How to raise crypto in a bear market
by Richard Parris — co-founder of Saito.
This isn’t going to be a ‘HOW TO’ piece. It’s partly the story of how Saito came to be, and partly a slog through how we managed to get an unorthodox project off the ground in the worst crypto bear market since… the last one? But we also wanted to share thoughts on our 2 million USD raise in the hope it helps other people working on underlying blockchain tech.
So how did it all start? After months of back and forth over WeChat with Saito’s co-founder, David Lancashire (he would send me cryptic one-liners like “What if we removed the block reward?”), I joined the project full-time in December 2017. This was a big deal. It meant shutting down a successful consulting company I had started, finding alternate solutions for my clients, and working out options for my family should Saito need me to relocate. And all this to wade into a space plagued by scams and Ponzi schemes.
David and I were seeding Saito out of our savings, but needed funding to hire properly. And this is where luck came in. As it turned out, one of our friends in the Beijing crypto community turned out to work for a major company in the space. Bill had expressed interest in Saito during one of our poker games, which led David to demo it a month later when down in Hong Kong.
Pretty amazingly, given David was deep in code at the time, and his presentations consisted mostly of technical notes and game theory, Bill realised why Saito mattered, and within a few days was trying to help: advising us on what investors expected, and turning his brain towards teeing-up quality intros. If there’s a lesson here I suppose it’s to play poker with bitcoin people. Or maybe to ask your poker friends what they’re working on.
Bill was enthusiastic about Saito, but figuring out how to explain it to his contacts turned out to be surprisingly hard. In retrospect, our early meetings had some almost-comic missteps. In one pitch the business folk in the room were impressed and after 45 minutes handed over to the technical team who had dialled in to ask what we were told would be “the hard questions”.
What wasn’t clear was that the tech team hadn’t been given any context. Their first question was basically the double-spend problem. I flubbed the answer just because I assumed they were asking something much more complicated. At another pitch the investor agreed that Saito could handle terabytes of data, but expressed confusion over “Why is that useful?”
When we left David turned and asked me: “Did a blockchain fund seriously just ask us what you can do with a terabyte blockchain?”
Our experience was a world apart with some newer funds made up of OG Bitcoin and ETH people who understood blockchain at a fundamental level. Talking with them avoided the “handoff” issues we had with some of the larger funds. Managing this process — figuring out how to explain technical concepts to teams with different levels of expertise — turned out to be the critical skill we needed to learn. By July we were starting to make this work.
The solution was to restrict ourselves to explaining the approach behind Saito in stages. Rather than try to convince people that Saito solved the scaling issue, we’d just start by explaining the problem itself. Our goal became convincing people that scaling was an economic problem rather than a technical one: getting money in the hands of network operators instead of miners and stakers. For most of our audience, this was an entirely new way to think about blockchain. From our perspective, it neatly eliminated the difference between business-people and tech-people. We could move as quickly as people were willing, but we wouldn’t try to outline the solution until everyone was aware of the problem it was designed to solve.
I think we even made several funds rather nervous when we used a somewhat Socratic-style questioning approach (i.e. “What are the arguments for the permanent ledger in bitcoin?” or “What happens in a proof-of-stake network if an attacker is willing to stake at zero-expectations of profit?” and “Why won’t bitcoin miners hoard transactions when the block reward consists entirely of fees?”). The approach worked because it wasn’t confrontational, it established common ground, and then pulled out the arguments to show people why they didn’t hold. It helped tease out the bad assumptions.
Meanwhile, the fact that their ‘tech guys’ were challenged and excited by the ideas we were presenting had the advantage of positioning us as more than competent. Meetings started going a lot more smoothly.
Once we had a group of significant and smart investors backing us, the second half of the puzzle was convincing them to support us in the same way. Some investors wanted equity. Others wanted tokens. Our lawyers were even suggesting odd combinations designed to mix the two—equity in a disposable Singapore mining entity, anyone? We finally went with a token-based raise because it was the least complicated and offered the most value to the network (we’ve heard that this is changing in Europe, although in Asia tokens still have a premium). But even with a token-raise set, fixing the pricing of the SAITO token was not the easiest thing to do in a falling market.
Part of the problem was that confidence in crypto was melting. Haggling over the valuation of the token would mean having to constantly re-write our sale documents. So eventually we pegged our raise to the rate of Ethereum and accepted a combination of Bitcoin, Ethereum and Bitcoin Cash.
If the price went down we would end up with less in USD, but that was the equivalent of raising at a flexible valuation. This not only helped us close, but it worked as a gesture of faith to our backers as we ended up offering them a slight premium on the value of their crypto over what they’d been prepared to invest. If anyone is having trouble, we highly recommend this approach.
The final piece of advice we can probably give is this: as much as you can, talk with people in person. Looking back on our raise, it’s striking that we ended up raising entirely in Asia, and all from people we met face-to-face.
For all the talk in the space about a decentralized economy, at the end of the day it took seeing people face-to-face and walking them through the problems with other approaches (and our solution) to get them to think seriously about the issues and then commit. Talking by email and phone is fine — but for us those contacts ended up being more long-term relationships.
Ultimately, advice isn’t one-size-fits-all, but this is what worked for us. It won’t be right for anyone out there trying to launch a flashy public sale, for example, but for a project like Saito—looking for real investment and partnerships—it was the right approach for what we needed. It ensured that the people backing us got a real understanding of our project, and, in addition to them having faith in us, it also gave us faith in them.
