Fairmint, a decentralized finance (DeFi) startup based in San Francisco, has launched a new investment vehicle called Continuous Security Offering (CSO) aiming to help new startups to raise funds.
“A Continuous Securities Offering (CSO) is a new investment vehicle, updated for the digital era. The CSO enables companies with growth potential to raise funding by selling a claim on a reserve, funded primarily by a fixed portion of revenues.”
According to the company, any startup wishing to initiate a CSO can do so by purchasing a license for Fairmint’s CSO web application and installing it on the company’s cloud that allows companies to launch and manage a CSO with a minimal administrative burden.
The CSO works by creating a market where investors can get exposure to a company’s future revenue performance. To raise funds through the CSO, a company will first have to allocate a part of its realized revenues for a period of time to fund a reserve held in an Escrow. The reserve will be embedded to Fairmint’s CSO web application on its website, which will then issue ERC-20 security tokens enabling investors to buy a claim on the reserve.
The initial price of the token is calculated by an algorithm which is based on the size of the reserve. The investors can trade these tokens via Uniswap exchange and price the price will subsequently be determined by market demand. They can also redeem the token but the redemption price will be based on the size of reserves.
Each CSO will run for a time set by the company. After the CSO ends, the company is responsible for redeeming all outstanding tokens at the price paid for the final token minted.
According to the company, the CSO offers several advantages over traditional financing to the founders of the companies who can get financing while retaining their ownership stakes, investors, and stakeholder.
The company said this updated way of raising funds help companies to expand the pool of potential investors, allowing all stakeholders, not just a small group of healthy investors, to share in the value created by a company’s success.
Fairmint considers its CSO a security offering and as the company is based in the US, the tokens will only be available to non-U.S. users and accredited investors in the U.S. to be compliant with the securities law.