[DAO: QmUrSmT] Preparing detailed financial statements, budget, and long-range forecast

Governance
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by 0x11cbb078596e5100f4cbb999c5c9b69ca2ff6477 (Bronstein)

Should the following Tier 4: up to $60,000 USD, 6 months vesting (1 month cliff) grant in the Community category be approved?

Abstract

A financial model is the foundation for which TradFi companies make decisions around revenue, expenses, partnerships, M&A, etc. We believe that Decentraland would benefit greatly from having a financial model that they could reference when making operating decisions. The financial model would include historical financial statements, a monthly budget for 2022, and a detailed forecast out through 2025.

As a first step, we would propose preparing financial statements for January – May of 2022, and a strawman for what a 2022 budget and long-range forecast would be. We would share our report with the community, and to the extent they were interested, we would propose a new grant to develop a fully-detailed and dynamic financial model.

Grant size

20,000 USD

Beneficiary address

0x11cbB078596E5100F4cbB999c5C9b69cA2FF6477

Description

As DAOs mature, we expect to see more sophisticated financial frameworks emerge in the operations of DAOs.

The three pieces of this are historical financial statements, a near-term budget, and a long-term forecast. These are three things that TradFi companies have entire teams dedicated to building and maintaining. They form the basis for key operating decisions that companies make around revenue, expenses, cash management, etc. and also serve as a helpful launch point when making key strategic decisions around partnerships, fundraising, and M&A.

MakerDAO is a DAO that has detailed financial reporting in place and they use it inform a variety of these operating decisions: MakerDAO - 2022-03 Presentation.pdf - Google Drive

Putting together these three things is a material undertaking, so we would propose as a starting point to put together monthly financial statements for January - May of 2022, and a strawman of a short-term budget and a long-term financial forecast. Upon completing that, we would share our report with the DAOs, and would then propose a subsequent grant to build out all years of historical financial statements, in addition to a detailed budget and long-range forecast.

The financial statements and forecast would sit in google sheets, but ultimately we would drive towards having a presentation with visuals so that the community would be able to get monthly / quarterly reports on financial performance and the implications on the long-term financial forecast for Decentraland.

Currently, Jordan and I are charging $500 / hour to do similar FP&A work for web2 companies. Even the initial step of this exercise is a material undertaking, and for $20k, our hourly rate will come out out well below that. We are proposing this initial step because we believe strongly that once the community sees an initial output, they will see the value in what we are doing and be supportive of further grant work for Jordan and I to continue supporting the Decentraland community.

Ultimately, we want to drive towards having a sophisticated FP&A function for Decentraland, and this grant is the first step we would take towards getting there.

Specification

The initial report would be presented in google slides, with the underlying analysis being done in google sheets. The main tools we would leverage to retrieve data would be Etherscan, Apeboard, and Dune.

Personnel

Sam Bronstein: 7 years of investment banking experience at Qatalyst. Worked on $125Bn+ of M&A transactions including the sales of Slack, LinkedIn, Qualtrics, Glassdor, and others.

https://www.linkedin.com/in/sam-bronstein-683b1350/

Jordan Stasnty: 7 years of investment banking experience at Qatalyst and Citi. Worked on $35Bn+ of M&A transactions including the sales of Mailchimp, Five9, Salesloft, and others. Also worked on the IPO of Roku at Citi.

https://www.linkedin.com/in/jordan-stastny-78160461/

All of the above transactions included material amounts of financial modeling and analysis during the valuation and diligence process.

Roadmap and milestones

We would propose sharing our 2022 historical financials and strawman for the budget and forecast no later than 4 weeks after being approved for the grant, with the aim of finishing sooner

Vote on this proposal on the Decentraland DAO

View this proposal on Snapshot

2

The price is a little high, but I’d love to have that info.

Any chance you can include financial analysis of past years since DAO creation too, for the same budget? :slight_smile:

3

Sure, we can do that. To the extent there are additional wallets with inflows / outflows, we will just need some incremental help from someone at Decentraland who can help us label these wallets so we can bucket them accordingly in the model

4

Preparing detailed financial statements, budget, and long-range forecast

This proposal is now in status: PASSED.

Voting Results:

  • Yes 88% 2,121,285 VP (19 votes)
  • No 12% 301,644 VP (13 votes)
1 Like
5

Hi Broinstain! How are you doing?

I’m Zino from Decentraland’s Grant Support Squad :chipmunk:.

Congratulations on receiving a Grant to contribute to Decentraland! Our mission is to support grantees to update their progress and achieve their goals, and thus contribute to grow this great community that is Decentraland.

Here is some information that will be helpful for you:

  • Your current status is PASSED. The DAO Committee is working on your Vesting Contract, which will be available in a few days. You will be announced when the Grant turns into ENACTED. :man_in_lotus_position::woman_in_lotus_position:

  • This article might be helpful to you to find your vesting contract.

  • It’s very important to share your progress with the community. Inside your grant proposal -in the Decentraland governance platform- you will find a Project Update Section to publish updates once a month for transparency purposes.

  • We invite you to join [DAO Discord] (Discord) and to attend the Decentraland DAO monthly town hall -on the 2nd Thursday of each month @ 4:30 pm EST / 9:30 pm UTC-, which is a great way to share updates.

  • We will also create a [dedicated Discord] (DCL DAO) channel for your grant, to easily stay in touch with the community.

  • Here you can find the Terms & conditions of the grant program.

  • Our contact information:

  • Juan Cassinelli (Zino): juan.cassinelli@decentraland.org

Have a good journey!

6

Preparing detailed financial statements, budget, and long-range forecast

This proposal has been ENACTED by a DAO Committee Member (0xfe91c0c482e09600f2d1dbca10fd705bc6de60bc)

Vesting Contract Address: 0x5451f9e5bf9bb64b7c3a0c56d0d4c8346a168f20
View Transaction

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Following grant approval, we have spent the last month digging through Decentraland’s treasury and financial history and produced this report. We encourage members of the DAO to go through it, but a few TL;DR takeaways below:

  • Decentraland Operations
    • The October 2021 Facebook rebrand to Meta fundamentally changed the operations and financial profile of the DAO. As such, every metric we viewed and projected was analyzed through a pre- and post-Facebook rebrand lens.
    • In general, revenue has descended back towards pre-rebrand levels while grant and other expense costs have remained materially higher, creating a negative cash-flow dynamic that is likely to continue into the near-to-medium future.
    • Expense increases have been driven primarily by a moderate increase in total grants and a material increase in average grant size.
  • Decentraland Treasury
    • Perhaps the most significant issue Decentraland currently faces is the lack of stable tokens in treasury, leaving the DAO undercapitalized and with virtually uncapped downside exposure.
    • At current prices (~$1.00 MANA) and current operating rates we would anticipate Decentraland has ~15 years of operating runway with a downside but less than a month of that runway is currently denominated in stables.
    • An illustrative $20M block sale of MANA at a ~20% discount would secure more than a year of operating runway, even if the price of MANA went to $0.

Based on the analysis and time spent with the Decentraland’s public-facing data we would recommend the following:

1. Treasury Diversification – Decentraland should begin exploring a treasury diversification strategy today. Ordinarily we would recommend 2-3 years of stable runway in an extreme bear scenario, though given the slow vesting drip it may make sense to start with 1+ year and reevaluate down the road. There are also a few interesting sales of unvested MANA that the DAO could explore if it wanted to raise more funds while preserving its current MANA balance.

2. MANA Valuation Analysis – In order to make informed decisions about MANA usage in the context of rewards, grant compensation, treasury diversification, or future potential buybacks Decentraland would benefit tremendously from conducting an analysis on the historical and current valuation of the token.

3. Data Transparency & Projection Refinement – These projections are far from perfect, in large part due to the lack of public-facing data currently available outside of the transparency report. Spending time putting together a public-facing analytics web page would go a long way to driving additional platform engagement and more sophisticated MANA token purchasers, in addition to creating a more informed and longer term set of projections (with proper revenue drivers and assumptions) and driving additional strategic insights to inform the operating direction of the DAO.

4. Targeted Committee Creation – to improve efficiency and grow Decentraland, we would recommend that Decentraland consider establishing committees with key growth objectives and defined monthly budgets. The two that strike us as the most pressing are:

A. Strategy & Finance Committee – to manage and monitor protocol spend, treasury assets, data analysis, and broad DAO strategy; including taking the lead on each of the first three recommendations.

B. Growth & Marketing Committee – to head up growth initiatives, specifically around driving user acquisition and engagement.

We recorded a brief video walking through these slides that was presented in today’s town hall. You can find a link to that video here.

We appreciate the opportunity to work with and present to the Decentraland community, please do not hesitate to reach out to us or comment with any questions!

Sam & Jordan @ Alastor