Ask HN: Using NFT's to raise capital for a startup?

[naterudichuk]

We are video game and product designers who founded an AI startup with a really solid brand image. Recently we have been developing utility NFT's with the ability to leverage our algorithms in a way that is excluded from our first product (a mobile app). What are your opinions on NFT's as a way to raise capital alongside the traditional VC pipeline, as well as the validity of NFT's as a value producing asset?

[heynk]

A kind of "web3 substack" app just launched their NFTs, doing exactly what it sounds like you're interested in doing. Their NFTs will provide utility (premium features) in their app - no equity or future token or anything.

https://www.explorerguild.io

My thoughts:

Are you sure your target customer would be interested in buying your NFT? From a quick glance, there doesn't seem to be much overlap between crypto/NFTs and your startup. The space for new NFT drops is so saturated - there are new projects every single day, often with 10,000 NFTs for sale. Most of them do not sell out. To execute on this well, you need to build community around your NFTs and create hype, and then deliver a good result. It's not easy, even though it might look like "easy money".

[naterudichuk]

Definitely not easy, we are going to be building the community with our strategy starting this weekend. We are also not releasing an NFT until there is a community around the app. Good points though and definitely something I will think about. Thanks!

[ganoushoreilly]

You need to be very clear on what it is you are selling. You need to be 100% sure you aren’t creating a security with your offering.

[naterudichuk]

Great point, we have thought about it too. We are getting a lawyer involved to overlook everything.

[toss1]

Although the "Evolved Apes" game creators unfortunately did a runner, it seems they did prove the concept. Who knows if it would have been enough to fund development, but funds were raised.

Obviously, you've got a handle on working with/around the SEC security rules, and it seems that being non-anonymous and transparent about the development, raise process, etc. could be quite successful.

It also seems that organizing it like a raise might help, and is plausibly possible with smart contracts. E.g., we will be raising a minimum of $5 million with this raise, if we don't reach that then the sales will not complete — or, perhaps will complete at the starting value (to cover the costs of the NFT raise). So, the offer might be:

buy at minimum of $x,

sale will be completed at top bid price if sum of all top bid prices exceeds $5 million

else sales will be exercised at opening price to winning bidders

Just a start of an idea, needs work.

In any case, good luck!

[naterudichuk]

Great points! I think rug pulls or outlandish concepts for NFTs are unfortunate for sure. We have a public beta and by the time the NFT drop is out, we will be fully launched, so at least there will be a project to showcase our work. We are working with a fairly well known defi engineer so I am confident that our strategy will have a chance at success! Thanks for the comment!

[tarun_anand]

It's a good idea always to raise capital - but question is at what terms?

Secondly, is NFT tied to the stock? You will still have to register shareholding wherever you are domiciled.

Lastly what are the liquidity and exit options for investors?

[naterudichuk]

NFT is not tied to stock, the only long term value I see it providing users is access to information that our algorithm provides which will be tokenized so that a holder of our NFT can accumulate incrementally or spend tokens on information, which gets more robust and in-depth the longer it is running. Owning this NFT won't make you a shareholder. In terms of exit options, NFT's can be resold at any time. Any concerns, suggestions or inquiries for exit and liquidity options? This part is being put together now so we are still learning!

[naterudichuk]

Also to clarify, there is no return on investment. We are basically showcasing the algorithm access as a cool feature of this collectible. From my understanding if we were to treat this as an investment that will increase in future value or distribute any sort of earnings then we would have to register with the SEC.

[dpeck]

If you have the ability to have a successful NFT sale that would raise funds for your startup, then that should be the startup.

[naterudichuk]

Interesting, I see NFt's as a way to support a thesis or company project! We have the ability to release NFt's simultaneously to our product release so we figured It could be a great opportunity to do both together!

[high_byte]

ICOs used to be the thing. now NFTs are all the rage.

[naterudichuk]

Definitely, although I think a utility backed NFT could actually have some staying power. I am not so sure we would ever consider creating NFT's without the utility and branding behind the project.