AdministratorJune 25, 2020 at 12:41 pm
Launching July 16th, investors can purchase the Republic Note Profit-Sharing token:
They are limiting sales to $8 million at $0.12 per note.
What do people think?
Any thoughts on how to value the potential of this and whether the $.12 per Note is worth it?
MemberJune 25, 2020 at 1:01 pm
It’s difficult to know if it’s worth it, given that it is impossible to value Republic’s current portfolio accurately. It is nice that the token is tradable, so at least investors can recuperate some of their money in case it is overvalued at $0.12
AdministratorJune 26, 2020 at 11:38 pm
The Note white paper is here – I suggest everyone reads it. That being said, it’s 48 pages so I know not everyone will, so maybe I’ll do a brief summary in a blog post.
Regarding Note token valuation: I plan to do a deep dive blog post and a video about estimating the current value of the Note token based on the current portfolio of Republic.
Based on some quick back of the envelope calculations, the $0.12/Note is a little on the high side of valuation in my opinion based on the current number of companies on the platform; however, it all depends on your assumptions and growth projections in terms of what it could become.
Let’s do a quick and dirty calculation to see if the $0.12/Note is fairly valued
To begin, assume we just consider the 100% profit share from Republic’s public crowdfunding business. Republic Core (the company that issues the Notes) plans to pay out dividends to Note holders in $2 million increments, and will issue a max of 800,000,000 Notes. That means each dividend payout is effectively $0.0025 per Note at maximum issuance (not at launch, since there will be ~1/2 as many Notes in circulation). So you’d need 48 dividend payouts to break even for your $0.12/Note if we’re being conservative and assuming all 800,000,000 Notes are in play.
The question then becomes – how fast do you assume dividends will pay out?
Next, let’s calculate the break-even number of companies that Republic would need on their platform in order to have the Note pay back the $0.12 cost.
Since Republic gets 2% of securities sold on the public side, assuming an average campaign raise of $300k (the actual average based on their 124 public companies has been $267k each), that would mean Republic gets a $6,000 stake in each company. To get to each $2M dividend threshold, that’s a 333X total return. Assuming an 80% startup failure rate, 15% target IRR, and 5 year time frame, that’s an average 10.1X return required for each non-failed company. That means ~33 companies need to succeed for each $2M payout, and from before, we know we need 48 payouts to break even. At a failure rate of 80%, that means Republic needs 7,913 companies on their platform in order to break even at $0.12/Note.
So, the question remains. Is that good value? At first glance, ~7,900+ companies is a long way away from the 124 public companies they currently have.
However, we were very conservative in our assumptions and neglected a lot of factors.
First off, we’re completely ignoring the profit-sharing from the private side. For simplicity, let’s just assume those returns will be 1/4 the public side, since 25% of carry is shared with Republic Core (and those deals may be later stage, but also have lower failure rates).
Also, at initial issuance, Republic plans to have a maximum of 370 million Notes in circulation. That cuts the number of required companies above in half.
You also need to consider the growth rate of the number of companies on Republic. While Republic has had 124 startups successfully raise on their public platform since they started, they could easily double (or more) than that number in the next year alone. The industry continues to grow, and Republic mentions in their white paper that they may choose to include new lines of business in Note profit distributions (e.g. their recent real estate acquisition Compound) – “…part of the proceeds from one or more of any such new businesses
may be attributed to and become Core Proceeds in exchange for services
rendered by Republic Core.”
Furthermore, all the growth assumptions are likely conservative for the industry (80% failure rate, 15% IRR, 5 year investment time, which results in a 10X return multiple on non-failed companies). Many studies show average angel investor and VC returns may be more in the range of 20-25% IRR. And perhaps the due diligence and deal curation on Republic means that the failure rate will be lower than 80%.
So perhaps ~500-1,000 companies is a more realistic “break-even” number for the current value of the Note.
Am I missing any other factors?
What do people think of my assumptions and math?
I’ll do a deeper dive on this in the next week or two.
AdministratorJune 27, 2020 at 9:00 am
Other assumptions I’ll plan to include:
- Fees of Profit Distributions
- Estimate the present value of future cash flows rather than only looking at the break-even point
- Worst / Typical / Best-case scenario modeling
MemberJune 28, 2020 at 12:34 am
Republic categorizes this as crypto. Is there a mining component to it? If not, I’d call it a digital investment but not really a digital currency.
Did I miss something?
Still, I like that republic is offering something a little different.
I look forward to you deeper analysis.
AdministratorJuly 1, 2020 at 2:46 pm
I believe the Algorand blockchain, which the Note token will be hosted on, is a Proof-of-Stake (POS) instead of Proof-of-Work (POW) blockchain like Bitcoin. There weren’t many (any) details about this in the white paper, but that would mean there aren’t “miners” in the traditional sense of Proof-of-Work blockchains like Bitcoin and others.
Either way, it is a “crypto”. I need to read more to understand how the dividend payments will work, since it sounds like you’ll be paid in a USD(?) stablecoin rather than being paid dividends in more Note tokens.
AdministratorJuly 1, 2020 at 3:27 pm
FYI – there is an AMA tomorrow with Republic’s co-founder and CEO all about the Note token: https://crowdwise.org/events-equity-crowdfunding/republic-note-ama-with-ceo-kendrick-nguyen/
MemberJuly 1, 2020 at 9:47 pm
I see. I have to say that it’s an interesting twist to the crowdfunding/angel investing realm. I look forward to learning more about it.
AdministratorJuly 3, 2020 at 2:51 pm
Yeah, and I find it a fascinating way to actually allow non-accredited investors to potentially (at least partially) profit from accredited-investor only deals through their private platform.
MemberJuly 3, 2020 at 1:03 am
Any thoughts on how this would all be handled tax-wise? For the NOTE token as well as the earnings and their cost-basis vs the NOTE itself?
AdministratorJuly 3, 2020 at 2:47 pm
Great question. I asked during yesterday’s AMA if Republic would be providing tax advice, and Kendrick Nguyen (CEO of Republic) said: “Note holders will be responsible for their own taxes but will provide some guidance and hopefully product support down the road.”
If I had to guess, based on what I currently do for other tokens that I hold, it might look something like this (obviously everyone’s situation is unique, this is NOT tax advice):
- When you initially purchase Note tokens, that will be treated as the cost basis for your investment (the same as if you purchased stock)
- If you receive Note tokens for free – i.e. from converting your Reward Notes to Republic Notes at a 1:1 basis, you may have to claim that as ordinary income. However, if you consider it as a gift, the IRS gift limit in 2019 was that you don’t have to claim it if it’s up to $15,000
- For distributions, I’m guessing those would be treated as ordinary, non-qualified dividends, taxed at your ordinary income rate. There is a chance that they may structure it such that they would be considered qualified dividends.
- If you later sell your Republic Notes for a loss or gain, you’d be responsible for long-term and/or short terms gains or losses, the same as stock.
Again, those are just my assumptions as of now. We’ll have to see how they actually set it up.
AdministratorJuly 4, 2020 at 12:50 pm
For those who missed the Republic AMA with CEO Kendrick Nguyen, I posted some of the most helpful AMA questions from the other day (many of which weren’t covered in the Note whitepaper or FAQ page) here:
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