Surge Dynamics
Last updated
Last updated
Surge accelerates the fundamental dynamics of investment offers.
A typical investment offer will move slowly until it is obvious that it is buyable. At that point, a lot of people will buy it. It will "surge" to closing.
This effect might be accelerated by adding bonuses for early stakers in a Surge deal. This gives prospects an incentive to stake quickly, and then to promote the deal so that it gets to closing.
When an investment deal is first proposed, it has a low probability of closing. This is true for big IPOs as well as for startups. Only 1 in 1000 movie scripts goes to production. Deals go through a "fuzzy front-end" process where they become more defined, more buyable, and pick up support. Most deals do not make it to the end of this process.
Surge exposes this fuzzy front-end. If Surge is working correctly, a high percentage of deals will not close. This provides benefits to sponsors and stakers.
Sponsors can test ideas for project-investor fit with low up-front costs.
Stakers get paid for being early. This compensates them for the extra research that they need to evaluate deals that do not have social proof. It engages them in designing the terms of a buyable offer.
Stakers get higher returns. They can make early stage investments, at very low cost. If a deal loses momentum, they can just unstake, and keep their interest.
Research indicates that very early investments have high average returns because they exhibit a "power law" payoff curve. A small number of investments produce large returns. This effect is exaggerated in very early stage deals. Those deals have a high expected return in a large portfolio.
Sponsors should offer bonuses to early stakers.
Bonuses compensate early stakers for the extra work they do to research and validate the deal, before there is other expert and social proof.
Bonuses increase conversion from stakes to claims. Stakers can unstake at any time before closing. Bonuses motivate early stakers to stay in the deal through closing.
Bonuses motivate early stakers to promote the deal and push it toward closing. This is an open-access form of the process where early angels and VC investors get a good price, and then help promote the next round.
Some examples of bonuses include:
Discounts. A sponsor can offer tokens or shares to the first staker at a discount. Then, the price increases for later stakes. For example, the first staker might get 5X the last staker (80% discount), and the price might increase for additional stakes along a line from P/5 to P. In tokenomics, this is called a bonding curve. Surge will provide tools to deliver assets with a linear bonding curve.
Warrants
GP stakes. If a fund raises money with a Surge deal, they cannot offer extra fund units to early stakers, because that would dilute the value of later stakers too much. They can offer equity shares
Many types of investment rounds offer a preference to early buyers. For example:
A SAFE seller will adjust the discount and cap so that early buyers get a better deal
A public SPAC gives warrants to buyers of the initial IPO. A Surge version of this can give out different amounts or strike prices on a bonding curve
A public IPO provides options to the underwriters who buy the deal and resell it
Private funds sometimes offer "GP stakes" (their own equity) to early investors
A Kickstarter deal sometimes gives extra products to early buyers. You can try this with Surge
Some token offers use "tiers" to give early buyers a better deal
Some token offers use "bonding curves", to sell at a better price to early buyers. The bonding curve can be implied when a seller places tokens in an AMM pool that will increase prices as people buy, or when the seller places single-sided liquidity at multiple prices in a concentrated liquidity AMM.
