3 will be split in a 50:30:20% ratio between the Project Referrer, Project Shepherd, and Deal Squad. If the Project Referrer is the Project Shepherd, rewards will be split in a ratio of 60:40% between the Project Referrer and Deal Squad.

  • Equity Assessment: If a project is funded, the Project Referrer, Deal Squad, and (if applicable) Project Shepherd are rewarded in a combination of cash and VITA tokens. The incentives distribution will follow the ratio as referenced in section 9.i).

  1. IP-NFT Milestone Reward: Project Shepherds are rewarded both in cash and IP tokens (IP-Ts) if the project hits project milestones. If the Project Referrer is not the Project Shepherd, the rewards from Incentive Milestone 4 will be split in a 30:70% ratio between the Project Referrer and Project Shepherd.
  2. Spin-out or Licensing Reward: If a project is spun out or licensed, there is a reward to the Project Shepherd. If the Project Referrer is not the Project Shepherd, the rewards from Incentive Milestone 5 will be split in a 30:70% ratio between the Project Referrer and Project Shepherd.

Figure 1 outlines the proposed incentive structure. Please refer to the reference framework for detailed incentives timeline

Figure 1

image
image1308×842 156 KB

Total maximum cash compensation for a successful project is then $10,000 with up to 1.5% of IP-NFT ownership.

2. Incentivizing Evaluation and Diligence

The evaluation and diligence process is crucial in ensuring the quality and viability of a project. It is essential that the individuals involved in this process have expertise in the relevant areas, as outlined in the review framework. The incentive structure for evaluation is designed to be less binding to the project itself to maintain objectivity and unbiased assessments. Therefore, the evaluation is conducted by people that are and will not be involved in the project at all. Ideally, each project is evaluated by 3-5 independent experts.

The incentive steps for evaluation are as follows:

  1. A call is made to find domain experts for senior review to evaluate the project and identify important areas of due diligence. This step might require active outreach to area experts by the Project Shepherd.
  2. Experts can choose to evaluate the project based on a written deliverable using the following review framework. Preferably, the evaluation will be discussed in a non-confidential call between the senior reviewers moderated by the Project Shepherd and visible to DAO token holders.
  3. Feedback from domain experts is gathered and an aggregate score is determined.

Figure 2 outlines the proposed incentive structure for evaluation:

Figure 2

image
image1401×559 80.5 KB

3. Deal Terms and Negotiation

Individuals should be incentivized to negotiate the best possible deals, with optimal licensing terms for each project. At the DAO level, a standardized set of terms should be accepted by token holders via governance to standardize optimal terms for the DAO. As part of this structure, DAOs should propose incentive frameworks that provide a bonus incentive for achieving deal terms within or better than this standardized range.

This role should be reserved for trusted, experienced, and competent individuals, given the sensitivity and university-facing nature of the role. We suggest having a dedicated person that is able to cultivate and maintain longitudinal relationships with universities, and whom members of the DAO trust with such outward facing interactions.

4. Minting IP-NFTs, IP-Ts and Funding Projects

Once deal terms have been successfully negotiated and a project is ready for funding, an IP-NFT or IP-Ts can be minted. Minting an IP-NFT enables finalized terms, an SRA or CRO agreement between funder and university, and an assignment agreement of rights to the DAO. When an IP-NFT is minted and the DAO holds it, all of the rights and obligations imbued by the contract are controlled by the DAO.

To raise additional funding, enable more granular governance, or tap into additional sources of liquidity, the DAO can opt to mint IP-Ts, in essence creating a mini-DAO for the asset itself, and offering DAO members or outsiders to participate in the governance of the IP.

Molecule should determine additional minting-related incentives at the protocol level. These will be proposed.

5. Milestones and Research Management

For every project funded, payouts should be structured around at least three milestones that continuously demonstrate the increased likelihood of the project to succeed. The creation of milestones that are positively predictive of project success is key to ensuring that projects move forward and that capital is effectively managed and deployed.

VitaDAO recommends a 1% cash or token equivalent payment for every milestone successfully completed, plus a 0.5% asset stake in IP-Ts. This aligns the short- and long-term success of the project, and also encourages the Project Shepherd to continuously manage and check-in on the research.

Milestones should also be accompanied by research reports compiled by the researcher with the support of Project Shepherd. We suggest the creation of a bounty of $150-300 in cash or token equivalent for the creation of such research reports, which are of high value to token holders and funders of the DAO.

6. Successful Spin-out and Licensing

Governors of IP-Ts (or the IP-NFT) have the ability to dictate licensing terms or encourage ethical encumbrances for the licensee, including the empowerment of patient groups at this stage. Possible ways to incentivise the participation of patient groups and still encourage regular market participants (VCs and otherwise) to fund projects for achieving clinical milestones and market entry could be as follows:

  • Uncapped upside with 5-10% kickback to patient advocacy groups from all receipts related to the underlying IP-NFT rights.
  • Members of advocacy organizations receive a discount on the drug/product market price.
  • Advocacy or patient organizations become a part of the cap-table.
  • Buyout occurs, but members participating in governance can still suggest guidelines for therapeutic development.

Feedback and suggestions from the community are welcomed to refine and improve this proposal.

  • Agree
  • Agree with revisions (please comment)
  • Disagree
0 voters
2

  1. It would be great to also see how the new proposed framework compares to the current one.

  2. Also, are all the incentives applicable regardless of the status of the individual? E.g. if I work for VD full time, do I also get all the incentives? Do the incentives stack if e.g. I was the project shepherd, then EIR/Builder, etc?

1 Like
3

This is such an exciting proposal and one I was hoping would be proposed for a long time.

The only suggestion I have is that the VITA rewards should be vested now that those contracts are in place. Other than that I think this is a great start and should be iterated once we have some data as to how this improves the speed and quality of projects, and if and where in the pipeline they get stuck.

Awesome job @gweisha !!!

4 Likes
4

Reminder: for those that disagree, please explain why.

5

IMO the %s need to be adjusted. Referring a project is typically a much smaller job than Shepherding. Usually it’s one person who does a bulk of the work, such that Squad members shouldn’t get that much either in relation to the Shepherd. I think the solution is that the proposal should state the proposed %s are just examples and that they are flexible and will be determined on a case-by-case basis by the non-conflicted members of the Dealflow group.

1 Like
6

Thanks @gweisha I would like to second some points that @EliMo and @benji have made on making an overview of the changes and compensating contributors with vested tokens.

I don’t know if there is any policy of confidentiality on voting in the forum, but folks who have clicked the disagree button have not stated a rationale for the same in the comments. This is counter productive and I encourage future proposers to consider enabling public voting to counteract this behaviour.

1 Like
7

Agree with Tim on this. I dont think it is fair to award Project Referrer any long term incentive. A bonus paid upfront should be sufficient. In my experience, a project referrer rarely contributes anything after making the referral. And referral seems to be very trivial as anybody meets any research at a conference can make the referral.

2 Likes