Gift Off Tokens - a new equity token

The first security token representing equity ownership in a single company

Digital Gap Ltd, known as Gift Off, is a UK company that operates giftoff.com, an e-commerce website that allows users to buy digital gift cards from a wide range of international retailers, using a range of payment methods including credit cards and bitcoin and digital currencies. The company buys gift cards at a small discount and sells them to consumers at face value.

Established in 2014, the company has been a stunning success with sales of £500,000 in 2015, £1m in 2016, £4.5m in 2017 and £12.8m in 2018. This has been achieved by a team of only 3 people with only £75,000 of angel funding, mostly from 1 or 2 investors, amongst which I am proud to include myself. Gift Off is debt-free, cash flow positive, 100% British and based outside London (in Norwich).

As you might imagine a fast growing company like this is heavily constrained by working capital, and is finding it difficult to set aside resources to develop an app, expand in Europe or further improve the tech stack. To date everything has been effectively bootstrapped by the founder(s). In the most straight forward way we need to raise some money to finance our continued growth, for which we are prepared to give substantial equity.

The standard route to resolve this is a larger funding round, led by VC funds. But when we have tried to undertake this we have found that traditional VCs are unresponsive and generally discouraging at the suggestion of investing in Gift Off. They tend to be dismissive of Gift Off’s achievements, of the revenue and sales, and the ongoing operational success.

My impression, on dealing with VCs (mostly in London), is that it is very much a network of insiders, where you either belong or you don’t. You either have ready made business school answers to the lengthy questionnaire, or your face doesn’t fit. Your project either fits into a desired societal aim or sectoral theme, or it does not. Profitability and revenues certainly do not enter into it.

So we are faced with a wall, politely termed the “funding gap”. Beyond small angel rounds, raising money to scale a business in the UK is restricted to privileged insiders and/or is prohibitively expensive. VC funding is clearly unavailable in the amount we seek — we are not large enough to justify the due diligence.

How about other methods? NEX/AIM listing anyone? Got a spare £500k just to pay the advisors? Or maybe equity crowdfunding? Got the first 30% of the raise fully committed from your own resources to make our job super easy? Happy to pay us 7% on that for listing on our platform (oh, plus expenses)? Alternatively there is borrowing through a P2P lending platform… how about 14% per annum plus fees plus a personal guarantee from all directors for the entire amount (each)? Finally I hear that legacy banks are supposed to make small business loans… ROFL… I have never seen one of these in the wild and frankly I don’t actually believe this sort of lending really exists.

To tear down this wall we have decided to do a token sale. This will enable us to reach out to the wider global community of digital currency investors in order to fund our growth. Our token will give investors a direct financial interest in the equity of our company.

So how will it work?

We are seeking to raise £1.25m. Why such a small amount (in ICO/crypto land)? Because this is equity. And this is the money we really need to develop the business, not to fund parties and sponsor conferences. And the valuation must correspond to the physical reality and the cash-flows of an actual business, not supposed estimates of future network value like utility tokens. We are valuing Gift Off at £4m pre-money — which we think is fair for an e-commerce business which we expect to have £25m+ in sales in 2018–19.

A Singapore based token issuer will own (up to) 24% of Gift Off directly in shares, depending on the amount raised. In turn the issuer will issue tokens which contractually represent a financial interest in these shares. Token holders will have a right to dividends issued by Gift Off (a dividend right), a right to the funds from a partial or full sale of any of the Gift Off shares owned by the token issuer (a right to sale proceeds), and a right to their share of the business in the event of liquidation (a liquidation right).

We have aimed to give token holders as much of the rights of shareholders as possible, within the constraints of the legacy legal system (even in a dynamic forward thinking jurisdiction like Singapore). Governance (as in voting) is still a problem because legacy companies law did not envisage tokens and legacy service providers are reluctant to embrace them.

In this instance to overcome this Cavenham Capital Limited, a regulated investment manager, will act as a sort of attorney on behalf of Token holders and will seek to represent their wishes as fairly as possible. In addition the Articles of the Company (in Singapore known as the Constitution) have been drafted in order to create an overriding interest in preserving the financial interests of Token holders in all circumstances.

And yes, for all the concerned compliance enthusiasts out there, of course there will be KYC and AML. And yes, we are aware of the selling restrictions in all the different jurisdictions. Regrettably we cannot accept US persons, because the legal costs of doing anything in the US are completely disproportionate to the amount we are seeking to raise. Sorry.

To date all security tokens have been collective investment schemes. As far as I am aware (with the possible exception of Lykke) this is the first security token that represents actual equity in an underlying company. By creating a security token for a single entity we are trying to address the funding gap directly, cutting out platforms and walled gardens. By raising a reasonable amount of money at a reasonable valuation in exchange for equity we are trying to be as fair as possible to our potential investor base.

Eventually I hope we can dispense with legacy corporate structures and geographical jurisdictions entirely, and issue equity on new decentralized protocols such as Aragon, giving investors full ownership rights and complete governance. In the meantime this is our attempt to level the playing field, and make capital raising for small companies globally fairer, more global and more digital.

If you are eligible to participate and would like to learn more about the Gift Off token please visit tokens.giftoff.com (Note: due to selling restrictions the site may be unavailable in excluded jurisdictions). Please note that Cavenham is acting as an advisor to Digital Gap in the token sale.