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"Just count on the fact that it's all funded by Papa Joe."
This is how a former employee, who asked to remain anonymous, citing the fear of legal repercussions, described the sentiment prevalent until recently to ConsenSys, the ethereum-centric firm headed by the co-founder of ethereum Joseph Lubin.
In other words, entrepreneurs who built blockchain apps and services under the ConsenSys umbrella did not have to worry about business models until Lubin had approved the technology they were building.
But now, following a 90% drop in the value of ethereum in the last year, Lubin's paternalistic approach poses a problem to almost 50 startups, or "spokes", that ConsenSys has sown since its birth at the beginning of 2015.
From last month, layoffs have invested almost every corner of the company distributed by 1,200 people. Lubin announced that "ConsenSys 2.0" would seek efficiency – and a wider dependency on external partners and investors. "Spinning out" these initiatives have gone from an aspiration to a mandate.
"We have interacted a lot more with external investors, mostly VC, in the last nine or 12 months," Lubin told CoinDesk during an interview at the beginning of December. "We will increase it a lot."
But even if ether prices recover and ethereum-based tokens return to the wider market, former employees and potential investors tell CoinDesk that they fear that the road ahead for these projects may be rocky.
In other words, because of the unusual way ConsenSys has structured its investments, it will be difficult to convince outsiders to invest money in them.
According to six sources familiar with the company strategy, ConsenSys has often held at least half, if not more, of equity for each of its "spokespersons" and Lubin has resisted initial efforts to seek outside investors.
ConsenSys declined to comment on how much equity the company has in various projects across the conglomerate, but said that "people who bring significant value "to spokespersons are able to" develop meaningful equity "or" participate in profit sharing ".
A former spokesman told CoinDesk that ConsenSys previously "felt uncomfortable with less than 50% of the beams". He added that the insistence on Lubin's control, in turn, discouraged other investors from funding these projects, even during the 2017 bull market.
"A ton of funds and individuals were uncomfortable seeing Joe on the cap table, not to mention [with a] control participation, "said the consultant." We learned from the occasional group that they would be interested if ConsenSys had not been involved. "
Re-slice the cake
In fact, an anonymous investor – who is currently in talks with several ConsenSys spokespersons on potential equity deals – told CoinDesk that these projects will have to face considerable challenges by attracting external investments.
According to this investor, it is not clear how much equity ConsenSys possesses in many of the rays that the company is trying to "discard". In some cases, the founders of startups may not know it with certainty.
"You're actually investing in Joe Lubin's company and it's not clear what your relationship is and what the ConsenSys relationship is with that company," said the investor. "You want to invest in a company where the owners and founders are building it, because they are the most motivated."
Even in the rays where ConsenSys is not a major stakeholder, there is still a lack of clarity and consistency regarding ownership that also complicates negotiations, the potential investor said.
The spokes will have to overcome these obstacles to raise capital quickly to stay afloat. The potential investor has declared:
"My expectation is that very few of these projects will be able to do it [raise]".
ConsenSys does not agree in a statement, offering the As an example, Trustology, a company incubated by ConsenSys, raised capital from Two Sigma Ventures in December. However, given the range of corporate structures involved with ConsenSys, an incubated company may not face the same challenges as those seeking to "drive away".
Society seems to accelerate the traditional acceleration programs managed by its own ConsenSys Ventures arm instead of looking for new projects to be financed and then turning out as businesses.
To be clear, the "rotation" is different from layoffs, and the Lubin team says that all the spokes have a chance to shoot. However, company representatives say to CoinDesk: "there will be a series of key projects that will remain internally incubated".
Yet an employee of ConsenSys, who spoke on condition of anonymity, told CoinDesk that no one in the company feels safe in their work these days.
It is expected that ConsenSys will be reduced to 200 technicians and consultants focused on the fintech – about one sixth of the current size.
Last month a 13% reduction for personnel was announced. But it is hard to say how many layoffs have yet to come, in the traditional sense, because even beyond the "rotation" many former employees claimed to have worked with short-term or informal contracts.
In a statement sent by e-mail to CoinDesk, ConsenSys said that all the spokespersons are ready to involve external investors while ConsenSys itself seems to be doing "active investments in the seed phase "in new projects.
The survivors
Meanwhile, Kevin Owocki, co-founder of ConsenSys spoke to GitCoin, told CoinDesk that he hopes people will pay more attention to the work the ConsenSys beams are still doing, regardless of staff reductions.
"Clearly it's a moment of contraction right now, but I hope we can focus on the positive points," Owocki told CoinDesk. "I'm still very happy with ConsenSys as a supporter and I think they're doing good things for the ecosystem."
Although the "winter crypt" had an impact on the wider ethereum community, Owocki's 11-person team is still focused on shipping a wide range of products.
"We did not make a token sale, we focused on traction of the product," he said. Speaking to the wider etereum ecosystem, including ConsenSys rays, he added:
"The grants of the Ethereum Foundation have so far done a great job of providing one-off cash infusions. … What is really needed is recurring and stable funding so that people can concentrate on their maps. that we are trying to provide ".
Among its products and services, GitCoin organizes various processes for the use of cryptocurrency to finance contributions to open source projects. So far, the startup is earning up to $ 9,000 per month from a tokenised grant product and an advertising system called CodeFund.
As for grants, GitCoin helped distribute more than $ 738,221 of crypt related to hundreds of open source projects. Users include the Ethereum Foundation and other ConsenSys spokespersons, such as the MetaMask in-browser cryptographic portfolio.
Owocki said the overall platform handles nearly $ 90,000 of encryption each month. One of GitCoin's customers, the Makertao sttavo startup, has recently contributed nearly 1,000 DAI tokens per month (worth $ 1,000) to a GitCoin grant for open source contributions to a commissioned project that the Owocki team is also working on , a specialized cryptographic portfolio.
"We all work on Ethereum 2.0 as an ecosystem and people need sustainable ways to finance their work," Owocki said of this system of subsidies, adding that he also has high hopes for a subscription model that monetizes some GitCoin services.
"I would like to be one of the first employees to earn profits with a subscription model in Web3," he said, referring to the goal of a decentralized Internet.
Owocki admitted that these first sources of revenue are not enough to cover his team's salaries, but he said he was not worried because the team could seek additional venture capital in 2019 if necessary. Furthermore, ConsenSys added a statement saying:
"W2018 represented a contraction of the ecosystem as it extended too much in 2017, we expect that 2019 will be a year of exceptional growth ".
Decentralized?
Despite the media narrative that some ConsenSys employees were not looking diligently for results, former employees said the lack of clarity over decision-making beyond Lubin was a major obstacle to any lack of motivation.
A former employee of ConsenSys, who has received an income and asked to remain anonymous, told CoinDesk that the revenues of some decimated and rearranged staves "were positive and growing."
Substitutions started in September, former employees said, and some teams were sure to have a lot of track just a few weeks before the layoffs started abruptly. Another former employee, who also asked to remain anonymous, told CoinDesk he was discouraged from criticizing technical solutions because the spokespeople were desperate for customers.
"You can not talk to me [spoke] CEO because they have no power, "said the former employee, referring to the" extremely high "percentage of ConsenSys' equity." Joe created the company in such a way that no one is able to make decisions without him. Nobody had the budget. "
While some projects were more independent than others, some participants expressed concern that part of Lubin's goal for ConsenSys was to increase the value of the ethereum network, which has invested heavily and is believed to have a significant part of the ETH.
A 2018 hedge fund report by Tetras Capital estimated that ConsenSys' INUFRA project with centralized servers cost in Lubin more than $ 10 million a year to subsidize the infrastructure for many of the ethereum applications that attracted new investors in the ecosystem, even if the distributed network of ethereum was not ready to support high volumes of transactions.
In fact, ConsenSys' representatives state that the company's initial goal was to trigger the pump for future progress:
"ConsenSys 1.0 was responsible for promoting the appetite for a decentralized approach to the IT infrastructure that supports a wide variety of company systems."
Yet this could have gone hand in hand with other reasons. Speaking of how Lubin's personal equity and businesses both benefited from rising ethanol prices, the former advisor to the branch said:
"The core business model seemed to be: doing things to improve the ethereum network, then gaining value when the price of ETH is appreciated."
Although it has been a long time since ConsenSys partners and employees have been compensated in cryptocurrency, the demand for many remains where ConsenSys rays will go from here, a year into the bear market. The Lubin team said they were proud of the company "constant effort to collaborate with others in space on an open and shared infrastructure ".
Maybe that's why the former employee who worked with income statistics told CoinDesk that he remains optimistic, adding:
"ConsenSys is an experiment, we'll see what really came out of the rays in a couple of months."
ConsenSys image through CoinDesk archives. Photo credit: Michael del Castillo
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