Seeking Discussion - GLBSE bonds for web hosting upgrades.

[Meni Rosenfeld]

If you were truly open to any price... , (the value is 0 according to your post I think)

1 MH/s is the value of the bond. It's not zero, and I won't sell it for less than what 1 MH/s is worth for me.

you'd issue new bonds at 1 Satoshi each and pre-announce it, so the market can build it's own price in a bidding war.

Selling bonds takes time, people shouldn't be expected to put a bid in advance.

You don't set a lower limit to the price of buying back though, so the advantage is one-sided on your side.

The equivalent BTC (or USD) value of the bond decays by its nature, why would I put a USD-denominated lower limit on the buyback price?

People don't buy the bonds for their value but the possibility of having a ROI through dividends.

The bond's value is the prospect of getting coupons.

Still you will not sell them at any price but can buy them back at any price, even if that would mean a net loss for people buying the bonds from you initially.

I can't buy them back for less than they're worth. If the mining conditions change and the bond value decreases, it means the investors have lost whether I buy them back or not.

A more sophisticated  buyback clause could also be "1 bond can be bought back at (0.3 BTC - dividends per share since IPO) * 1.2 (if this gets negative, this is assumed to be 0) or 2 USD converted to BTC at the 24h average market value, whatever is higher" - if your minimum price is something a bit below 2 USD per MH/s.

Again, the USD value of the bond is changing. If it's 2 USD now doesn't mean it will be 2 USD forever.


I'm feeling we're going in circles, and this is off-topic for this thread anyway...

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[burnside]

I've researched the legality of offering up bonds in the US.  It seems legal, at least on the surface.  Small fry's are allowed to offer up bonds to private investors without having to register with the SEC.  So I just have to make sure that at some level my bond investors are "private".  I would thus define the potential pool of private investors in my bonds by saying our bonds are only available to those in the GLBSE Bitcoin Club, (aka, registered members of the GLBSE)  or something of the sort...  However... I'm not really sure if this would pass the test of an actual US courtroom or not.  The definition of a "private investor" seems somewhat vague.

I presume the "private investor" part simply means you didn't solicit the investor and that there was a prior substantive relationship.  As far as bonds not being equities and thus that affecting the requirement to register with the SEC, I believe that might be an inaccurate statement.

"Section 2(1) of the Securities Act of 1933 (the “Securities Act”) sets forth a definition of the term 'security,' and the term includes, in addition to stock and bonds, any note, evidence of indebtedness, option or investment contract. This broad definition of security means that virtually any type of instrument in which the investor has a reasonable expectation of profit solely as a result of the investment of money will be subject to the rigor of the federal securities laws, regardless of the structure of the investment."
 - http://bit.ly/voMtiX

Obviously for a business that operates online, locating it to a jurisdiction with lax securities regulations becomes a greater and greater opportunity.

I could probably have been clearer.  It is most definitely a security by most anyone's definition.  However in my research I came across the list of requirements for the situations in which you have to register with the SEC.  In general it seems that you do not have to register until the security exceeds a certain value, as long as you are not wide open to the general public.  In the few places I read, I did not find reference to an exact definition of private vs. public and many people seem to feel like it was worded fairly generally on purpose to be relatively lax.

[burnside]

A more sophisticated  buyback clause could also be "1 bond can be bought back at (0.3 BTC - dividends per share since IPO) * 1.2 (if this gets negative, this is assumed to be 0) or 2 USD converted to BTC at the 24h average market value, whatever is higher" - if your minimum price is something a bit below 2 USD per MH/s.
This means you can still get very low buyback prices, but not arbitrarily low ones, will always have to pay up a proper amount for the debts you sold and it also tells that you initially priced your bonds in USD, as mining equipment is priced in USD as well (hence the not arbitrarily low IPO price).

I like that, seems pretty fair to both sides.

[Meni Rosenfeld]

A more sophisticated  buyback clause could also be "1 bond can be bought back at (0.3 BTC - dividends per share since IPO) * 1.2 (if this gets negative, this is assumed to be 0) or 2 USD converted to BTC at the 24h average market value, whatever is higher" - if your minimum price is something a bit below 2 USD per MH/s.
This means you can still get very low buyback prices, but not arbitrarily low ones, will always have to pay up a proper amount for the debts you sold and it also tells that you initially priced your bonds in USD, as mining equipment is priced in USD as well (hence the not arbitrarily low IPO price).

I like that, seems pretty fair to both sides.

As I explained, this is not fair for the issuer. The best would be a standard buyback price based on market value, but with lower and upper bounds based on extrapolated lifetime earnings. Though if you want it simpler, you can just make it based on extrapolated lifetime earnings, but it's difficult to do it without any distortion.

[burnside]

As I explained, this is not fair for the issuer. The best would be a standard buyback price based on market value, but with lower and upper bounds based on extrapolated lifetime earnings. Though if you want it simpler, you can just make it based on extrapolated lifetime earnings, but it's difficult to do it without any distortion.

I was looking at it from the perspective of this thread and the bond in the hosting company.  You may be right that it doesn't work out for the issuer on a mining bond.  The perpetual mining bonds have a level of complexity far and above what I was trying to tackle with the hosting company bond.  I really appreciate all your input though, it's a lot to absorb!

[Meni Rosenfeld]

As I explained, this is not fair for the issuer. The best would be a standard buyback price based on market value, but with lower and upper bounds based on extrapolated lifetime earnings. Though if you want it simpler, you can just make it based on extrapolated lifetime earnings, but it's difficult to do it without any distortion.

I was looking at it from the perspective of this thread and the bond in the hosting company.  You may be right that it doesn't work out for the issuer on a mining bond.  The perpetual mining bonds have a level of complexity far and above what I was trying to tackle with the hosting company bond.  I really appreciate all your input though, it's a lot to absorb!

Right, that's what happens when I hijack the thread for 2 pages

For what you're doing I think putting a fixed USD or BTC value on the buyback price would be best.

[exahash]

Right, that's what happens when I hijack the thread for 2 pages

For what you're doing I think putting a fixed USD or BTC value on the buyback price would be best.

At least he admits taking this crazy train off the rails for two days.  

Bringing this thread back on topic, since this is not a mining bond, nor comparable to one.

@burnside- you are proposing a bond issue that is heavily slanted in your favor.  GLBSE is the perfect place for this.  

Looking at your proposal:

COMPANY.BND.A - Initial offering of 100,000 shares at 0.25 BTC/ea.  Bond to mature at 5 years.  Company converts all 25000 BTC to USD, ends up with some amount USD, call this $VALUE.  Company pays interest at 3% of $VALUE, minus the USD->BTC transaction costs at monthly intervals.  Company reserves right to buy back bonds at 1.5x the 5 day average at any given time.  At maturity, company buys back all bonds at $VALUE USD, converted to BTC at that time.

 

I take it that's 3% Annually (APR) so .25% monthly.  That's lower than what I pay on my 30 year mortgage and less than I earn on some tax-free muni bonds.  I have publicly traded stocks (MREITs) currently yielding 5x that (check out AGNC), and have loaned money to larger more stable entities at even higher rates.

If you succeed in borrowing at that rate under the terms you propose, I will jump in right after you.

COMPANY.BND.B - Initial auction of 100,000 shares starting at 0.25 BTC/ea.  Bond to mature at 5 years.  Each share is a coupon entitled to 0.000003% (total offering value = 0.3%) of the company's actual revenue, currently a bit north of $1 mil/yr and growing at ~8% annually.  Company converts all BTC to USD, ends up with some amount USD we will call $VALUE.  Company pays dividends monthly based on company's actual revenue.  Company reserves right to buy back bonds at 1.5x the 5 day average at any given time.  At maturity, company buys back all bonds at $VALUE USD, converted to BTC at that time.

So we're talking $1MM * .3% = $3k and $3k/100,000 shares = $.03/share per year.  At current exchange rates thats .03/6.5 = .0046 BTC  Yielding .0046/.25 = 1.85%/year.  

1.85% APR for a junk bond.  I can get more than that in an FDIC-insured 5-year bank CD.  If you pull it off you will have to stop the web hosting biz and run an investment bank, CEOs from all over will beat a path to your door wanting to borrow at such low rates too!

COMPANY.BND.C - Initial auction of 100,000 shares starting at 0.25 BTC/ea.  Bond to mature at 15 years.  Each share is a coupon entitled to .000008% (total offering value = 0.8%) of the company's actual revenue, currently a bit north of $1 mil/yr and growing at ~8% annually.  Company pays dividends monthly based on company's actual revenue.  Company reserves right to buy back bonds at 1.5x the 5 day average at any given time.  At maturity, company buys back all bonds at $0.01 USD, converted to BTC at that time.

Same math as above with .8% gives us $.08/share per year and 4.9% APR.  That's a little better.  But I can still beat it at 7% staying in USD with JNK or HYG.


So why should I convert my dollars to bitcoins, for you to turn around and convert them back to dollars, so you can buy servers and advertising (or whatever) for a business that will only pay well below market on that debt?


Some music comes to mind: burnside's goin' off the rails on the crazy train...

[burnside]

So why should I convert my dollars to bitcoins, for you to turn around and convert them back to dollars, so you can buy servers and advertising (or whatever) for a business that will only pay well below market on that debt?


Some music comes to mind: burnside's goin' off the rails on the crazy train...

On the A bond 3% was the rough target.  I was trying to counter inflation essentially making this a "savings account" that would not move backwards as most bank savings accounts do.

On the B and C bonds it's not so clear cut because they're based on company revenue, which has been growing reliably at 8%/yr.  Sure, the first year is 4.9%, but year two is higher, year three is higher, and so on, till year 15 it's more than triple that.  Only reason I was willing to even consider those ones long term was because I was anticipating buying some back as time went on.  (Not forcefully, just at market rate when cash flow is good.)

I completely understand that next to the pirate bonds, this looks crazy.  I took what I'm getting now with the brick and mortar bank and tried to make it worth my time to offer something up on the GLBSE and as a couple of people hit on earlier, it just doesn't seem to make sense right now.  People on the GLBSE aren't looking for a safe long-term investment, they're all looking for 6%/wk.

I may still offer this up, just to see what happens.  Having it on the board when (if) pirate tanks might pay off, and the B and C bonds it may actually make sense to be used as an employee benefit.  I'd give everyone in the company some shares, then everyone has an incentive to help the company bump up revenue.