Initial Value Offering (IVO)
Forward Protocol offers the infrastructure for IVO – Initial Value Offering. This is the Kickstarter program on Blockchain, creating transparent fundraising opportunities and safety for backers. The IVO provides a solution for creators who need to invest substantial amounts of time and money into new products, but lack the certainty that they will become popular enough to cover the costs and assure profit for their product. Until the production is complete and released to the market, creators cannot ascertain commercial success.
Consequently, many creators are reluctant to take on the financial risk to produce material that could have benefitted themselves or others, which may never be produced.
The IVO system resolves the problems associated with market uncertainty and financial risk by enabling creators to introduce themselves and their products and to sell them before committing to producing them. It also protects prospective buyers’ funds in a similar way that the KickStarter platform works.
When an initiative to produce a new product is presented by a creator, interested parties may choose to back this and secure access in advance of production. Each backer transfers the requested amount in $FUSD to an escrow wallet. When the total amount in escrow reaches the target within a specified period, the project is funded and the creator can begin production.
The platform integrating the IVO can define when the funds are released to the creator. It can be released when:
The entire product is created, published and accepted by the majority of the backers, then the complete funds are released.
When each milestone is released and accepted by a pre-defined % or number of backers, then a part of the funds is released.
When the product is fully created and released, with or without backer acceptance or a % of backer’s acceptance.
As the product is released, backers can gain access to it. The amount from the escrow wallet will be transferred to the creator. If the project fails to attract the necessary funds from prospective buyers within the defined period, or if the creator fails to deliver the product, the funds will be returned to the backers.
In this way, the IVO insulates against judgement errors from the creators. Sometimes, they may fail to identify insufficient demand for their product or to notice a potentially successful product worth investing in. Simultaneously, it protects the payments made by project backers in the event that the creator fails to deliver the final product or fraud. This drawback is a major challenge in many centralized platforms where creators fail to deliver. If the creator needs the funds to create, the integrating platform can explore DeFi loans backed by assets for the interim working capital as well.
An example from the Decentralized Education (DeEd) sector: The average sale price of a $10 -$50 course is not enough to cover the costs of creating a high-quality course if the sale volume is not high enough. With an Initial Knowledge Offering (IKO - the DeEd analog of the IVO), course creators can provide the course outline before it is created along with their profile to substantiate their knowledge or experience.
The course may cost $50,000 to develop, but can be advertised to students, who can pre-pay for the course, say $500 per student.
Once the creator reaches the $50,000 target, they can start to develop the course. The money paid by the students who want the course material will remain in escrow until the course is created and released as defined by the platform, either on total completion or according to preset milestones.
The integrating platform can also enable rewards for early supporters. A percentage from all future sales of the course can be set aside for them as reward for their early support in creating the course. These rewards can be scheduled to run for any length of time (or forever, as per discretion or platform rules). These options can be customized in the Forward Factory.
An example from the Decentralized E-commerce (DeCom) sector: A company plans to build a vegan food e-commerce platform that can adapt quickly to changing global markets and supply chains. The end goal is to create extraordinary customer experiences and the ability to stay on top of new customer demands. They can achieve this by adapting existing offerings and introducing new products and services to the market as soon as new opportunities become available. The full tech stack will cost $300,000, and the company will use the IVO smart contract to raise the funds.
They can offer to make supporters of the program shareholders in the company (e.g. 30% of company stock will be issued to backers).
The company will describe the development roadmap and rollout in a scoping document and draw down on escrow funds on completion of pre-determined milestones being achieved. This process protects backers from non-delivery and ensures progress is rewarded.
An example from a larger organization’s utility: The NHS wants to produce a dental training program for primary healthcare workers across sub-Saharan Africa and India. They have to hire experts and maxillofacial surgeons and dentists. The time in theatres and teaching models needed for a quality course will cost around £500,000 to produce. However, the NHS wants to know with certainty that the course will be useful. Hence, they create a framework for the program, reaching out to aid organizations and private backers for pre-funding. Once they reach the £500,000 target, the NHS produces the training program. The funding that the backers provide will remain in escrow until the training program is created and released as defined by the platform, either on total completion or preset milestones.
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