[GLBSE] Fresca Mining - IPO launching soon

[amazingrando]

Many of you may have contributed to or followed my previous thread asking for input on a new mining operation
https://bitcointalk.org/index.php?topic=66204.0

I've had a chance to do some reflection on a strategy for a new mining company while incorporating many of your excellent ideas.  Below is a DRAFT of the IPO.  I would like your input before I finalize it.

Fresca Mining (Planned GLBSE symbol: Fresca) will produce comparatively higher returns by leveraging low cost electricity ($0.052/kwh) and dense GPU rigs for high profitability bitcoin and namecoin mining.  The company will issue weekly dividends but retain some earnings to grow the company.  The company will be able to share infrastructure such as switched PDUs, Cisco network equipment, and data center space with my personal mining farm to save costs and maximize profitability.

Initial hashrate: 9.3 GH/s (I have them running now as the user "Fresca" on maxbtc.com - note that they are currently running at stock speeds until I tune then, hence the lower hash rate)

Hardware (4 rigs as follows):
      
       (seen here as I set them up)

• MSI 890FXA-GD70 motherboard
• Antec TPQ-1200 1200W 80plus Silver PSU
• AMD Sempron 145 CPU
• G.Skill 1GB DDR3 RAM
• Kingston 4GB USB drive
• 3 x MSI or XFX 6990 GPUs
• 208v power via Server Tech Sentry switched PDU
• Gigabit Ethernet connection on Cisco managed switch
• Coolermaster 230mm fan

Dividends

• Dividends will be issued weekly
• Dividends will be calculated as net earnings divided by number of shares held
• Net earnings are earnings after retaining 30% for growth and costs of depreciation, power, internet, and facility
• At present BTC price and difficulty this would result in approximately 0.004 0.006 btc/share

Reinvestment and growth

• 30% of earnings will be set aside to ensure stable dividend payouts and to fund growth
• Acquisition of new hardware will be funded through reinvestment of retained earnings as opposed to issuance of further shares, unless otherwise decided by shareholders through a motion
• Future plans include the purchase of more rigs based on the most profitable technology at the time of purchase and a move to a new data center than offers power under $0.03/kwh

Policies and Records

• My goal is to be transparent in all finances.  I will keep track of finances in a Google Docs spreadsheet available to everyone
• Changes in company direction, dividend calculation, acquisition of new hardware, dissolution, or other important changes will be put to shareholder vote.  Because I already have a large mining farm of my own, I am happy to be very flexible with the direction of this mining company.

Ownership

• 4,000 3,333 shares will be created
• 2,000 1,666 shares will be held by me (50% - 1 share)
• 2,001 1667 will be available for purchase (50% + 1 share)
• Anticipated purchase price will be 1 btc

UPDATE 1:
I have reduced the number of shares while maintaining the share price in order to further enhance the competitiveness of this offering.

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[Nefario]

Why don't you create the asset, and in the launch date put in:

27th March 1pm

Or the exact date and time you'd like

This will then add you to the IPO page, show how many shares are going to be launched (at that time) and allow people to start making buy orders.

Nefario.

[Garr255]

This is looking good. My IPO went great, I'm sure yours will too.

I have a question though: What does

• 30% of earnings will be set aside to ensure stable dividend payouts and to fund growth

mean? What is your strategy for stabilizing the payouts?

Regardless, I'll probably buy a few shares!

-Garrett

[amazingrando]

This is looking good. My IPO went great, I'm sure yours will too.

I have a question though: What does

• 30% of earnings will be set aside to ensure stable dividend payouts and to fund growth

mean? What is your strategy for stabilizing the payouts?

Regardless, I'll probably buy a few shares!

-Garrett

Good question.   The primary goal of the 30% retained earnings is to mitigate variance with payouts.  Each week, based on difficulty and hash rate, there is an expected level of earnings.  Let's say it's 40 btc this week.  If we earned 42 btc this week, then the excess is put into the reserve.  If we have bad luck or a network failure and only earn 30 btc, then we can dip into that reserve so that weekly earnings match the expected level.  Either way you get the expected return of 40 btc each week.

Because we will be mining with DGM variance shouldn't be as much of an issue, but luck is still a factor, and hopefully we won't have many hardware issues.  Thus the reserve should grow over time to a point where its balance is more than is needed to ensure stable payouts.  That is the point in which we would want to look at adding new hardware and increasing the hashrate.

[friedcat]

Dividends

• Dividends will be issued weekly
• Dividends will be calculated as net earnings divided by number of shares held
• Net earnings are earnings after retaining 30% for growth and costs of depreciation, power, internet, and facility
• At present BTC price and difficulty this would result in approximately 0.004 btc/share

I guess there are some problem about your estimation of btc per share.

At the current difficulty, 9.3GH/s will result in 43.7BTC/week.

Suppose each of your rigs will eat 1kW of power, then we have 4kW*24*7*0.052=34.94$/week as the power cost, that equals about 7.5BTC/week(with 4.67$/BTC).

Then you have 43.7-7.5=36.2BTC/week, after the reservation of 30%, you still have 25.34BTC/week. That is 0.0063btc/(share*week), not 0.004.

In addition, even with 0.0063btc/(share*week), the ROI seems to be very low as an IPO. It's about 33% per year. As you said, the anticipated purchase will be 1btc. Is the total rig price equal to the income of selling 2001 shares, and you automatically hold 50% by default? That's quite different to most of the existing mining companies on GLBSE. Because in most of them, the CEO usually either maintain less than 10% of the shares, or they sell all the shares but charges a fee of no more than 10%. This makes the profits vs IPO price much more attractable to investors.

Finally, I am sorry for my harsh questions. Our investment fund is very interested in your mining farm and we have to get everything clarified before doing serious investing.

[friedcat]

In addition, you said:

"I am looking to raise about 1000 btc in exchange for ownership in this new 18Gh farm."

In your original thread.

Now it becomes 2001 or 4000 btc for 9.3Gh. It's rather disappointing to see the ROI
reducing to 1/4 or even 1/8 approximately.

[mila]

... in this new 18Gh farm

in the picture posted there are lot more rigs that 18 Gh/s, or am I wrong?

but please keep asking good questions.

* mila interested

[amazingrando]

Thank you for the feedback.  This is precisely why I wanted to put out there an approach and some numbers before moving forward with an offering.

At the current difficulty, 9.3GH/s will result in 43.7BTC/week.

Difficulty will change in 2 days and go up almost 10%.  Specifically, after the change in difficulty, 9.3Gh/s will yield 39.5 btc/week.  Given the close proximity of the retargeting, I wanted to use that rate rather than the higher current rate.

Suppose each of your rigs will eat 1kW of power, then we have 4kW*24*7*0.052=34.94$/week as the power cost, that equals about 7.5BTC/week(with 4.67$/BTC).

Then you have 43.7-7.5=36.2BTC/week, after the reservation of 30%, you still have 25.34BTC/week. That is 0.0063btc/(share*week), not 0.004.

Each rig has 3 x 6990's.  It would be awesome if they could only use 1kw each, but they use quite a bit more.  Based on my readings from a Kill-a-watt power meter, each card is using 366 watts of DC power.  The CPU and chipset use about 35 watts.  Thus, each rig is using about 1130W DC.  With 80plus Silver 1200W PSU (85% efficient at high load), the power at the wall is about 1330W.  4 rigs x 1330W= 5.3kw.  5.3 x 24 x 7 x $0.052 = $46 per week.  At $4.60, that's 10 btc/week, leaving a net of 30 btc per week.

However, power is not the only cost.  Assuming that we leave out depreciation, the rigs still need infrastructure - Internet connection, facility charges, and ventilation/cooling.  An honest accounting of costs should include this.  The costs are not particularly high, however.  I can share these costs with the other 60-ish rigs in my personal mining farm.  I expect the costs for these four rigs to be in the range of 1.5 btc/week.

Thus at the imminent difficult we would mine 40 btc/week.  Subtracing out 10btc in power and 1.5 btc for infrastructure costs = 28.5 btc after expenses.

If 30% is reserved, that results in 8.5 btc reserved and 20 btc to be distributed among shareholders as a dividend.  If there are 4000 shares, that's a payout of 0.005 (not 0.004 as I previously estimated).  By comparison OgNasty's MergedMining company (a well run mining company) in the most recent week paid out 6.22 btc across 1500 shares = 0.00414 per share.  To my knowledge he has no significant reserve for expansion.  Compared to other mining firms, I will be able to offer dividends equal to or higher than others while also reinvesting a large percentage. 

In addition, even with 0.0063btc/(share*week), the ROI seems to be very low as an IPO. It's about 33% per year. As you said, the anticipated purchase will be 1btc. Is the total rig price equal to the income of selling 2001 shares, and you automatically hold 50% by default? That's quite different to most of the existing mining companies on GLBSE. Because in most of them, the CEO usually either maintain less than 10% of the shares, or they sell all the shares but charges a fee of no more than 10%. This makes the profits vs IPO price much more attractable to investors.

First, on the topic of CEO ownership, the CEO holding significant portion of the shares is not that unusual.  Bitcoin Syndicate, for example, holds 45% among the owners.  In this case I opted for less than 50% such that the shareholders would have controlling interest.

Regarding valuation and mining power, below are values for other mining companies:

Mining Co.	Shares	Share Price	Value	Hashrate (Gh/s)	BTC/Gh	Mh/share	Mh/btc invested
Bitcoin Syndicate	12,000	0.250	3,000	6.0	500	0.5	2.0
BMMO	4,000	0.357	1,428	4.0	357	1.0	2.8
MergedMining	5,500	0.133	732	1.6	457	0.3	2.2
Tygrr	1,500	3.000	4,500	12.0	375	8.0	2.7

Taking a look at my first proposal for Fresca, and a revised proposal:

Mining Co.	Shares	Share Price	Value	Hashrate (Gh/s)	BTC/Gh	Mh/share	Mh/btc invested
Fresca	4,000	1.000	4,000	9.3	430	2.33	2.33
Fresca (revised)	3,333	1.000	3,333	9.3	358	2.79	2.79

From the above numbers you can see that 4,000 shares at 1 btc is comparable to other mining firms.

After revisiting the original proposal, I am suggesting a revision to enhance the competitiveness of the offering.  I propose to reduce the total shares to 3,333 instead of 4,000.  The split would be ~50/50 between me and shareholders with 1667 offered for purchase by shareholders and 1666 held by me.   (I have updated the prospectus in the first post to reflect this proposal)

This would have the benefit of increasing the dividends per share.  Using the estimates from above, the payout would increase from 0.005 per share to 0.006, which I believe is quite high, while keeping the price at 1 btc/share.

Keep in mind that the company will retain 30% of earnings, which will be used for expansion, adding at least another 1.5Gh/s over 12 months.  That and the prospect of lower power prices will allow for greater profit potential in the coming months.

Thank you again for your feedback.  I would enjoy hearing your further comments.

[amazingrando]

In addition, you said:

"I am looking to raise about 1000 btc in exchange for ownership in this new 18Gh farm."

In your original thread.

Now it becomes 2001 or 4000 btc for 9.3Gh. It's rather disappointing to see the ROI
reducing to 1/4 or even 1/8 approximately.

Yes, I originally had thought about trying to raise 1000 btc in exchange for owning part of a larger 18Gh/s farm (not 1000 btc for all 18Gh - that would be a massive discount!).  I have since decided that I wanted to start with something smaller to see how it goes.  This is a bit of an experiment as I already run a very large farm of my own.

[amazingrando]

... in this new 18Gh farm

in the picture posted there are lot more rigs that 18 Gh/s, or am I wrong?

but please keep asking good questions.

* mila interested

The rigs in this offering are the top four on the rack in the foreground.  The others are my personal rigs

[mila]

Thank you for the feedback.  

Mining Co.	Shares	Share Price	Value	Hashrate (Gh/s)	BTC/Gh	Mh/share	Mh/btc invested
Bitcoin Syndicate	12,000	0.250	3,000	6.0	500	0.5	2.0
BMMO	4,000	0.357	1,428	4.0	357	1.0	2.8
MergedMining	5,500	0.133	732	1.6	457	0.3	2.2
Tygrr	1,500	3.000	4,500	12.0	375	8.0	2.7

...
From the above numbers you can see that 4,000 shares at 1 btc is comparable to other mining firms.

just a note about BTCSYN, they should operate 6 Gh/s of FPGA owned by the syndic and have a 1 year mining contract with founding members for additional 6Gh/s of GPU mining capacity. that's messing up a bit the comparison with other shares as the GPU mining will be gone next year and is not really comparable with rigs owned by other companies.

[amazingrando]

Thank you for the feedback. 

Mining Co.	Shares	Share Price	Value	Hashrate (Gh/s)	BTC/Gh	Mh/share	Mh/btc invested
Bitcoin Syndicate	12,000	0.250	3,000	6.0	500	0.5	2.0
BMMO	4,000	0.357	1,428	4.0	357	1.0	2.8
MergedMining	5,500	0.133	732	1.6	457	0.3	2.2
Tygrr	1,500	3.000	4,500	12.0	375	8.0	2.7

...
From the above numbers you can see that 4,000 shares at 1 btc is comparable to other mining firms.

just a note about BTCSYN, they should operate 6 Gh/s of FPGA owned by the syndic and have a 1 year mining contract with founding members for additional 6Gh/s of GPU mining capacity. that's messing up a bit the comparison with other shares.

That's true.  The one year mining contract is peculiar.  I'm not sure when they'll have it online either, and of course that will run out after one year. 

[Kaos]

Still interested... I'll be paying attention to this...

[friedcat]

Mining Co.	Shares	Share Price	Value	Hashrate (Gh/s)	BTC/Gh	Mh/share	Mh/btc invested
Bitcoin Syndicate	12,000	0.250	3,000	6.0	500	0.5	2.0
BMMO	4,000	0.357	1,428	4.0	357	1.0	2.8
MergedMining	5,500	0.133	732	1.6	457	0.3	2.2
Tygrr	1,500	3.000	4,500	12.0	375	8.0	2.7

Taking a look at my first proposal for Fresca, and a revised proposal:

Mining Co.	Shares	Share Price	Value	Hashrate (Gh/s)	BTC/Gh	Mh/share	Mh/btc invested
Fresca	4,000	1.000	4,000	9.3	430	2.33	2.33
Fresca (revised)	3,333	1.000	3,333	9.3	358	2.79	2.79

It seems that you are mixing up some market price with IPO price in this table.

The IPO price of BMMO was 0.1BTC/share, not 0.357BTC/share.(https://bitcointalk.org/index.php?topic=66610.msg773182#msg773182)
The IPO price of MergedMining was 0.1BTC/share, not 0.133BTC/share.(https://bitcointalk.org/index.php?topic=47490.msg565679#msg565679)

Therefore your claim of "comparable" should be somehow compromised.

It seems that the overall returns of newer companies like BTCSYN are much lower either. I wonder why, maybe it's because the issuers' uncertainty brought by the threat from new mining technology?

[HorseRider]

This IPO is sure to be difficult to complete. There isn't IPO discount to compensate the uncertainty.


the loan service problem of BTCSYN: we should calculate the net income

BTCSYN is very complicated case. they're mining with

1. 6G FPGA but need to paying the bill.
2. 6G mining loan service, 1 year, utility free.

the CEO of BTCSYN is trying to miss leading the market by saying that "we're mining at 12ghash/s", but it's not comparable.

the first one is all owned by the company, but the second one will earn more than enough bitcoin to purchase back the same mining hash power in one year. So if we do serious accounting which introduce the amortization into it, so we can calculate the net income.
then we can calculate compare the price/net income ratio, which is common on the stock market.

The BTCSYN issued the management team 5200 shares of the 12000 total share capital. So for the company, the 6G 1-year loan service worth 1300BTC. and we can amortize it by 12 months, which is 108.3BTC per month. and 6ghash/s will generate more than 180BTC per month, so the 2nd mining power is still contribute the company 70BTC net income per month.

Looking at this from another way. For a loan service, we're sure that the value of it is lower and lower as the clock ticking. However, for the hardware wholly owned by the company, the value of mining hard ware is still dropping day after day, too. the only difference is that at the end of 1 year later, the hardware may have 60% of its original value for selling on the secondhand market, but the value of loan service is drop to 0%. There is differences, but not that much.

in this way, the IPO prices are

for CognitiveMining is 17x of the monthly net income. @0.5BTC IPO price.
for BTCSYN is 23x of the monthly net income.  @0.25BTC IPO price.

both is significant lower valued than other company at the market price, all of which is more than 40x of the monthly net income.

It's hardly to find so cheap company on the NASDAQ or NYSE which generate weekly dividend. It's like 80% off discount. You should sell are the Wall street shares and buy GLBSE shares.

do you think that BTCSYN is somehow over valued compared to Cognitive based on my calculation? I say not, if anyone is interested, I will discuss this in another post.

@friedcat: The comparable valuation method

His way of doing comparable makes sense but he used it in a wrong way. That's how investment banker doing comparable valuation. ( You already smell the style of investment bank, don't you.) For a investor who get into the GLBSE with bitcoin who want to invest right time right now, he has two options:

1. Buying shares like FPGA.contract or like.
2. Buying new IPO shares.

Suppose that the two have the same level of risk( Obviously that @amazingrando  made this assumption in his valuation. Of course the risk is not the same, I will discuss it.) the buyer will be willing to offer the same price as the existing shares for the IPO price, no matter what the IPO prices of the existing once had been.

However, the IPO company have more risk than the existing ones. The existing company have already received their cards and built a farm, which avoid the risk of postman-stole-the-rig-risk. They have been paying dividends which soft the risk of scamming. They have been mining for a long time which resort the worry that the man will mess things up when he try to setting up the farm( Just like BTCSYN, the FPGA board arrived for a long time, but since the P2Ppool is somehow different than traditional pools and some USB hub issues they're not still mining at full speed and the promised 6 ghash/s loan service is always have 1-2 ghash/s down once for a while.) So the IPO company should be issued at a lower price than the comps valuation suggested.

As time flies, the new company will become a company with track record, the good one of which will make the share price really comparable with other company.

[amazingrando]

It seems that you are mixing up some market price with IPO price in this table.

The IPO price of BMMO was 0.1BTC/share, not 0.357BTC/share.(https://bitcointalk.org/index.php?topic=66610.msg773182#msg773182)
The IPO price of MergedMining was 0.1BTC/share, not 0.133BTC/share.(https://bitcointalk.org/index.php?topic=47490.msg565679#msg565679)

Therefore your claim of "comparable" should be somehow compromised.

I believe using the prices I did is quite reasonable for a couple of reasons:
1) These are the prices that a potential investor would face at the present time - basically the cost of alternatives if you wanted to invest today
2) An IPO price lower than current trading price is likely due to the risk of a new organization.  In my case I have a solid reputation in the community and run a ~80GH mining farm of my own.  Additionally I have the equipment set up and running.  So a significant risk discount for this IPO isn't necessary.

It seems that the overall returns of newer companies like BTCSYN are much lower either. I wonder why, maybe it's because the issuers' uncertainty brought by the threat from new mining technology?

The returns of other firms could be lower for several reasons.  I don't know of any others that pay as little for power as I do.  Another issue that all mining firms face right now is that difficulty has come up a lot while prices have come down since their $7.20 peak earlier this year.  This is squeezing profits.  Finally, there is a question of how FPGA mining is/will affect profits.  FPGA's are expensive but they substantially mitigate the cost of power.  They are also smaller and easier to setup/manage than GPUs.  This could be attracting a lot of newcomers and could further squeeze profits.

[amazingrando]

Thank you HorseRider for the analysis of Bitcoin Syndicate, you make some excellent points!

Also thank you for your feedback on valuations.

This IPO is sure to be difficult to complete. There isn't IPO discount to compensate the uncertainty.

I certainly agree that a new IPO should be discounted to the degree that there is uncertainty.  As I discussed in previous post, however, I believe the risk discount in this case should be quite low.

Unlike other mining companies at the time of IPO, I already have my mining equipment up and running and mining.  There would be no delay.  One might see risk about receiving dividends until there is a track record of payouts.  This is a valid concern, but I believe investors should have confidence that they will be paid as expected.  I've been operating a very large mining farm for a long time now (over 80Gh/s) and have a good reputation within the community for mining, mining contracts, buying/selling goods, and paying back loans.  I am happy to provide a list of links for past transactions and references.

It's important to note that not all IPOs are equal.  Dotcom-era IPOs of high-concept companies with no revenues certainly should have (if they didn't due to the euphoria of the times) had a sizable risk discount in their IPO pricing.  However, when UPS went public or when Facebook goes public, there is likely to be very little risk discount as the uncertainty just isn't that high.

[amazingrando]

Based on the feedback received so far, I'm going to re-examine the proposed structure.  I want the company to have a realistic value, a successful IPO, and be equitable to all shareholders (including me).

Stay tuned...

[HorseRider]

why not this:

1. lower the share price to 30%-40% as it is now. Give the market some IPO discount.
2. downsize the IPO to 20% as it is now, which will purchase less mining power of yours.

this will make the IPO successful and make you feel not so "sell at loss". When IPO is successful, you can raise motion to issue new shares at market price.

[amazingrando]

why not this:

1. lower the share price to 30%-40% as it is now. Give the market some IPO discount.
2. downsize the IPO to 20% as it is now, which will purchase less mining power of yours.

this will make the IPO successful and make you feel not so "sell at loss". When IPO is successful, you can raise motion to issue new shares at market price.

Thanks HorseRider.  I was thinking of something along very similar lines. I'll run some numbers tonight and see what I come up with.