Friends With Benefits

Authors: Jose Mejia, Mike Bodge, Hirad Sab, Dexter Tortoriello

Summary

Currently, FWB exists as one entity in which all of our emergent activities are housed—including product, membership, events, partnerships, marketing, etc. While these various initiatives are symbiotic in nature, we’ve realized that some of them require different organizational structures, levels of centralization, governing frameworks, and operational strategies to thrive.

This proposal would be the first step of a two-step process (outlined below) to upgrade FWB’s organizational and legal structures:

1. Establish a new Software C-Corp that strives to create expanded use cases for the $FWB token.
2. Wrap the FWB Community DAO in an Unincorporated Nonprofit Association (“UNA”) that serves as the parent entity of the FWB ecosystem (note that this will be brought to vote in a separate proposal).

We see establishing a Software C-Corp as a necessary next step for properly resourcing FWB’s software initiatives, reducing the DAO’s overall burn rate, and allowing the DAO to focus on an increasingly decentralized operational structure oriented around serving the interests of the FWB community.

Key benefits of this restructuring:

• Enable the C-Corp to raise capital from outside investors so they can appropriately staff the team
• Give the C-Corp more operational freedom, so they can build better products for FWB members more efficiently
• Create an opportunity for a focused team to work more effectively at expanding the utility of the $FWB token
• Reduce FWB’s treasury burn by 41% per month, increasing the DAO’s overall runway
• Free the DAO from the risks and volatility associated with product development
• Allow the DAO to focus on further decentralization, and on community needs and interests

Full Background

Friends With Benefits began as a tokenized community experiment before the concept of a DAO became popular. Over time, it has grown into a unique entity made up of a variety of interrelated components that all live under one umbrella. While you can think of FWB as a network of 4,000+ members and core contributors who share ideas and gather together all over the globe, it is also a producer of an arts & culture festival, and the developer of several software products designed to make interacting with web3 communities more fun and exciting.

When you evaluate the needs of the FWB community against the needs of FWB’s software team, major points of tension become apparent. In its current state, these facets of FWB hamper one another from flourishing properly:

1. The Product Team’s burn impairs the DAO’s runway significantly
2. Conversely, the fact that the Product Team can’t scale to hire more engineers constrains the ability to ship better software faster
3. The organizational needs of both sides create tension; the community would benefit from further decentralization and proposal-driven decision-making, while the software team requires agile and opinionated work from full-time builders.

To put it another way, while the DAO needs to focus on creating a community-controlled pathway towards sustainable revenue generation, the software entity needs more centralization and increased resources to deliver on its ambitious vision. When forced to exist under the same umbrella, each activity limits the ability of the other to be truly successful.

For the benefit of the entirety of FWB as an entity, we propose to restructure the DAO into two separate legal entities:

1. An Unincorporated Nonprofit Association, the most legally sound wrapper for the DAO’s range of community-focused activities
2. A venture-backed Software C-Corp that focuses on developing products used by the FWB membership base and the DAO’s surrounding ecosystem

The key reasons for this restructuring are:

1. A UNA is the most legally sound wrapper for the DAO, protecting all members from legal liability while allowing for the DAO to progressively decentralize over time
   1. A separate proposal for approving the DAO’s formation of the UNA will be published for discussion following this proposal
2. A venture-backed C-Corp is a proven vehicle for accelerating the software development process and delivering world-class products for FWB members to use and benefit from
3. Restructuring in this way will extend the DAOs runway from 12.7 to 20.7 months
4. FWB DAO is generating significant revenue ($1.1M in 2022) but not enough to sustain both the community initiatives and a team of in-house engineers
5. The FWB DAO has only approximately 134,197 $FWB tokens in its treasury (13% of supply) which renders a token sale as a fundraising mechanic via the DAO impractical

Software C-Corp Details

Mission

The venture-backed software-focused C-Corp would focus primarily on building best-in-class software used by FWB DAO and its members. From FWB.app to Gatekeeper and beyond, the C-Corp strives to create an expanded set of use cases for the $FWB token and make participating in the FWB ecosystem easier and more rewarding.

Ownership Structure

The FWB DAO will own 25% of the C-Corp upon incorporation. The founding team (currently the FWB Product team) will retain 56% ownership of the C-Corp, vesting over the course of four years. 19% of the shares would be held in an options pool for future hires.

The founding team’s ownership stake is an incentive mechanism to reward them for their commitment to building the C-Corp into a valuable extension of FWB DAO that enhances the experience of FWB DAO members, while the vesting mechanism ensures that this ownership stake is earned. The options pool, similarly, will be used to create competitive compensation packages to attract the best possible talent to the team.

Initial Ownership Structure:

• FWB DAO: 25%
• Founding Team: 56%
• Options Pool: 19%

Capitalization

The C-Corp would, pending approval of this proposal, raise $5M at a $20M valuation. Capital would be raised from investors who participated in the previous FWB DAO fundraise in order to maximize incentive alignment, instead of introducing new investors into the FWB ecosystem who do not already have a vested interest in FWB’s overall vision and success.

Key Provisions

In order for the DAO and C-Corp to be successful, they need to operate symbiotically yet interdependently. In order to do so, we’re proposing that the C-Corp and DAO enter into a legally binding agreement containing the following terms and conditions:

• The C-Corp will exist to create software products that expand the use case of the $FWB token
• One of the C-Corp’s board seats would be occupied by the FWB DAO mayor position, representing the interests of the FWB DAO directly
• The C-Corp, once capitalized, will complete a series of purchases of $FWB tokens. Those tokens will be held on the C-Corp’s balance sheet in order to further align the new C-Corp with the FWB DAO, using those tokens primarily as part of compensation packages for future employees.

Conclusion

The intent of this proposal is to begin the process of restructuring FWB into a more efficient and well-defined set of organizational units.

The best possible path forward for FWB is one in which the DAO can operate in a leaner, more decentralized and proposal-driven capacity, with the aim of becoming financially sustainable without the need to take on additional venture capital. Meanwhile, the new C-Corp can focus solely on delivering best-in-class software for FWB DAO members and the FWB ecosystem.

The vision of FWB becoming a new kind of collective social network experience is ambitious and daunting, but meaningful and one worth pursuing. We believe this establishes a framework for future home-grown products and experiences that gain enough traction to be established and grown in an incentive-aligned way that ultimately drives value back to the FWB DAO.