I'm really sorry for creating a new account to stay anonymous. Feel free to ban this one if it is considered misbehavior.
Having that said, you can read the full story on my first comment below.
I'm in my late 20s. It's been almost 4 years since we founded our startup company. We pitched for a year and eventually gathered enough investment to give it a go. The initial plan was to release our app in the local market (middle east) and aim for more users. At the end of first year, with the approval of the board, we decided to delay marketing spending for more development to polish existing features as well as to add more ones. We revoked one feature (not ads) which would provide early cash flow as it turned out to be too ambitious and rash.
We pivoted and decided to go global with our proven to be fun features highlighted. It went smooth and retention rates grew tremendously until finally the day for series A arrived. The lead investor (the one with the most equity) already hinted that he would be willing to invest, some others followed as well. They are all angels btw.
Mails exchanged, meetings happened, places were visited and it turned out what we can gather is not enough to handle marketing costs for aimed growth. We contacted people from crowd equity funding companies. Apparently, none of them is currently accepting applicants from our country.
During our last meeting, the board discussed the idea of an initial coin offering. Some of our investors are crypto enthusiasts and many of them think it is a good idea to fund a project publicly with tokens. The thing is, our product doesn't resemble anything like a currency, not even a commodity in my opinion. It sounds unnaturally arbitrary to have tokens inside our app, or a token with our app's branding on top. Moreover, as someone who is the most technically proficient person in the board, I can easily deduce that all the proposals about hows and whys of the ICO resembles an obfuscated fraud. I couldn't believe what I heard that day and it seems I am the only one who thinks that way.
I plan to spend my all remaining days until the next meeting to prepare the hugest report ever written, hoping it will prove that it is the worst idea we ever discussed. As my voting rights being limited, I have no idea what to do if my report doesn't stop its happening. I still need to work for a year to permanently gain rights on my own equity. If I quit now, I'll lose everything except the lessons learned during these 4 years.
My question is, what would you do?
#1, if you think the company is going to go ahead with something fraudulent, leave. This has nothing to do with your CTO role -- applies to any job at any company.
#2: is it fraudulent? Some people think all ICOs are fraudulent, some reasonable people may disagree. If you think all ICOs are fraudulent, see #1 above. Or if you think they are legit but this one has fraud in it, ditto. But (not knowing the situation) you may be overreacting.
#3: Sticking tokens into the app may simply be a dumb business decision, but not actual fraud. It's OK for you to disagree with a business decision, but if you don't agree with the direction, at the end of the day too bad. "CTO" can mean a lot of things but it's rarely an executional job -- most often it's "chief talking officer". So your opinion counts, but shouldn't be decisive. If you decide "well, OK it's not fraud, just bogus" you have to stop complaining about it OR leave.
Finally...lots of good ideas look weird from a technical basis. I thought YouTube was weird: why sort content by media type -- shouldn't a video about X be part of a web page about X? I thought the Apple II was weird: who wants a home computer you didn't design and build yourself? Clearly I was wrong!
But if actual bad behaviour is the plan, do leave, even if you think they will get away with it.
Being a corporate officer means getting-the-fuck-out-of-Dodge the moment things get questionable.
Check out "STRICT LIABILITY FOR CORPORATE EXECUTIVES" on page 3: http://www.nortonrosefulbright.com/files/20160801-criminal-a...
I and fellow colleagues had to do this once. As a founder I gave up 7 years of building that company due to some really unethical moves by the CEO.
At the end of the day, as a c-suite officer, I would have been liable by being complicit.
Once I stated my objection, I and my fellow c-suite colleagues went to the board with our objection, and CEO decided to continue executing the unethical behavior, I and a few of my c-suite colleagues all bailed. That sucked hard.
PS. That signal from us leaving ended up preventing the securities fraud that was about to happen.
My .02 on this:
You've already lost. The decision has been made, they're moving ahead, and it's clear (a) you can't change their minds and (b) you aren't onboard with it.
You should treat this as a learning experience about decision-making and corporate politics.
Put aside the technical issues and take some time to consider the people issues. Who is the decision-maker? What is his/her motivations? How are decisions made in your organization - top-down, consensus, debate, face-to-face, etc? What role did you think you should have in making this decision, and how did that differ from the role you actually had? How do you feel about all of this?
Maybe you felt this was your decision to make, or should've been given more weight/input on the decision. This is a relationship problem. You don't have the role you want with the others.
Another view might be, you were consulted but ultimately you weren't the top decision-maker in the org, the decision didn't go your way, and you need to either (A) get onboard with it or (b) leave.
It's very reasonable to want out at times like this. Don't do anything rash, but if you can't get onboard with this decision and really do object to it, leaving this organization might be your best bet.
It's important to realize, when you aren't the head person, there are some things that aren't going to go your way. You can argue and fight and debate, but ultimately, a decision has to be made, and it might not be the one you want, but you have to either tow the line, or leave, doubly so as an executive. As bad as this situation is, it's way worse to have a bunch of people who can't agree, and decisions not getting made, than MADE decisions that don't go your way.
If you truly have ethical or legal issues, you should get out. You're young and will move on to something else quickly. But I think this stuff (ICOs and coins in general) is grayer than you might think. There's a lot of gray between 100% upright business practices and fraud, and you're somewhere in the middle.
I would collect a list of every ICO fraud story in the press, and just ask if your board wants to be added to the list (whether officially or in the social zeitgeist).
I would also ask the board how many examples they can find of companies who did an ICO, and were later successful.
Also, I'd be looking for a new job... Even if they listen now, it doesn't sound like good leadership.
Edit to add: Your equity is only worth something if the ICO works. If there's no ICO and you still can't find investors, your equity is also worth nothing. I wouldn't even consider it...
If you don't believe in the technology that you're developing; run. A company should never develop technology against the better judgement of its CTO.
That being said: Using things like blockchain to represent stock ownership; and using crowdfunding, are great ideas. They just don't replace the fact that your company needs a viable business plan, paying customers, and actual investment.
Things like an ICO are like the old story from the 1990s about a lumber company changing its name to "lumbar.com" because there were plenty of fools trying to invest in anything related to the internet.
So, even though this is new technology, how is it relevant for your business? Crowdfunding is great for funding artists, and great for swindling unsavy suckers. Blockchain technology is still too primitive to represent ownership for a run-of-the-mill company; even for a run-of-the-mill "tech" company. Why? Because the tech of blockchain will be too much of a distraction from building your real business.
Anyway, when I read your details, I see a startup that's not going anywhere, and is considering an ICO out of desperation. It's probably time to assess if your company is viable or not.
If you're going to leave, don't try to be too diplomatic. Be frank with your board, "I am leaving because I do not believe that our company is viable. An ICO is a distraction from finding a viable business model and savvy investors. Blockchain / ICO will be a useful technology in the future, but at this time it's too immature and will be a distraction from building our business and product. I recommend that you concentrate on the shortcomings of the business and its product."
I'm surprised there isn't a single person here advising you to stay and figure out something that the token can be used for in your app. This is exactly the type of software and product design decision that a CTO should be doing, and you might even be proud of the result if you come up with a good idea, not to mention the potential financial benefits. Maybe it's a little flaky, but it's not fraud if you tell everyone what the token is and what it's used for beforehand.
Most ICOs are deeply unethical in the sense that they exist only to circumvent traditional funding regulations, and not because they actually utilize cypto-tokens for their business. If you feel that this describes the plan, I would absolutely back out. It may not currently be illegal, but chances are it will be. It certainly does not reflect well on the business.
Life is too short to waste on other people’s shifty ideas. The investors have a portfolio, so they think a 1 in 10 chance of a quick 100x is a great idea. But you’re the one who has to build it and live it every day.
Decide where you draw the line, and tell them. Don’t try too hard to fight the idea or persuade them, just make your case calmly and if their decision is over your line, walk away. And wish them well as you walk away, no reason to burn bridges.
If this is fraudulent or not is of course very, very important. But from reading your comment I feel there are some weird trust dynamics at play here. My view is that for a company to work you need to have people working in the same direction with a large amount of trust. That means that if you are a specialist in your are I will trust your judgement. I need not understand how you came to that decision. If I do not trust you to make decisions in your area or if you are not aligned with the goals of the company I would find someone else for your role. That's how I think trust should work.
That also means that if my judgement in my area of expertise is not trusted I will quickly start looking for something else to do. "If you don't trust me to do what I'm good at I'll go somewhere else or do something else".
If I were in your shoes I would not feel trusted anymore and look for something else. You also mentioned that all your shares are vested. I'm more used to schemes where you shares vest over time e.g. you receive 33% of your shares per year worked so you will own all your shares after three years. If this is how your vesting works consequences for leaving should not be that bad.
However if none of the shares have vested you should thread carefully. Having been part of a similar situation with vested shares and leaving I know there are compromises to be made. All parts have a lot to earn from an amicable deal that let's you and the company part ways without any bad blood.
ICOs are only fraudulent if you make them so. We don't know if you're based in the US either, which matters quite a bit since even the most well-intentioned ICOs constitute the sale of unregistered securities under US law. If you are, and since they're going ahead with it anyway, you might take a look at the SAFT Project , which is a legal framework for ICOs in the US created by the Cooley law firm.
In short, leave if you believe they are doing something illegal, and then sue them for creating a situation where you had no choice but to leave your job. But not all ICOs are, by default, illegal.
Ah, the age-old question on the morality of taking money from suckers. Basically, as always, two options:
1. be moral, walk away, maybe talk, get no money
2. stay, make lots of money, wipe tears away with hundred dollar bills
Sounds like they are going to go with an ICO, it sounds like they think that is the only choice, so it's most likely happening with or without you.
I'm not sure I would rock the boat since you still care about your equity.
I would spend your time trying to make the app better, let someone else handle the ICO to bring in funding to get you to your vesting mark.
If you don't feel the ICO is a good idea or is potentially fraud, just don't participate in setting it up, keep your name out of it. I'm sure they will use a service or outside experts to handle it.
It will bring in funding to get you to your vesting date which sounds important to you.
You're in your 20s so this isn't your last rodeo, ride this one out, see what happens, use your knowledge and experience toward the next one.
Good luck riding it out.
I would rephrase the question as the following:
My company plans on partaking in a legally grey area with a real potential for liability down the road, do I want my name associated and put my neck out for something I don't believe in?
I think you know the answer already.
But first go get a good lawyer.
I'm guessing there is a playbook for "fundamental disagreement among execs/founders in a startup" and a chapter in said playbook for "CEO doing questionably ethical stuff".
You're on the right path, drafting a well rationed argument as to why its not a good idea. If they decide to move forward, you should quit.
I'd seek good legal council regardless of what happens.
I think ethics are somewhat overrated in this situation. But more importantly it sounds like your app/whatever is dead in the water. If it’s not good enough to convince people to invest more - and investing just to burn money on marketing sounds like a terrible idea - then it’s not going to survive. I mean let’s be honest if you have rich Middle Eastern contacts and they won’t put money in, it’s a dog. Just cut loose and don’t waste more time on it.
"No matter how much you try, you can’t stop people from sticking beans up their nose."
Are you sure your company is not planning to use this as a utility token. Several companies ICO with this promise. For example Binance (a crypto-exchange) introduced BNB tokens. You can pay with Bitcoin but if you pay for your trades with BNB tokens then your trades cost 50%.
I left the thread alone, hoping to see some answers in a few hours, yet I had no idea it would explode like this. Thank you everyone, your support has no match around my proximity.
I read all 92 (and increasing) comments. There are some duplicate concerns, questions, suggestions etc. I want to be as transparent as I can to leave a useful record for people who will be in similar position as me. Below is my attempt to do so.
* Many people commented or touched on the topic of my role as CTO. Things I did can be summarized as these: building the proof of concept (vanilla Java for Android) before the very first seed; constantly be in dialogue with investors and the other co-founder (CEO); gathering all the dev team including the designers; managing outsourced development; having code contribution on 10% of server side code (especially mission critical parts such as auth and soft real time systems); %50 code contribution on Android (Kotlin, Java, RN hybrid); %50 code contribution on iOS (Swift, RN hybrid) including migrations to latest Swift versions; deciding frameworks, platforms, SaaS components; literally scripting all the dev-ops; building small demos for investors to test ideas; hacking all day when the dev team is able to self organize. Despite all the hardships, I must admit it was the most amazing playground I could ever hope for on this age. I have a BS degree on Computer Engineering if anyone wonders.
* Some people expressed their concerns about my mental and physical health. I can say I failed almost on all of those. My cigarette consumption skyrocketed. I smoked weed almost on a weekly (sometimes daily) basis. Having no time to cook, I ordered take away food a lot (it hurts to eat outside financially). I stopped doing sports last year. Socially, everything is much more OK. I have a really supportive life partner who I never disappointed. I didn't lose a friend without my own consent. My family is worried but also proud with all their best wishes and support felt here.
* I understand some people's suspicions on me having a bias towards fraudulent ICOs. Let me explain our situation a little more, you can decide for yourself. First of all, we can still gather investment without the ICO, just not enough for a meaningful (or hasty) boost. It has its consequences though like hibernating for a while, losing the original dev team (they are already informed by me btw) for cheaper labor, figuring out how to deal with ancient local law etc. It will almost feel like a new startup. Some people may therefore think "the project is dead" and that is true if looked from the inside. The sad thing is we finally built the real thing which our users really love. Ad revenue interpolations shows hope.
I have some other reasons (technical and observable) to think that our attempt would be fraudulent.
Firstly, there has never been such a plan, not even a bite-sized bit of it. The ICO is definitely an idea emerged as a reaction, a reflex. The startup scene here is visibly shifting towards blockchain tech, that is a fact. But issuing a token in our app feels like watching Pinterest issue its own coin for people to spend on pinning some content. In the end, all the brainstorm in the meeting can be summarized as "placing a button to spend/receive the token inside the app for some arbitrary reason which we can figure out later" in terms of UX. It's a feature without a problem to solve.
The next thing is, all the other B2B solutions we can pivot to are quite cheaper, easier to build and equally doable without a blockchain. No business has ever demanded from us an immutable, distributed database with fail recovery. We are repeatedly told that a dev-friendly API is more sell-able than bleeding edge cool technology (lesson of my life).
About the shady stuff: If the value of our token drops after the initial offering, the ones who are gonna get hurt by it are mainly the early adopters who would all be selected from angels or ventures. We only plan for a private, invite only ICO to benefit from network effects among some rich people. It is even spoken out loud that, and I'm quoting, "all we need is some well designed PDF with our successes (there are some after all) and vision highlighted, some kind of white paper as the jargon tells". The excuse has been debated as the token will be traded publicly despite the private distribution, and will always be promoted within the app. So the existing user base will be harvested to create the hype, investor money will be grabbed via private offering when shown enough hype is there, the market will do the rest. Almost all gathered liquidity will be converted to fiat to buy time to figure out a viable business plan. If the bought time is not enough, the crypto world will be blamed, all will be well. It really sounds like an IPO without the risk and responsibilities coming after that.
* The million dollar reality is not all ICOs are against law. This is completely true and applies in our case. We have good legal advice and will definitely get away with all of our actions. Regardless of the future incidents, nobody is going to jail or even paying fines for anything. Nonetheless, as stated by some commenters, it still may create some issues outside if we (founders, investors, the board, dunno) plan to travel and do business abroad. I didn't know that, thank you so much for the intel.
* Some boring facts and misconceptions: There is no us vs them culture between the founders and the investors. There is actually only a little politics between people, and mainly because of age differences. What drives the pursue is mostly misinformation about blockchain news, lack of technical knowledge and shareholders' being able to carelessly act due to having the safety net of financial resources. It is pure luck or lack of it that I am the only one who is capable of navigating through the echo chamber in our board, where right now words like "crypto is the next big thing" is resonating among people who have no idea what even a software protocol mean.
* Completely off-topic, or maybe not, nonetheless I want to make games some day.
Thanks again everyone. It's been a pleasure to read you all.
ICOs are not necessarily fraud - are they outlawed in your country? Do you simply need to register them properly with any countries you decide to release your app in?
Run as fast you can. If they don't value what you say, and it may put you in a legal world of hurt it's time to jettison.
Trust your gut
Make sure you have some stock or coins and enjoy the nice pop and free money you get....
Go on, take the money and run.
Hopefully you are not working at Facebook. I think you should start looking for other jobs. Last I saw, there are 72 different ICOs on coinstats. There is not an inch progress from any adoption towards ICOs. Don’t get rippled!
watch the movie Office Space and do what Milton did.
Can't you use the token as a security model.
Token entitles token owner to X amount of revenue. So each month convert the amount to ether and send to owners.
That's only an issue in the US afaik.
Not fraud, quite healthy way of raising funds.