Let`s create your virtual share plan

While creating your virtual share plan we will help you to go through the following steps:

Step 1 - the rights

Design your company's virtual shares and determine which rights your virtual shares will carry

a) Right to receive information Regular updates to virtual shareholders on your business and achievements.
b) Right to receive dividend-like payments Dividend payment to virtual shareholders if your actual shareholders receive dividend on their common shares.
c) Right to receive milestone payments If and when you reach the certain milestones, you will make the payments to your virtual shareholders.
d) Right to receive company sale payment Payment to virtual shareholders if your shareholders sell your company and receive cash for their common shares.
e) Right to receive liquidation payment Payment to virtual shareholders if your company is liquidated and your shareholders receive liquidation proceeds in cash for their common shares.
Read more It is up to the issuer to design the catalog of these rights. The above rights mirror the rights of a common shareholder in a company, and therefore the issuer's promise is an equity-like instrument. Hence the term we use on the platform - virtual share.

Step 2 - pool size

Determine the size of your virtual share pool. Decide the amount you're willing to share with your community.

For example:

  • For marketplaces we recommend to target 20% of the ownership allocated to the community.
  • For consumer SAAS businesses we recommend to target 2% of the ownership allocated to the community.
Read more When creating the virtual share plan for the community, traditional stakeholders in the business must not be forgotten. The cap table of the company must still include founders, employees and investors, keeping everyone aligned on building the business together:
  • founders - for taking the risk and founding the company in the first place;
  • investors - who provide the capital to build the service to a point where operations are at a scale where the company no longer needs external capital infusions;
  • employees - to bring the talent on board and build the service.

Typical cap table at successful exit/IPO allocates the equity as follows:

  • Founders: 20%
  • Employees: 30%
  • Investors: 50%

Community involvement will dilute the founder/employee/investor trio. How much is anyone's guess, as there have been no IPOs of community-owned companies. The general guidance we give depends on the nature of the company:

  • Social Network. The entire platform is the community itself. Whether it's Twitter or Quora, the company monetizes the content created by the community and/or the network. We predict that the competitor that will eventually replace Quora will be more than 50% owned by the community.
  • Marketplace. The service on the platform is provided by the community. Whether it's ride-sharing or food delivery, the community, especially on the supply side of the marketplace, is a key to success for such businesses. For marketplaces, we therefore recommend giving 20% of the shares to the community.
  • Consumer SaaS. In such a business, community help usually arises only in the awareness, acquisition, and referral phases. As a result, the impact is lower, and for such a business model we would target 2% of ownership for the community.

If you were scared by the numbers and are not ready to engage in such dilution - we have good news for you. For marketing purposes, we recommend DO think big. The announcement that the supply side of the community can earn up to 20% on your next unicorn is a powerful message.

And the flip side of the coin is that by creating the virtual share pool, you have not diluted anyone yet. Think of the pool like an option pool - when it is formed, no dilution has yet occurred, the option pool must first be allocated, vested and exercised for dilution to occur. Similarly, shares from the virtual share pool must be issued and accepted, and the potential thresholds for claiming rights (dividend right is only available if you own 10 shares, liquidation right only if you own 100 shares) must be exceeded by virtual shareholders.

Similar to the option pool, you can also decide that it is not worth continuing and not spending the entire virtual share pool. In this case, you will also stop paying for koos.io services. Remember that the virtual shares already issued still come with rights that need to be redeemed, so you are not completely off the hook, but in the (unlikely) event that you are disappointed after the virtual share program is launched, you have a way out.

Step 3 - success metric

Identify the core success metric your community can impact. Determine the key factor that influences how much your company is worth and that could be impacted by your community's contribution.

For example:

Those drivers of the company's growth could be monthly recurring revenue (MRR) or gross merchandise volume (GMV).

Read more

Issuing virtual shares

The issuance of virtual shares must reward the virtual shareholder based on the value of the service rendered relative to the value of the company. The entire formula is as simple as:

# of virtual shares per activity = cost or value impact of the activity / company valuation at the moment of activity X total number of virtual shares

For example if the inputs are as follows:

  • An activity that affects the valuation of the company has been identified as a referral to a new customer.
  • The value of the referral is known to be 50 €, calculated based on the conversion rate from a referral to a customer and the lifetime value of an average customer.
  • The valuation of the company at the time of the referral was 5 000 000 €.
  • The total number of virtual shares created is 500 000 €, representing 20% of the company's equity.

Then the formula identifies that every referral given to you should be rewarded as:

50 € / 5 000 000 € x 500,000 = 10 virtual shares per referral

If the value of the company had now increased to 25 000 000 €, the same referral still valued at 50 €, would earn the referee only 2 virtual shares, since the value of the company has risen five times.

This example illustrates an important aspect of virtual share plan modeling - earlier participation is rewarded more - the company gains proportionally more value from feedback from early customers or early referrals than from late customers. Imagine customer no. 2 is much more valuable than customer no. 200, who in turn is more valuable than customer no. 2,000.

Issuance - valuation of the company

Issuing virtual shares in koos.io is actually not that different from issuing new shares to investors. The most important part of the issue is understanding the valuation on the basis of which the issue is made. It is important to emphasize that even if the virtual shareholders you bring on board do not pay for their shares in cash, but do something that is valuable for your company, you still need to understand how many virtual shares a good deed should be rewarded with.

And one component of this equation is the company valuation at the time of virtual shareholders being rewarded. This poses a problem to all but publicly listed companies, as the valuation is either unknown or outdated. We will work with you to find a suitable model, using a proxy to the valuation. Let us use three different companies as an example:

  1. Consumer SaaS. Such companies usually use annual recurring revenue (ARR) as the main valuation factor. Of course, there are other variables such as growth rate, churn/retention, total addressable market, etc., but for simplicity we will use only one component in our later examples.
    Such a company is valued with a multiplier of ARR. Given the other variables at play, the range for ARR 's multiplier can be anywhere from 3X to 50X, but the average of the 2023 valuations is 7X. So the valuation of a SaaS company with 1 000 000 € ARR would be 7 000 000 € and the valuation of the same company with 5 000 000 € ARR would be 35 000 000 €. Considering the specifics of your company, the multiplier becomes even more specific, the example here only gives you a guideline.
  2. Marketplace. In marketplace valuation, gross merchandise value (GMV) is an important component of the valuation. Other variables, such as GMV growth, marketplace take rate, and total addressable market, also play a role here, but we focus only on the GMV aspect.
    Such companies are essentially valued with a GMV multiplier. This multiplier can range from 0.3 times to 5 times, with the median multiplier being just over 1 times GMV. So if a hypothetical average marketplace facilitated transactions worth 5 000 000 € last year, the marketplace's valuation would also be 5 000 000 €. If the marketplace grows to a GMV of 25 000 000 €, the valuation would also increase to 25 000 000 €.
  3. Deep tech company, still in the research phase. Valuation of such company can be based on research progress, measured in terms of qualitative and cost aspects. A concrete example: In the pharmaceutical field, the valuation of a company researching a new drug goes through the discovery, preclinical, and clinical trial phases before it reaches market approval. The company's valuation increases as more and more risks are mitigated, so we can model the valuation of a particular research-based pharmaceutical company as follows:
    1. 5 000 000 € after discovery;
    2. 10 000 000 € after the preclinical studies have been approved;
    3. 100 000 000 € after clinical studies
      1. 20 000 000 € after Phase I;
      2. 40 000 000 € after Phase II;
      3. 100 000 000 € after Phase III.
    4. 150 000 000 € after getting market approval from FDA.

This example is also applicable to other companies that are in the start-up phase and are not expected to have a commercially available offering for several years.

Step 4 - identify targets

Identify your target stakeholders and activities to reward. Find out which people in the community can affect the success of your business and what actions those people can do to help.

For example:

  • as a marketplace you would like to motivate your supply-side and reward every 100 € in GMV generated on the platform with 1 virtual share.
  • as a consumer SaaS you might decide to reward the referrals by distributing 1 virtual share for every referral and additionally 9 virtual shares for referral converting into a paying subscription.
Read more

What behaviour to reward?

When you think about your business and try to identify the people and behaviors you would be willing to reward with virtual shares, look for the services that the community can provide, that

  • help to grow the company valuation;
  • help to avoid costs that the company would incur if it were to buy such a service on the open market.

Examples:

  • Value driver: in a marketplace, a provider who joins the platform and transacts there generates GMV and thus contributes directly to the company's value growth. Such a supplier can be rewarded with virtual shares based directly on the GMV they produce on your platform, similar to the message "transact 100 EUR on our platform to earn 1 virtual share".
    The goal for you in this case is to align the service providers on your platform with the success of the business. The better and more loyal the supply on the marketplace, the better the business
  • Cost reduction: with a consumer SaaS, awareness through content marketing is often priced per eye. If you know you can reach 100,000 eyeballs with a content marketing post in the media, but you have to pay 10,000 EUR, you know the costs you can avoid if you reward micro-influencers with virtual shares, similar to "Write a review about our service on your blog and you get 1 virtual share per 1,000 subscribers to your blog"
    The goal is to reduce the cost of customer acquisition in terms of cash paid out today, which would (probably) have to come from investors, accepting immediate dilution.

Issuance - valuing the activities

In order to understand the issuance of virtual shares, you, as the issuer of the virtual shares, must decide on one of the two models on which to base the issuance.

  1. Value-based issuance. Virtual shares are issued in return for activities that increase the value of the company in proportion to the value growth achieved.
  2. Cost-based issuance. Virtual shares are issued as consideration for activities that would otherwise require financial expenses at the market price, which is proportional to the value of that activity if it were purchased on the open market.

Depending on the specific needs, it may also make sense to combine both approaches, but we recommend starting with one approach to supply modeling.

Value-based issuance

This is the model we most recommend, which directly links the impact of the activity rewarded by virtual shares to the increase in the value of the underlying companies. A prerequisite for this model is that the value of the activity can be measured directly in terms of growth in firm valuation. If such a direct link cannot be established, we resort to the second-best option, which is to use cost-based issuance models.

Example: You are running a marketplace and are running two campaigns in two different locations.

  • Reward the GMV generated by the supply in an established location. This campaign can be marketed as "Generate GMV at location A as a supply and earn 1 virtual share for every 50 € you transact on the platform as a provider." The transactions generate GMV for the marketplace and thus have a direct impact on the company valuation. This model is suitable for more mature marketplaces or in locations where you already have a certain market penetration.
  • Rewarding supply availability in a newly opened location. This offer can be marketed as "Be available at location B as a supplier and earn 1 virtual share per day that your services are available on the marketplace." This model is suitable for marketplaces in an earlier stage or for marketplaces expanding to new locations.

Both campaigns would apply the full model, intentionally simplifying the principle that issuance should be proportional to company valuation.

Cost-based issuance

Cost-based modeling of issuance is used when a direct relationship with growth in business valuation cannot be established. In this model, the cost of the service provided by the virtual shareholder is used instead of the value to determine the correct allocation.

Cost-based modeling is typically used the further the rewarded activity is from actual customer acquisition. If you think of awareness, acquisition, retention, and referral, then acquisition- and retention-related activities are most likely to be rewarded based on value, while awareness and referral are more likely to be rewarded based on cost because the value link is more difficult to establish.

Example: a consumer SaaS that operates in the fashion industry and wants to reward local influencers for awareness and recommendations.

Awareness

Awareness campaigns are priced according to different models (eyeballs, click-throughs, conversions), in this example we use cost modeling based on eyeballs.

Let us assume you have identified 250 (micro) influencers, each with a reach of 1,000 to 100,000 people in the market you want to target. Let us also assume that you do not have a market price for conducting an awareness campaign with these influencers.

Let us tie this to a well-known channel in the fashion industry. If you were to launch a content marketing effort with Vogue, you would have a chance to reach the 22 million viewers worldwide in print media. For a full-page ad in Vogue, you would have to spend 110 000 € from your marketing budget.

  • With this knowledge, a corresponding target group would be valued at half a cent per eyeball (22 000 000 / 110 000 € = 0,005 €).
  • Now if you run an affiliate program, an influencer in the fashion world with a reach of 10,000 people would be valued at about 50 €.

Referral

The second part of the campaign you want to target local influencers with is aimed at referrals. If you know from your previous affiliate marketing campaigns that the market price for a single referral for your service is 100 €, you can also model the virtual share issue based on 100 €/current company valuation.

Now, if the company were to distribute virtual shares in return of such activities, then the % of shareholding such activity would earn would be as follows:

Company valuation
Activity Cost 3 000 000 € 10 000 000 € 25 000 000 €
Awareness (per 10K eyeballs) 10 € 0,0017% 0,0005% 0,0002%
Referral 100 € 0,0033% 0,0010% 0,0004%
Employee Referral 8 000 € 0,2667% 0,0800% 0,0320%

Note that the model is fully dynamic and that as the company grows, the reward as a percentage of equity decreases, so that help in earlier stages is rewarded more as a percentage of equity than help in later stages.

Step 5 - earn-out model

Check your plan's possible outcomes with the earn-out model. We'll model the earn-outs for different personas in case of different business outcomes.

Read more

Earn-out modelling: food delivery company example

Welcome to FoodDelivery Inc, a new competitor to DoorDash, Deliveroo and UberEats. The company was founded two years ago in Birmingham, UK, and now serves the home delivery market in ten cities in the UK and France. The company has raised 10 million euros in its seed and A rounds, is valued at 40 million euros and has generated 40 million euros GMV in the last 12 months.

The company aims to build a 2 billion euros food delivery business. FoodDelivery Inc. is looking for a strategic differentiator to sustain growth and has chosen koos.io to engage various stakeholders in the community that supports the business: the restaurants, the couriers, the consumers and influencers.

In addition to community stakeholders, FoodDelivery Inc. understood that:

  • The founders and employees of the company require that 30% of the equity remain in their possession after dilution through additional capital increases and the introduction of the virtual shareholder program.
  • Investors demand at least a 10-fold return on the capital provided, the need for which is estimated at 100 million euros. To achieve this, the share of investors in the cap table must be 30%.
  • This leaves 40% of equity to be distributed to virtual shareholders, and the company has taken a bold step by announcing the virtual shareholder plan to the public.

There are different personas FoodDelivery Inc will be engaging through its virtual share plans:

  • Restaurant owners to encourage them to sign up to the platform to offer consumers their menu, delivered by couriers.
  • Couriers delivering goods from restaurants to consumers.
  • Consumers ordering meals from restaurants, delivered by couriers.
  • Influencers promoting the service in their network, attracting more restaurant owners or consumers.

Inputs for the earn-out model:

  1. Stakeholders
    • Restaurant - sells an average of 7 200 € meals per month via the platform.
    • Courier - delivers an average of 4 800 € worth of food per month.
    • Consumer - orders on average 100 € worth of food every month.
  2. Company
    • A three-sided marketplace.
    • Current GMV stands at 40 million euros over the last 12 month.
    • The goal is to increase the GMV processed via the platform to 2 billion euros in the next five years.

Output of the model estimating the potential value of virtual shareholding for different stakeholders:

Company valuationRestaurant stakeCourier stakeConsumer stake
40 000 000 €0.024000%0.016000%0.000400%
120 000 000 €0.008000%0.005333%0.000133%
360 000 000 €0.002667%0.001778%0.000044%
720 000 000 €0.001333%0.000889%0.000022%
1 440 000 000 €0.000667%0.000444%0.000011%
2 000 000 000 €0.000480%0.000320%0.000008%
Total value of equity at 2B €742 933 €495 289 €12 382 €

From the model, it can be quickly deduced that a restaurant that signs up before or at the beginning of the program can earn 742 933 € if it stays on the platform for the five years shipping 7 200 € worth of meals each month. The prerequisite for such a high payday is, of course, the success of the business.

Notes about the model:

  • This version is simplified, bucketing each valuation increase to exactly 12 calendar months.
  • The company's valuation will rise steeply, threefold in the first two years, twofold in the following two years, and less thereafter.
  • This simplified model does not take into account periods in which growth stagnates and in which the issuance of shares must either be capped or additional dilution must be made.
Last updated: 29/08/2023

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