Token Launch & Valuation with Neil Thakur from Teknos Associates

[00:00:00] Neil: Half of our clients, while they may even have a US based entity end up being, or at least having a distribution of networks that are either, you know, are in the Cayman, BVI structure, or have a Swiss foundation or are based out in Singapore. So we're constantly dealing with these issues of intellectual property between entities, across different jurisdictions, or even the full transfer of that IP.

[00:00:24] Neil: And you know, if you get that wrong, you're on the hook for some fairly significant tax consequences if, if the governing body comes in and says, well, no, actually, the valuation of this should be significantly higher.

[00:00:38] Neil: You want to get the valuation as close to when that transfer is happening, and then you limit kind of the usage of that just to protect, you know, not only yourself as kind of being the responsible party when you know you're, you're on the hook for taxes and all of that.

[00:00:53] Neil: And certainly we defend all our reports, so we limit to 30 days for anything at this stage. 

[00:00:59] Umar: Welcome to The Accountant Quits, where we help accounting and finance professionals learn how to manage a business using crypto.

[00:01:06] Umar: In practice, token launches are often delayed, which can slow down the whole roadmap of a web3 project.

[00:01:13] Umar: Once there is a traded price for a token, it's very hard to get away from that price. And post-launch valuation would be magnitudes higher than a pre-launch valuation.

[00:01:23] Umar: That's because a token valuation report has a limited shelf life.

[00:01:27] Umar: In web3 valuation is critical and can impact everything from legal structuring and tax reporting to hiring and compensation.

[00:01:36] Umar: On today's episode, we are diving deep into token launch and valuation, and we'll go through setting up token grants, how to determine the fair market value of a token pre-launch, M&As in web3 and financial reporting.

[00:01:49] Umar: And joining me is Neil Thakur, Managing Director and Founding Member at Teknos Associates.

[00:01:56] Umar: For the past 10 years, Teknos Associates has specialized in providing valuation and advisory services to clients in web3 and has developed industry leading valuation methodologies and best practices.

[00:02:08] Umar: Some of their clients include a16z, Aave, Chainlink, Filecoin, Optimism, Aptos, dYdX, EigenLayer, Solana Labs, and more.

[00:02:20] Umar: If you're currently navigating the tedious process of a token launch and trying to make sense of your SAFT with your lawyers, tax advisors, or other service providers, this episode could avoid you some costly mistakes.

[00:02:33] Umar: Lastly, if you're new to this channel, I'd really appreciate your support to help us grow by liking this video and subscribing.

[00:02:40] Umar: Now, enjoy my conversation with Neil.

[00:02:43] Umar: Neil, welcome and thanks for being here. 

[00:02:46] Neil: Thanks so much for having me. I really appreciate it Umar 

[00:02:49] Umar: I wanna start the episode today, Neil, with the topic of valuation. So web3 projects for, I mean for web3 projects, valuation, it becomes a key concern at different stages.

[00:03:01] Umar: Both before and after token launch. And typically during this process, these projects would engage with a range of service providers, like the lawyers, the accountants, the tax advisors, and third party valuation specialists like yourself.

[00:03:17] Umar: So I wanna ask you, if you could walk us through what a token valuation actually involves and highlight maybe the moments when founders should start to pay close attention to some valuation issues.

[00:03:29] Umar: Yeah. 

[00:03:30] Neil: Perfect. Yeah, I, there's a lot of components to kind of unpack there and I think, you know, some of the critical points in time that we usually start speaking with folks are, well candidly as early as possible, right?

[00:03:45] Neil: The few moments of, of critical kind of mass in all of this analysis is making sure that you get to this process where if this in fact is for something that's, call it compensation related.

[00:03:59] Neil: You want to get this done prior to any potential pricing moment on the, the token. Now, and you know what I mean by that is, either selling the rights to tokens via SAFT, maybe there's a commercial deal where you're promising tokens is a certain FDV, or it's part of any sort of deal where you're implying a value for the tokens.

[00:04:18] Neil: And the problem with that, well, it's great from a capital raising perspective or just kind of an understanding of the market for the token. , The downside is actually, it comes into play when you're actually distributing these tokens or the rights to these tokens to founders or early individuals who are part of the project where they're maybe getting this token as a form of compensation, in exchange, right, for different things.

[00:04:46] Neil: Now, one way to, get around all of that, or it's not really get around all of it, but to safeguard yourself, on any potential significant tax issues is, is to get a valuation prior to any of those pricing events. And when you do that, you can justify that, you know, the token may not have as much value at the early stages, right?

[00:05:10] Neil: Because there's risk components to the network launching. You know, the token usually isn't minted yet or is about to be minted, but you know, the network isn't live. So, you know, while you may have, a positive kind of focus around where the value is, going to be at some point, the reality is that, the token in of itself at that early stage can potentially have very little, or nominal value. And the way we get into that in terms of how we, to value that, that token or the project in of itself, is centered around some concepts that we take from, you know, the equity world, right? When a company is originally formed, you look at things, from potentially a, a liquidation value, right?

[00:05:56] Neil: There hasn't been a financing, round, and it's, it's more aspirational in terms of what the value could look like. But if I'm really just forming entity. A lot of times, I can look at it at a value, what we call just par, right? It's just several fractions of a cent.

[00:06:12] Neil: And the way we justify that in the token world at very early stages, , you know, one very common methodology is to look at what we call kind of a, a liquidation slash cost based analysis.

[00:06:24] Neil: Similar, , for some folks who are familiar with IP, like a cost plus approach, where you look at what's been put forth towards the development of that particular asset at that point in time. And, you know, you can even carve out and really around kind of areas of focus of, of the token, right? What's been put forth towards the development of the token versus the entire network.

[00:06:44] Neil: 'Cause a lot of times, the entire, the entire network when I'm applying that to just the overall kind of value of the ecosystem, you know, there are a lot of things that are built on top of that depending what kind of project it is, right?

[00:06:55] Neil: So, you know, early stage projects can have, you know, products and service built off of, the efforts that are put in forth towards the development of the token project.

[00:07:05] Neil: But the token in of itself, the actual tokens like utility and value can be even further separated from that. 'Cause that's just one component of that. And so when you look at that and you look at early stages of, you know, what it costs to put, that token together, usually if there hasn't been any kind of pricing mechanism and there's enough distance between when the token is actually gonna launch on the network, or, maybe there's gonna be a potential liquidity event around that in the future, you can still make the argument that, there's not a lot of value in that token.

[00:07:38] Neil: And so when you consider that, you consider that there's time between when this token's gonna launch, the risk factors associated with that, and then maybe there's lockups on top of that. You can get to a value that's on the lower side and you can utilize that when you're transferring the rights to these tokens to founders and other individuals, that are gonna receive that.

[00:07:59] Neil: One of the critical things here though is, you know, making sure that again, that you're, there are no kind of potential indications of value around that token. So we like to see as much distance as we can between when you make those distributions of the tokens, and again, that pricing event.

[00:08:18] Neil: And so we'd like to say, you know, at least, you know, 45 to 60 days because given the volatility in this market, as you know, you know what's true today isn't necessarily gonna be true, you know, tomorrow, a few weeks from now. And someone could argue a few minutes from now. So anyway, those are a few different things, like at early stages that we look at.

[00:08:37] Neil: That's probably the most kind of basic and fundamental way, but it's really about like the, the factors that are surrounding the ability to use that methodology that really come into play here. So it's, that's why just getting to this, and talking to people as early as possible on it, is, is very, critical at the end of the day.

[00:08:57] Neil: But hopefully that gives a little bit of a sense of kind of how the things we look at. And there's certainly several other methodologies that come into play, but at the early, early stages, that's how we look at it. And then as we move forward in the process, we can certainly address some of those other types of methodologies.

[00:09:14] Umar: When you were saying 45 to 60 days, what were you referring there? And can I ask you what is like the typical shelf life of that token valuation report? 

[00:09:23] Neil: Yeah, so there's a lot of different perspectives on this. If we take an analogy to, you know, the equity world, a lot of times in some more traditional analysis, you almost have a, a year or a material event, whatever comes sooner, material that could be like, you know, a financing round or something that's actually implying a value for that asset.

[00:09:44] Neil: A lot of traditional worlds will say, hey, you have a lot more time on the valuation. We take the perspective just having done this so long and understanding the volatility of the world that we live in on this, we have a very limited shelf life on the valuations that we prepare as opposed to probably most.

[00:10:00] Neil: Just as we're cognizant of how, you know, regulatory bodies may look at this or, anyone else who's reviewing this, you want to get the valuation as close to when that transfer is happening.

[00:10:11] Neil: And then you limit kind of the usage of that just to protect, you know, not only yourself, as kind of being the responsible party when you know, you're, you're on the hook for taxes and all of that.

[00:10:22] Neil: And certainly we defend all our reports, so we limit to 30 days for anything that is at this stage, it's actually shorter in other certain circumstances where it can be, you know, 15 days or shorter if the token is live and it's trading because obviously there's movements around that token.

[00:10:39] Neil: So, you know, it's harder to, support that value in those instances for longer periods of time. But we limit that shelf life specifically for that period. And, if there's also another reason around it, there's use cases in the US that we see, something called an 83(b) election. We can get into that, but, the filing of that needs to be done within 30 days of the token grant.

[00:11:02] Neil: And so it also kind of aligns with that concept as well, right? You've got a regulatory body who's suggesting that there's a limited, time that you have to file for this particular use case. So it aligns with that pretty well as, in addition to that. 

[00:11:18] Umar: Thanks for sharing. So we'll speak more about the 83(b) election later, and we'll also speak about token valuation methodologies. But before, there is a topic I wanna go through around setting up multi-jurisdictional entity structures and their associated IP valuation. Any, any transfer pricing issues that can arise. So when a project starts to build in web3, it usually starts with a simple legal entity like a devco. But as the project grows, and teams would often then think about setting up foundations, or DAOs, like, that manage the protocol.

[00:11:55] Umar: And that usually involves transferring IP or intellectual property. For the listeners, IP in web3 would typically relate to things like smart contracts code, whitepapers, patents, domain names. So if those intercompany transfers are mispriced, especially undervalued, it can trigger tax consequences.

[00:12:17] Umar: So I wanna ask you for projects who decide on setting up these international entity structures, could you walk us through like potential valuation issues around these IP? 

[00:12:29] Neil: Yeah. So similar to other types of situations where, you know, you have a potential regulatory body looking at the transfer of property that goes across jurisdictions, you know, be it tokens, IP, anything of that nature.

[00:12:44] Neil: Anytime you leave one jurisdiction and go to another, there's usually some sort of tax consequence. And so you referenced, transfer pricing and, and IP kind of regulations that fall around that. We know that at least in the US and other, I'll say other jurisdictions around the world, 'cause we, most of our clients are, I'd say half our clients, while they may even have a US based entity end up being, or at least having a distribution of networks that are either, you know, are in the Cayman, BVI structure or have a Swiss foundation or are based out in Singapore.

[00:13:19] Neil: So we're constantly dealing with these issues of you know, the licensing of intellectual property between entities across different jurisdictions or even the full transfer of that IP. And, you know, if you get that wrong , you're on the hook for some fairly, you know, significant tax consequences. If, if the governing body comes in and says, well, no, no, actually, the valuation of this should be significantly higher because of, you know, whatever certain factors are in, in play at that point in time.

[00:13:49] Neil: So again, what happens is, similar on the token side, you try to get to this as soon as possible when the, the potential IP could be on a lower side. And you make that transfer at that time. Now there's, and I'm gonna qualify this as we are not tax or legal professionals at the end of the day, and we, we rely on our partners in terms of how they structure these things.

[00:14:13] Neil: But, in several circumstances, if I'm going to transfer IP, some of the assets that you, you know, pointed out can have, a significant impact on, on their worth when they're transferred over and, and the tax impact. And so, when that's, transferred over, we make sure that we get to it at a certain time, again, hopefully as early as possible, where, you know, the development of that asset is still at a very early stage.

[00:14:39] Neil: But the methodology is a little bit different. We can get into that in a second, depending on what's happened, with the company. But yeah, at, at the end of the day, you're talking about, you know, tax hits anywhere from, you know, 25 to 50 to 75% depending on how it's structured, and, and penalties associated with that, that's kind of inclusive, all that.

[00:14:57] Neil: So you don't wanna, you don't wanna open yourself onto that. We know that the regulatory bodies certainly are looking at this. And the thing is, you know, when you're talking about the web3 world and we're talking about the transfer of property, like, some of this stuff is on chain. You can actually make reference to, you know, what's being transferred.

[00:15:14] Neil: And then you can, you know, reconcile that back to contracts. And so if you don't have supporting documentation that, describes what the value of these are during that point in time, it could be very detrimental, at least when they're transferring the IP. I mean, the other side of this too is when we'll see situations called like benchmarking analyses.

[00:15:35] Neil: And, and that's when we're talking about more like transfer pricing issues where you're licensing backed technology amongst related parties. And so when you have that, again, making sure you're benchmarking like the rates that you will, that you're charging, between two, two entities that could be considered related, or even if not, you wanna make sure that, they're done at an arm's length level.

[00:15:57] Neil: And so getting evaluation to justify that, that is, is certainly important. 

[00:16:02] Umar: So I have a follow up question. We had Jonathan Turnham last week, or two weeks ago on the pod from NXT Law, and we were going through company structures. And he was saying that when, like all these company structures let's say the BVI SPV token vehicle, the Cayman Foundation, or the LabCo, these are separate entities.

[00:16:24] Umar: I want to ask you like Yeah. In practice, like, can you give like a very given, like these are separate entities, like how does that transfer pricing issue related to, because these entities are not actually related to one another, right? 

[00:16:39] Neil: Right. And so this is like the backstop of, there's a lot of discussion around this.

[00:16:44] Neil: I'll just say that, right? In reality, there's the reason we set up all these entities, right? And they are meant to operate kind of independently. And so, you know, in that instance, usually you're fine. It is still, if you're transferring the IP, even though it's a separate entity, that initial transfer is where you wanna make sure, 'cause you have something leaving one entity, it's going to another.

[00:17:08] Neil: Now, even though it's not related, and that's a loose term here because the technology and everything that's run around this, is hanging via very kind of loose thread in the beginning, right? Because everything in theory is, is coming from the same place, but in spinning that out, right, that initial kind of movement outside, certainly whether it or not it's related or not, doesn't matter, right?

[00:17:33] Neil: Because you have something leaving one jurisdiction, going to another jurisdiction. So, you know, that concept in itself kind of comes into play. The backstop around, you know, worrying about if they're related parties or not. I think this is more of a, call it belt and suspenders kind of perspective, right?

[00:17:49] Neil: It's, we know that. In theory, you're right, they are separate entities. But if someone were to make the argument that, they are a little bit more closely related than normal, having something that justifies why the value is what it is from a benchmarking analysis is certainly very important on that case.

[00:18:10] Neil: And then there are situations where, specifically where they are a little bit more related and vertically integrated in some situations. And so that's where, again, this is where, you know, I would lean on our, our friends in the tax and in, in legal world in terms of how they've structured it, where there may be, you know, , transfer pricing or benchmarking issues, where they still need the valuation.

[00:18:32] Neil: But, for the most part it's, you know, to your point, it, while they are separate, entities, it's meant to still justify that transfer, that potential issue that could come up should someone question it. 

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[00:20:25] Umar: Correct. Now I wanna move on to token grants. So a lot of these projects working towards their token launch, they will also have some form of token incentive plan and token grant. So could you discuss how these token grants would typically work at this stage and maybe some of the issues that could arise around around valuation.

[00:20:49] Neil: Yeah, so, you know, we, we try to stay in our lane around just the, the valuation specific issues. And, one of the things that I highlighted early on is, you know, getting to this prior to any events that could price the token which could, you know, bring cause to adjust the valuation to something on a, on a, on a higher level.

[00:21:10] Neil: One of the other like pitfalls that we see sometimes is when people put together commercial arrangements where it's not necessarily a financing arrangement in, in a traditional sense, but, one pitfall is, hey listen, we, we've got, a network operator or another potential market maker and we're going to run a deal with them where we're going to, in exchange for their services, we're gonna promise them X amount of tokens at a certain valuation, if you will. And it's because nothing is like officially kind of changed hands. You know, there's, there's the, the argument that, oh, it doesn't really matter.

[00:21:49] Neil: Well, it, it kind of does, but you're implying a value for the token in that transfer in that potential transfer that occur. And you know, you're gonna be performing services in the meantime. And so because of that, there could be potential concern around, you know, us saying the value of this is next to nothing.

[00:22:07] Neil: But along the lines, you have agreed with certain partners that suggest that this could be worth something significantly more. And so, you know, we see situations like that kind of arise at early stages sometimes when people are negotiating deals and while they're not. In the form of a, a typical kind of capital raise.

[00:22:26] Neil: There are other forms where, you know, this can kind of apply. And so those, that, that's one kind of big thing that like I, when I talk to a lot of early stage founders, which it's not necessarily intuitive around its impact and things that we see across the line.

[00:22:40] Neil: Other big things that we get asked about. And there's, I think there's different schools of thought on how people approach this, but one common question is, is the token need to exist? You know, when we do these distributions of token grants, you know, does it have to be minted and then we do the transfer?

[00:22:59] Neil: I think the vast majority of folks usually say. And depending on which lawyers you talk to, will say that, you know, the token itself, the property, if you will, has to exist for you to write the contract on it and, and be able to transfer that and show that there's something has been, you know, transferred.

[00:23:15] Neil: There are other folks that say actually the right to that token or like, kind of like a prepaid forward contract, if you will, future token interest, if you will. That type of methodology is also fine. You know, we as a valuation firm don't have a particular call it, say on that, you know, I, I'm indifferent towards that as a valuation, person in general.

[00:23:40] Neil: Like, there's value at something, even though if it doesn't exist, right.

[00:23:43] Neil: The right to it, because there's, there's efforts to be put forth towards that asset. So the contract in of itself could even on itself have value. So, you know, it, it doesn't affect kind of how we look at it, but depending on the jurisdiction that you're involved with, the use case, particularly in the US again, you know, we'll get into what 83(b) election is, but in that instance, people might make the argument that the token in of itself has to exist.

[00:24:09] Neil: So those are certain situations where like, you know, we always. Like to make sure that, you know, we're, we're talking to the right partners on that and we're making sure that our clients or potential clients, are, are very well aware of like the potential issues that can come up, in those situations.

[00:24:27] Umar: And what would be similar and different from common option grants there? 

[00:24:32] Neil: Yeah, so the common option grants are a little bit different, right? In terms of what you're transferring.

[00:24:39] Neil: A lot of times what you're trying to argue, for the, the tokens, the closest thing on the token side to, I wouldn't say option grants, but transferring the actual asset in of itself, are, is that 83(b) election or actually transferring the actual property.

[00:24:55] Neil: When you talk about options, it's the right to the token or the right to equity in the future. So in in the US you have this thing called IRC49(a), right? And there's different kind of related, financial reporting codes that sit with that ASC718. And then IFRS has their own kind of, logic around financial reporting around this.

[00:25:18] Neil: And so there, what you're saying is you're setting kind of the, the fair market value of the asset at that time, but you're not actually receiving that asset right at that time. You are actually setting a strike price and then having that equal to the underlying value of the, of that asset, and then you'll receive it in the future, right when you exercise the option.

[00:25:41] Neil: On that, particular asset and you pay taxes, at different points in time. What we're talking about here is trying to justify the receipt of this property. Like you're getting everything at once, right? There are restrictions associated with it. 'cause there'll be lockups similar to like, there's two, there's lockups and there's vesting, right?

[00:25:59] Neil: There's two separate concepts of, things from a financial perspective, having a, a vesting as it's earned over time. The lockup is more of a, a technical restriction associated with the network. So two different things that are occurring and tokens are different from equity in that instance by themselves.

[00:26:19] Neil: But what we're trying to justify at the early stages is that, you know, you're getting this entire property upfront, in theory, and you're willing to pay, the taxes on that because the value's at very, very low. Well, you can argue that the value is very low at that time. You don't mind paying taxes on something that's hopefully very nominal.

[00:26:39] Neil: And, even though it has restrictions and you're receiving it later in the equity world, and tokens can work in this way if you actually run a token option kind of contract. But a lot of people don't like doing that because once I receive the tokens at later stages, you know, liquidity issues arise around maybe when I receive the token and having the ability to sell to cover taxes, et cetera, that can be a little more complicated versus the equity world, you know, there's a little bit more clarity on how that equity is gonna work.

[00:27:10] Neil: So, you know, there's fundamental differences there between how people structure these. These types of transfers, especially at early stages. Now, when it gets to later stages that we can certainly talk about that, but early stages, like the differential exists there in terms of how people structure it.

[00:27:27] Neil: But it's the difference between say, arguing you're receiving this entire asset even though it has restrictions and limitations on it today versus, you know, the right to the, the asset and it actually being received in the future. 

[00:27:42] Umar: Speaking about structuring of these token grants, could you for the listeners provide like maybe like some sort of checklist, of the first step that they'll have to do around probably the token would be, created minted until that last step around filing that 83(b) election that you spoke of, but that is also very specific to the US.

[00:28:04] Neil: Yeah, it's very, US, , kind of focused, but if it's kind of the order of operations of things, and it can apply to other jurisdictions in terms of, you know, the justifications that are made around what's being received. But, you know, in terms of where we come into play, it is the actual the valuation comes in or like, probably, I would say at least a draft of the valuation comes in prior to when you've got the entities.

[00:28:33] Neil: Well, I would say we do it in conjunction with when the entities are already set up. Right, so, and depending on where you're gonna issue the tokens from. Right. If it's out of the foundation or the LabsCo, there's different jurisdiction around that. But all that has to be set up right ahead of time. And then you wanna make sure that you're, you're teamed up with, your law firms, to make sure that the contracts are set up, ahead of time as well, so that they can drop in our value.

[00:29:01] Neil: But you wanna have all that set up. And then we prepare our valuation. And then, on the heels of that, literally within the next couple of days, the tokens are minted and then they're distributed, to individuals, or anyone who's receiving that. So it's kind of like this, you know, making sure all the entities are set up and then having the contracts kind of in place.

[00:29:24] Neil: And then we perform a valuation and then at that point utilize that valuation to drop into the contracts that are set and they're distributed through, different parties. And that's where you know, you have your token cap table management guys and stuff like that who handle a lot of that distribution.

[00:29:41] Neil: There's a lot of moving parts to that. So that's certainly important. So getting that out there. And then, if we're talking about an 83(b) election in, in the US then you wanna make sure once that document has, been issued and the transfer has occurred, you got, that's the clock that starts on the 30 days, right?

[00:30:02] Neil: And so you wanna make sure you file that within that period of time as an individual, on that side of things. And then I mentioned that kind of 45 day window, if you will. That starts from, and, and that's not, it's kind of related to all of this, but it, it's kind of the unofficial start of when you want that kind of call it cool down period, right?

[00:30:23] Neil: So if I were transferring something, today, you know, you, you extensively wanna wait, you know, around 45 days before you do anything with the token via, via pricing or it goes on exchange or anything like that. We also recognize that, you know, timelines slip, in this industry quite often. And sometimes they can move up right, depending on how the market's working.

[00:30:46] Neil: But when we put our valuation together, it's, you know, what's knowable as of that point in time. So, you know, there's only so many things we can control, , when that exists. But, it's just things to think about, in terms of looking at the order of operations when you're doing, you know, actual token grants.

[00:31:01] Umar: And for the listeners, when you mentioned these, , token cap table management tools, so you can check out tools like Liquifi, Magna, Toku, TokenOps, all these tools like help you in that initial distribution stage. Yeah. So this next topic is specific only to the US jurisdiction and it's, , the 83(b) election.

[00:31:24] Umar: So it's basically a tax strategy that's relevant to token grants that are subject to vesting. Yes. Can you explain what an 83(b) election is and why people choose to do them and why it can be costly if you don't actually file, file it. 

[00:31:41] Neil: Yeah. Yeah. And we've kind of alluded to elements of it, throughout this conversation, but yeah, the, the large kind of idea here is that you are recognizing the value of this particular asset. But that it has to have restrictions associated with it. Like, and usually it's kind of time laxing or restrictions and it's barred from the equity world. People traditionally when they're starting, new companies, with very minimal value, basically like a holding company or, it's just an idea around something and hasn't raised any significant, well, hasn't raised any capital usually.

[00:32:19] Neil: But it has very little value by way of just kind of thoughts around, you know, IP, et cetera. A lot of times people will issue equity and it's very different from issuing an option, right? This is actually, I'm getting my shares of, of the company at very early stages, and, and I alluded to it before around just calling something par value.

[00:32:41] Neil: And, it's worth, you know, fractions of a penny. And then, you know, we pay taxes on if on 10% of the company, I'm getting 10% of that company today. And you know, it may have, vesting provisions on it. Usually it has to have some sort of restriction along that, those lines of, of vesting. I'm gonna get taxed on all that right now, and I don't mind that because there's not much to it, on the value of it.

[00:33:04] Neil: And so we have the same concept that we've applied that concept to the token network and the tokens that will be received on that. So in this instance, same kind of concept, I am going to, again, receive tokens, some percentage of tokens in the network. And maybe as a Founder, usually I receive a larger portion than most, right?

[00:33:26] Neil: It could be 1 or 2% of the network sometimes. And that's a big number. If I look at that number, what it would be traded out on the exchange versus what it is when it, it's first formed in terms of the, the token project in of itself. And so you'll have, usually vesting restrictions associated. I alluded to lockups that could be on there.

[00:33:48] Neil: But the critical point is that you have these restrictions on there. And what I'm gonna say is that I'm fine being taxed on the actual value of this today, without those restrictions, what's the value of that look like? You know, without the, the applied, vesting restrictions on that, and yeah.

[00:34:09] Neil: Again, in this early stage, it's important to, to get to it where there's no pricing events around it. And so then we can justify the value being low. And then I only pay taxes when I sell that asset in the future, and I get to take advantage of long-term capital gains taxes. Right. And so in, in most jurisdictions, you know, just not only the US but most jurisdictions have separation between what we call ordinary income and long-term capital gains taxes, where you have, the advantage of holding onto the asset and those rates are different.

[00:34:39] Neil: If I don't do that, one of the, the difficult things that I have to deal with, maybe as a Founder or someone who's getting large blocks of tokens in the future, is that, maybe I get, I'll get a token option or something like that. And then as my tokens unlock at, you know, that first cliff, so they vest and unlock you depending on how it's structured.

[00:35:00] Neil: And that first cliff, there's like, maybe I get 25% of those tokens and then monthly thereafter.

[00:35:05] Neil: Every time I receive those tokens in the future, that's a taxable event, right? And so, depending on how the network has evolved and you know, we all wanna be, if I'm a token project, the next kind of Solana if you will, or, you know, a project of, of that significance, with, you know, solid liquidity in the network.

[00:35:27] Neil: But the reality is in the early stages of, of these projects when they're still kind of getting going and the network's still getting built out, if I get a large portion of tokens, my ability to sell and cover the taxes into the market on that is, can be significantly difficult, right? If I have to receive, let's say at that point, you know, it's like a a million dollars worth of tokens, but if I try to sell that million dollars worth of tokens in the market on that day, I could effectively depress the market significantly.

[00:36:03] Neil: And so, you know, now I'm stuck with this issue of, you know, trying to cover the taxes on a significant asset that I can't, and, you know, there's this, there's a huge liability that comes into play. So now, and that's all at ordinary income, right? And so there are issues around that.

[00:36:17] Neil: Now we're one of the few firms out there. I don't, don't know who else does this, but, we've come up with ideas to help in that situation, should that ever occur. And depending on kind of how the network works and, you know, the order, order books and depths of liquidity around the market, there are some strategies that you could argue that, you know, if I remember receiving a huge block of tokens and there's this effective slippage in the market, that the tax impact could be less because you could argue the fair market value of that token is worth less because moving that significant block of tokens through the market could effectively depress the market.

[00:36:54] Neil: But we wanna save you from trying to predict what that's gonna be looking like in the future by doing this, at very early stages so that you only have to worry about it when you effectively, sell the tokens and, and take advantage of the capital gain taxes. 

[00:37:09] Umar: So just to summarize it for the listeners, when filing 83(b) election, let's say I received my tokens when the value of that token was at $1 and five years later when everything has been vested, it now sits, let's say, a hundred dollars.

[00:37:23] Umar: So my tax liability would be, if I filed the 83(b) election, would be on that one, on the $1. 

[00:37:30] Neil: So, yes. So the tax liability in the early stage would just be on that $1, right? And so I wouldn't pay taxes again until I actually sold the asset versus, so what's happening is I'm actually getting rights to that token in the future when it unlocks and everything.

[00:37:45] Neil: But I'm saying that I'm getting it all today. But you're exactly right. So I pay taxes on the dollar and then, you know, when I receive it as it unlocks in the future, I don't worry about paying taxes at that point in time. Only if I sell it is when I pay taxes. 

[00:38:01] Umar: Cool. Next, I want to go through some of the methodologies that you use to determine that fair market value.

[00:38:07] Umar: So, in many, in many jurisdictions, crypto is treated as property for tax purposes. So if the company's distributing tokens in the form of grants or compensation like we spoke of, they have to determine the fair market value. So, to navigate this , companies often commission third party token valuation services like yourself at Teknos.

[00:38:30] Umar: And a token valuation exercise basically would provide the documentation and substantation of value required by the tax authorities when reviewing these token grants.

[00:38:41] Umar: Could you go through some of these methodologies that you use to determine the fair market value of a token pre-launch and maybe some common, yeah pitfalls that you've seen that basically then could, lead into like some unfavorable valuation results from a tax perspective. 

[00:38:59] Neil: Yeah, certainly. And, again, we've, we've touched on a, a couple of these kind of concepts, but yeah, we can dive deeper into them. But, you know, one of the most common ways, that we try to look at these valuations at early stages is, again, that call it asset cost-based type of approach, where you look at what has been put forth towards the development of, of the token project and specifically the token in of itself.

[00:39:23] Neil: And at early stages, there isn't a lot of work that's been done at that early stage. And if effectively you have not priced the token in any other way versus like via SAFT or, some of the other things I alluded to. You can take that methodology where you start off with kind of the overall underlying token project in terms of expenses, call it sweat equity, like time, all of that, let's put forth towards that.

[00:39:48] Neil: And then you look at discounting methodologies where, there are put option analyses where you look at implied discounts for lack of, call it liquidity and marketability between the time of launch.

[00:40:00] Neil: And sometimes you throw in lockups as well. So if you extend this out to, during periods, you have this asset for the entire, you know, network, you can get to a per token value based off the total supply. And then you can apply discounts associated with, you know, the time before the, the project actually has any kind of utility.

[00:40:22] Neil: And so that is one of the more kind of mundane and basic approaches that we try to apply at early stages.

[00:40:28] Neil: You know, the, the abilities to being able to do that. And so to your point around pitfalls, yeah, again, making sure that there's no pricing mechanisms or there's enough distance between, you know, when that valuation occurs and that transfer occurs.

[00:40:40] Neil: And again, when you, you expect to launch and, do some sort of, you know, exchange listing or something along those lines. Those are some of the bigger kind of pitfalls that we are always concerned with. As we get closer to launch, right, the methodology shift a little bit. We start looking at potentially, token market caps, in the space for similar projects.

[00:41:02] Neil: And it starts to be a more of a blended approach, where you look at, potentially market caps or fully diluted values of similar tokens. And call it a basket of tokens, and you can take a weighted average of that market cap and, weight it against the call it cost to recreate approach as well.

[00:41:25] Neil: That starts getting utilized when we get in under that 30 day kind of time window of like, if something, someone comes to us and they're going to, to launch very quickly.

[00:41:34] Neil: We have to start layering in the, the market impact. And then, you know, there's other market driven approaches where we can also look at, potential sales in the market. You know, if we have knowledge of OTC deals and stuff like that, we can take into account a lot of different market driven factors there, , which are important in this industry just because there's so many moving parts.

[00:41:56] Neil: But once you get really close to a token launch, making sure you start layering those things are important. And then, you know, there's some issues where, you know, you might be able to, to build out, call it long-term forecasting around the tokens themselves. Running Monte Carlo simulations around like the price in of itself compared to different, modeling exercises.

[00:42:20] Neil: But we tend not to rely upon anything like that, until there's enough data to support that. Just because, you know, in the equity world we can, we can make a lot of, assumptions and feel a little bit more confident about things versus here, you know, each one of these networks operates very differently, you know, depending on whether it's an L1, L2, et cetera.

[00:42:41] Neil: There are different ways to look at that. And once you get beyond the scope of like having enough data to be able to support some assumptions that go into those models, it, it doesn't really prove something to, to be all that meaningful.

[00:42:53] Neil: So, , you know, it's usually a asset driven approach in the beginning, a market driven approach as we get closer to launch.

[00:42:59] Neil: And then once it's launched, I mentioned this before, but now, now you're dealing with the actual kind of trading mechanism around the token in of itself. So, that's where we start diving into the order book and depth analysis of, you know, something how it trades on an exchange or if it's on a DEX with the constant product model formula kind of looks like.

[00:43:21] Neil: And, and, and there, it gets to be a little bit more of a sophisticated analysis around the token and how it works in, in a particular ecosystem. There's other methodologies that you can get into when you start forecasting kind of uptake and distribution of the token. And depending on the network, if it's a security token, stuff like that, where it might have claims to other types of revenue streams.

[00:43:44] Neil: And on that, there could be a combinations of income approaches as well, but, you know, but vastly like the, the, the majority of our token projects in the early stages, we try to justify that, that call it cost-based approach, if you will. 

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[00:45:40] Umar: So what if people listening right now are realizing that they actually forgot to file this 83(b) election, are there any other strategies to optimize for tax liabilities when the token is already live?

[00:45:54] Neil: Yeah, and so this is, the, the best case scenario, it's gonna sound weird, but the best case scenario if I didn't file my 83(b) election, is to look at the, the unlocking of the token as I'm receiving it in the future. And this is, where we perform that call it, liquidity analysis or order book analysis, where the first batch of tokens that unlock. You know, we would look at effectively what the implied fair market value would be if I were to, to move that entire block of tokens that I'm receiving through the network. And the hope there is that at early stages, there isn't a lot of liquidity in the network.

[00:46:31] Neil: And it's odd because in theory, we're launching these projects and, you know, you want them to have a tremendous amount of uptake and, and movement and depth and all of that. But from a tax perspective, at early stages, it's far more beneficial if it, you know, it takes a little bit more time for the network to ramp up and there's not a lot of depth in it.

[00:46:52] Neil: And so essentially what we'd say is, okay, well I'm getting, you know, 1% of the network that's unlocking on, you know, today, for instance. And then I would go into the order books of the exchanges where this is being traded, and to try to see effectively how far down do I have to go into this order book to liquidate this position.

[00:47:12] Neil: And commonly this is referred to as slippage, right? In the, in the equity markets. And so there's an implied discount on the token in those situations. Now I mean, we've seen situations where the, the block is large enough where it can be like a 90 plus discount on what it's trading at, in the market.

[00:47:30] Neil: And in those situations, you know, that could be a very beneficial solution, around, you know, okay, I missed my 83(b) election. I don't get this for fractions of a penny, but I would be protected at least on the receipt of the tokens and, and not being taxed at, you know, if it's trading at 10 bucks, I'd rather pay you know, taxes on, a significant discount on that if I can.

[00:47:52] Neil: And getting a, a valuation from us, usually helps justify that. And we, we do that in, a fair amount of circumstances. 

[00:48:00] Umar: I also have a topic on working with high net worth individuals. Yeah. So some of like, the listeners, they'll be working with high net worth individuals. What are some of the unique valuation considerations that they could have for these clients?

[00:48:18] Umar: When it comes to donations and stuff? 

[00:48:21] Neil: Yeah. So pretty commonly and, and there are some providers out there that help structure those, now, at earlier stages. But and usually it's like a state and gift tax lawyers who help you put that together. But again, similar to the equity world, you are taking these assets, and maybe you're putting into a, a trust, right? Or some sort of vehicle that is, is tax protected or sheltered, if you will.

[00:48:45] Neil: But upon that transfer, you need a valuation to support that. And so, along the lines of when we're doing this for an 83(b) election, a lot of times, very shortly thereafter, people will take the assets that they received, and move them into a trust for either their, you know, family members or other, individuals or, or, or entities, if you will.

[00:49:08] Neil: And by moving them over there, like there's, there's tax, benefits to doing that. So as that asset kind of grows in that entity, it's shielded from any kind of issues on the tax perspective. So, we find ourselves doing a lot of work there for a lot of the founders who are getting significant portions of tokens.

[00:49:31] Neil: And depending on kind of the different stages of when that's being transferred, you know, there's, you know, different valuations that need to be performed with all of that. I'll say that, you know, other things that we deal with for individuals, you know, at, at that level in addition to kind of gifts and estate, is anytime there's they're moving kind of jurisdictions, we, we start, we're starting to see this a lot where you're leaving maybe the US or Canada or other jurisdictions upon exit. There's usually a tax associated like call, like an exit tax and all like of your holdings, right? Securities property, et cetera. And tokens are part of that.

[00:50:07] Neil: So, we find ourselves doing valuations in that instance as well where people are moving from one jurisdiction to a more tax friendly jurisdiction, but upon exit, you know, the US or Canada or other, areas would potentially say, okay, we have a right to the assets that you are holding and so we're gonna tax it on the way out.

[00:50:26] Neil: So, you know, we find ourselves doing valuations in those instances as well. 

[00:50:30] Umar: Thanks for sharing. Now I want to go through the topic of M&As in web3, and at least under the US GAAP, the accounting standard for that would be ASC805 for business combination. So under the standard, it says that the acquiring company must recognize the assets obtained and liabilities assume at their fair values as of the acquisition date.

[00:50:53] Umar: I wanna ask you in web3, what are some of these, the unique assets that are part of an acquisition for web3 business compared to any other, like the more traditional industry? 

[00:51:05] Neil: Yeah, so it's interesting that, you know, we're starting to see more activity in the, in the M&A space. No matter kind of what metric you look at in terms of number of deals, number of quality deals, all of that, in the last like six months, it's been higher than it's ever been.

[00:51:21] Neil: So we're certainly seeing some attraction on that side of it. And so when those deals are occurring, and depending on what kind of project is, and there are some more like traditional call it picks and shovels related types of transactions where the companies are more in line with what, you know, web2 companies are, but they just service the web3 industry.

[00:51:40] Neil: But if I'm looking at like, token projects that are being kind of absorbed by other projects or other firms, maybe there's potentially an exchange of tokens or the retirement of certain, you know, projects. Either way the, the, the critical thing here is, if I am going to purchase another company in this space, understanding what's being purchased is, is critical.

[00:52:06] Neil: And a lot of times there's some element of digital asset, right, that is associated with that. And so either, and we're starting to see a lot of that where, you know, some larger companies are coming in and utilizing their tokens as a method of compensation, right? To make the acquisition from their treasury.

[00:52:26] Neil: And so when you do that, there's like an implied value of the token that, is associated with it. But that token may have restrictions, or there may be liquidity issues around that token. So, and trying to understand what the purchase price of that, project is. Understanding the token by the issuer is important.

[00:52:44] Neil: And it's similarly in exchange if I'm looking at, you know, what the value of a project is that I'm buying. And maybe it's the reverse, like there's some sort of asset here that, you know, in their treasury that from the acquiree that has, tokens and maybe there's kind of an implied value to their token network that's being exchanged, in relation to that.

[00:53:07] Neil: And those are things that we have to make sure that we spend time understanding right, in this process. And then depending on what you're acquiring, like if you're trying an exchange or you just a project, the digital assets themselves come into play in terms of their value and recognizing what the purchase price should be.

[00:53:24] Neil: And again, how to allocate, right? 'cause that's the purchase price allocation is like, what are the different components of it? And usually the biggest one around that is understanding what the digital asset component of it is. Obviously there's goodwill and intellectual property and all of that.

[00:53:38] Neil: But when you get into the digital asset portion of it, that's where complications can potentially arise. And, you know, given our exposure into the space, we've had a fair amount of experience doing that 

[00:53:49] Umar: I'm just thinking about a company preparing for M&A, for an M&A and they want to compensate the, company they're acquiring in terms of tokens.

[00:53:57] Umar: And then there's like a market swing, like how do they protect themselves, like from, market conditions? 

[00:54:03] Neil: Excellent point. And we see this quite often and usually there's provisions in there where, as opposed to kind of focusing in on spot prices of the token, especially if it's traded, right. What you'll do is layer on, volume weighted average time periods to protect during the transaction. And so it could be like a 30, 60, 90 day average that you could build into the provisions of the acquisition process where you know that that large volatility, swing that exists can be somewhat protected by instituting this mechanism to protect that movement, when you're trying to figure out kind of the right transaction price.

[00:54:46] Neil: And then you can layer that in with, you know, lockups and provisions there where you try to kind of isolate the value from volatility, at the end of the day. But that's probably the most common kind of form of structuring that we see. And we try to recommend to folks when they're dealing with issues where they're buying something where either the issuer has tokens that they're using in the form of compensation, or the acquiree has tokens that you're trying to make an assumption around value and the exchange of value between tokens. 

[00:55:18] Umar: Perfect. Neil, before we speak about Teknos, there's a last topic, and it's an important one.

[00:55:23] Umar: It's about the FASB we update, on fair value, so ASU 23-08, more specifically for people who would recognize what I'm saying. So now companies like, under the US GAAP, they have to report their crypto, like Bitcoin, ETH, at their fair market value.

[00:55:41] Umar: Yeah. So, and under IRS, like the, the standard would be IFRS 13, which is very similar to a ASC820, under US GAAP.

[00:55:51] Umar: So under level one, it's quite straightforward. When I'm speaking about fair value hierarchy, it's, it's quite straightforward. You would look at observable prices in active markets. Yeah. But level two and three can be a bit more complex, especially when you're dealing with less liquid tokens, or SAFTs.

[00:56:08] Umar: Can you walk us through some practical examples of what might fall under level two or three and what kind of valuation documentation would typically be needed to support those positions for their end of year financial reporting? 

[00:56:23] Neil: Yeah, there's a tremendous amount of gray area on, on that space. I think to your point, level one is yeah, the ETHs and Bitcoins of the world, which, you know, there's two. , But it, it also kind of applies to fairly liquid tokens. So I think, you know, Solana and, and folks like that, you know, the, the ones that have a, a substantial amount of depth in the market, there's usually less issues around that. If it's in fact just, hey, looking at the holdings around that.

[00:56:52] Neil: Now there may be restrictions associated with those holdings. So even though it's a level one, the fact that it may be locked up, means that you, there may be discounting mechanisms that you have to take into account, on your balance sheet. Also, if these, those assets are held in the form of some other type of, call it complex security, if you're holding a bunch of MicroStrategy investments, right? That's a weird kind of call put, debt component. And so there may be issues around valuing that from a publicly traded company. But if we put all that aside, then we dive deeper into level two and level three of assets that maybe aren't on an exchange.

[00:57:32] Neil: But they have value as the token has been minted, it's in the treasury. But now there's been maybe some pricing mechanisms around them. So, if there's a SAFT, right, now you've got an, a pricing mechanism associated with it. And, you know, in terms of marking that up or down, it just kinda depends on how long it's been since that SAFT occurred.

[00:57:56] Neil: What are the components to that? SAFT by via you know, lockups, et cetera, other restrictions, and then how does that relate to the market in terms of, and we talked about this a little bit before, about using a market driven approach where you're looking at, publicly traded, you know, similar assets in the space and how they've moved over time.

[00:58:13] Neil: And then, you know how that compares to these locked up tokens. There are methodologies that you look at. So when you start talking about level two, you look at other market components of it, to understand the value. And you, and, and level two is a little bit of a gray area. Level three is, you know, where there's basically no way to figure it out, by way of pricing mechanisms, in traditional methods.

[00:58:37] Neil: And then where you, you can almost default to, some of the early stage methodologies like cost driven approaches, but all of 'em, like in terms of support on that. And then we leave this to the auditors to figure out what the level of materiality is 'cause it just always kind of depends. I'll get, you know, 10 different answers from folks on this.

[00:58:55] Neil: But what is clear though, is once that asset is sitting on your books and you have to recognize it as an investment on your, on your books being clear about how to mark it up or market down is, is certainly important. And we deal with this quite often with, many of our VCs or investment firms where they have to understand their positions and if there's, you know, pricing mechanisms, even though if they're not, you know, public on level two, level three, you can start with that as the data point, but it always has to be adjusted or calibrated, if you will, to the market for that particular asset class.

[00:59:32] Neil: And so we spent a lot of time on that trying to, to discern if it, it should, it should be, you know, at call it, you know, the investment value that it came in at its purchase price or you know, has the market moved in such a way that it doesn't make a lot of sense now to still apply that same methodologies, but the exercise still needs to be done.

[00:59:51] Neil: We're seeing that more commonly looked at now then historically, where people just assumed that, well, there's no value to this asset at this point. It's not traded on exchange doesn't really matter. But, as we've seen kind of the market evolve, at any point these assets could have significant value.

[01:00:08] Neil: And if you're getting to a point where the network has, a particular amount of traction and exposure, making sure that, you know, someone can't come back later and say, hey, well, you know, I'm not sure if you actually correctly accounted for this under the regs, can be an issue. So, those are certain areas of, of focus for us.

[01:00:28] Umar: Perfect. Neil, I think it's time to speak about Teknos. So in light of what we've discussed around token valuation, could you provide us with an overview of the services that you provide at , Teknos Associates? 

[01:00:40] Neil: Sure. Sure. We've, we've talked a lot about several of them, during this call, and I think, you know, it's, I break it out into a few different kind of components.

[01:00:49] Neil: There's the, you know, if we just take the digital asset, group in of itself, obviously there's valuing the tokens in of itself for either, call it tax purposes, financial reporting, which we just talked about now, like and, and then deal making purposes. And so all three of those kind of work together in different components.

[01:01:12] Neil: But, you know, you've got the pre-launch token, early stage type of work. You've got the call it, you know, post-launch token work that, you know, tends to happen quite often these days with either individuals or the transfer of large blocks of tokens across different jurisdictions. We certainly spend a lot of time on that.

[01:01:32] Neil: So that digital asset part of it, on the tax side applies there. And then, obviously the IP related work, across jurisdictions, things that we spend a lot of time on.

[01:01:43] Neil: Then, the other area that we're seeing a lot of work come in, is on the transaction side of things. So we talked about M&A or, could be even capital raising, but deal related work where there's transactions amongst entities and the need for almost like traditional investment banking types of services where, you know, we're not, we'll work with an investment banker quite often.

[01:02:06] Neil: A lot of us have that background, so we don't understand how that world works. But they usually need an independent valuation for, call it a fairness opinion, where you're trying to justify a transaction to your shareholders when you're involving, deals, which they may not be at face value, at, at fair value, if you will, for the transaction.

[01:02:27] Neil: You don't want a shareholder to come back and say, hey, listen, you didn't go through your fiduciary responsibilities in, in approving this transaction. So, when you're dealing with this asset class, and you're doing particular types of deals, maybe it's an OTC deal for a large block of tokens between a foundation and a separate entity or an individual, we find ourselves doing a lot of work in that space, these days or for, just for transactions in general.

[01:02:53] Neil: You know, the, the complications around this are fairly significant, as the, the industry has has matured. And so we find a lot of time, doing a lot of work there. And then just as these larger projects that we've worked with for years, over the last, like I would say 10 years, have evolved.

[01:03:10] Neil: With, you know, entities throughout the world and they're investing in things. They're acting as they may be a project, but now with their treasury, they're acting potentially like a VC. So they've got projects that sit underneath them. And so they not only need to understand the value of their holdings.

[01:03:27] Neil: From a ASC820 perspective, but each of those projects are going through the same phase of development that they are. And so, we find ourselves kind of in the middle of all of this, trying to, to figure out the best way to help them on, on evaluation side of things.

[01:03:43] Neil: And then, you know, just because of what we've done over the years, you know, we've built a very substantial network on, just the service provider side, the investment side from a VC and angel side of things.

[01:03:56] Neil: And then just an advisory side of things. So, you know, if we don't have the direct knowledge to do something, we have the right partners that we can always team up with folks to, to do it. So, it's kind of the benefit of being one of the first movers in the space, when everyone was scared to touch this stuff, in the early days, and now it's, it's very commonplace to some degree.

[01:04:18] Neil: That that said, you know, if we think about the overall ecosystem of the financial markets, we're still like, what 1% of it, if that, when people think about allocations.

[01:04:28] Neil: So we have a long way to go. But we're excited to be a part of where, we're at in the growth thus far. 

[01:04:33] Umar: Can I ask you, how does onboarding look like, onboarding for a new client? How do you approach understanding their onchain activities in order to yeah facilitate that valuation process?

[01:04:45] Umar: And what kind of timeline are we looking that could also delay like the token valuation if everything is not provided like upfront. 

[01:04:55] Neil: Yeah. So, the good news about what we do is that given our experience and understanding of the space, we have the ability to move very quickly on these things. I have people who come to me and say, hey, we needed this yesterday.

[01:05:07] Neil: And so we can certainly hustle on things and if we have everything we need, we can move in as quickly as five days or even sooner in some instances, depending on, you know, what's involved.

[01:05:18] Neil: The standard timeline for, and I'm speaking broadly for just kinda digital assets in general, under normal circumstances for the, the pre-launch side of things, Broadly it's, you know, probably a couple of weeks to put something together just to make sure that we're, we're fitting everything in the schedule.

[01:05:32] Neil: But one of the hiccups that often occurs is just not having everything set up with the foundation or the entities in play that are gonna distribute the tokens or, making sure that you have the allocation set up or the contracts all set up, where everything's gonna be custodied.

[01:05:49] Neil: All of that kind of stuff can Because there's, you know, three or four, even more, sometimes different moving parts within the organization that you're dealing with in terms of providers that have to work together. And so, again, getting back to like our, our network positivity around who we work with. Usually when we come into a deal, we know most of the parties involved so that, they can take advantage of our valuation, but our number goes to a lot of different places, right?

[01:06:17] Neil: 'Cause they need that number to facilitate the contracts and do different things. So making sure that you have all parties kind of aligned on this is, is very important. But, you know, it's, it's all contingent upon kind of being able to make the transfers of these, tokens or the rights to tokens and things that hold that up.

[01:06:36] Neil: Could be anywhere along the lines of, you know, we're just not ready to launch the network. Or mint the tokens. Rather actually that's more importantly like we're just not set up to do that just yet, or there's just been delays in the project. If that happens, then we have to, we can issue a draft, but we don't finalize our report until basically a day before they're ready to, to make those distributions.

[01:06:59] Neil: So it's important that all that aligns and it's not the end of the world for us. Like we are we're happy to start and stop 'cause we're used to that process. The only thing, again, you want to be careful of is keeping that, that distance between, what we put together and, again, that, that pricing in a position you get longer out.

[01:07:16] Neil: Sometimes that gets squeezed a bit, you know, all of a sudden we're like, oh, well the market's great now I wanna launch in two weeks. Well now we have to change the methodology. So, you know, those are things that you wanna be careful of. But, usually it's again, getting kind of high level. It's anywhere from, you know, five days to a, a couple of weeks is kind of the overall kind of timing on things.

[01:07:35] Umar: I know you mentioned this earlier, Neil, but just to summarize for the listeners, how would a project work with Teknos if it's something like after like token launch, like for a service after token launch. 

[01:07:49] Neil: Yeah. So particularly if we're on the individual or just a company side where they're dealing with, a live token that's in the market.

[01:07:58] Neil: Yeah, it depends on, the nature of what they're receiving, right? Is it a locked token or is it something that is, unrestricted? But in those instances, the starting point is usually kind of where it's trading at on an exchange. And then we, from a valuation perspective, we would take the approach of, you know, kind of liquidity around, what it takes to, move that token through a network.

[01:08:24] Neil: And so in those instances, either it's from a tax perspective, for an individual or you're moving that token to another jurisdiction. In all those instances where you have that kind of transfer of property with a live token, we would make sure that, you know, we could justify a significant discount on that value if, if it's applicable.

[01:08:46] Neil: But that, that's usually where it comes into play, where you're moving blocks of tokens with some sort of restriction or liquidity issue Through either different parties or different entities or, different jurisdictions and, you know, depending on what's going on there, we like to be aligned with, not only the, the company and the individual as part of that process, but also their advisors who, you know, legal attacks, et cetera, they come into play to, to help kind of formulate the, the position.

[01:09:15] Neil: But certainly it's a lot of work that we find ourselves doing these days, you know, post-launch, just as a lot of these projects mature. 

[01:09:23] Umar: Perfect. Neil, I think it's been, quite a comprehensive episode in terms of the topics that we wanted to bring forward.

[01:09:31] Umar: As closing thoughts, has there been anything that maybe we didn't touch on that you'd like to share with the, with the listeners?

[01:09:37] Umar: Or how would you summarize the main topic of today, which is around token valuation, token launch and valuation? 

[01:09:45] Neil: Yeah, I think we've been pretty comprehensive around, the overall use cases of how we fit into firms. It, it's constantly evolving. Just candidly, you know, what we did 10 years ago, has evolved fairly significantly now.

[01:09:59] Neil: I mean, the thing is, we still do a lot of the early stage stuff, but to the point of what I just mentioned before, the complexities around these entities as they mature and start doing different things with their tokens, either from an acquisition or investment perspective, has changed. And we have more data, on, on the markets than themselves.

[01:10:19] Neil: And the same time, just because of the volatility that exists, it does make it a little bit more challenging. And so a firm like ours that has the experience of dealing with all of that and having the history and having really the internal data, on things, certainly is a benefit to everyone that we've worked with in this space.

[01:10:37] Neil: So, we're psyched to be a part of it. We're psyched to see, you know, the regulatory movements, particularly here in the US move in certain directions where it's, it's far more favorable. Obviously there's a lot of, acts that have come into play and obviously the Genius Act and all of that, that will make it, particularly interesting, for, for exercises that we have to perform, and the legal and the tax world.

[01:11:02] Neil: So, you know, we're, we're psyched to be a, a part of that at the end of the day. And, you know, I, I do want to thank you for this opportunity to, to come on here and talk to, to these particular issues because they're not things that always kind of are top of mind. Like we, we deal with all these founders and their ideas, are focused around kind of building out this project and creating value and contributing to the ecosystem.

[01:11:26] Neil: But, these are all some of the boring kind of, finance, tax and accounting things that, you know, that that's our job to kind of figure out and help them along the way so they can, they can focus on what they need to do. 

[01:11:37] Umar: Perfect. Well, thanks a lot Neil for your time today. So for the listeners, Neil, helped me a lot in actually preparing the questions for this episode today.

[01:11:46] Umar: So thanks a lot for your time there. There's a last question, Neil, that I like to ask is, do you have a favorite quote or like a maxim that you live by? 

[01:11:56] Neil: I, you know what? I don't, and I, I, I, I get asked that quite often. But in, in this industry, I'm scared to even think about, you know, just proverbs, if you will.

[01:12:07] Neil: So I'm gonna leave that alone. But I just know that, you know, I try to keep, keep my head up and focused at the end of the day. 

[01:12:14] Umar: Perfect. Well, that's a good one, that I'll keep. Neil, if people want to reach out to you, or if they want to, reach out to you for Teknos or reach out to you on socials, where should they go?

[01:12:26] Neil: Yeah, I think typically, our website's probably the best. Just teknosassociates.com. There's ways to, you'll, you'll see our contact information there. Stay tuned. We're actually re redesigning that. , It's, it's been long overdue, so it'll be, very much, crypto focused, which, we've needed to do for 10 years.

[01:12:45] Neil: But, we've been building on other things. But, yeah, usually my website is, for Teknos Associates. It's probably the best way it has all of our contact information. I'm at @NKT_Teknos on Telegram. 

[01:12:58] Neil: That, that's a way to kinda get, get directly, to me as well. So, again, appreciate the time.

[01:13:04] Neil: This has been awesome. Uh, thanks so much for having me. 

[01:13:07] Umar: Had a great time. Thanks a lot Neil. We'll be in touch.