HIP 38: Permission to form an autonomous legal entity to continue to develop The Oikos

Due to length restrictions on snapshot the full proposal could not be shared here, but the highlights are. We highly recommend that you review this document, which is the full HIP, including extended information, supplemental reading and more details.

https://drive.google.com/file/d/10kcqCOR2GZXW0RFlhDY8fWEqivH6lDOR/view?usp=share_link

What:

We’re asking our community for permission to create a new, separate legal entity for The Oikos. This newly formed company will operate with a traditional, doxxed C-Level structure, it will be centralized and run independently of, though in partnership with Hector Network.

Why:

The primary reason is our current DAO structure does not allow for equity investors (specifically Venture Capitalists) or equity partnerships. Ability to open up to this kind of funding dollars is crucial for The Oikos during the current market conditions. While we anticipate raising significant funds through land and a possible token sale (exact details of which are still being worked on with many factors at play including the game economics and regulation) it is unrealistic to assume we will be able to match the success of campaigns launched during the bull run from inside the bear market. We, as The Oikos team, need to diversify the origin of the development funds to ensure an undue burden is not placed on the DAO Treasury during development.

Additionally there are many strong advantages to structuring The Oikos into its own separate legal entity:

1. Limited liability: Owners of a separate legal entity are generally not personally liable for the debts or obligations of the entity. This means that their personal assets are protected in the event that the company is sued or unable to pay its debts.
2. Continued existence: A separate legal entity has its own legal existence and can continue to exist even if its executives leave or die.
3. Professional image: A separate legal entity may be perceived as more professional and established than a sole proprietorship or partnership, which can help to attract customers and business partners.
4. Tax benefits: In some cases, a separate legal entity may be able to take advantage of certain tax benefits, such as the ability to deduct business expenses and losses from personal income. Please refer to the statement provided by the DAO’s lawyer team, who advised this course of action. These lawyers are retained by the DAO and will not be hired by the new company formed by The Oikos. They are morally and legally responsible to the DAO.

https://drive.google.com/file/d/1vkY0jOO6uZ6nkZZSTppdZ_Q3y12X8jEP/view?usp=sharing

What does this mean for the DAO’s ownership of The Oikos?

Restructuring the company in this manner would mean that Hector Network has no active ownership of The Oikos. The company operating The Oikos would have total autonomy to run the company and develop the game as it is needed, and future decisions would not be subject to HIPs. This move is crucial in opening up funding through selling equity shares. However, lack of ownership has very little effect on profit flows, which can entirely be controlled in the company structure and subsequent contracts.

In this proposal Hector Network and the newly formed company would sign a profit transfer agreement set up to entitle a fixed and predetermined portion of the profit of The Oikos to loop back to the DAO treasury. This model allows Hector Network to receive maximum benefits without the added liability of being so closely tied to a centralized company, and it is a useful option for entities who wish to receive return on their investment without the added risk and responsibility of ownership.

One of the prime roadblocks associated with the alternate option, becoming an Equity shareholder in the new company, is KYC. Investors at this level wish to be sure the funds going to start a company are from ethical and reputable sources. Normally part of the equity shareholder agreement is to KYC the officers, owners, or high level individuals involved in the company. This is impossible for a DAO as there are no officers, the funds in the company are collectively owned by the holders, and many of those holders are and will remain anonymous.

Who Profits from The Oikos? Hector Network and any Equity Shareholders!

First understand the difference between Revenue and Profit. Revenue is the full sum of money brought into the project, while Profit represents the left over sums after operating expenses have been paid out.

Once these expenses are paid out from revenue the Project can report profit. According to each agreement the profit can then be distributed between the shareholders, the profit transfer agreement, as well as a portion of the profit (exact % is still TBA, but likely to be between 15% and 35%) would be reinvested into The Oikos to fuel expansion and continued company development.

Allocating funds for continued growth is crucial for expanding the company and will result in overall increase in revenue and also exposure for any integrated Hector Network products.

The profit payout pool is defined by profit - expansion investment and will be distributed yearly.

How are we structuring the company value and profit distribution?

To accurately and fairly value a company that does not yet exist can be a difficult task. To reach this valuation we took the average of a number valuations using several methods.

Market comparison - where we looked at the valuation of companies that are similar in nature to The Oikos and how that valuation has grown or changed over time.

Discounted Cash Flow - A method used to evaluate companies based on future revenue streams, where various revenue models were employed to give us high and low end valuations.

Book Value - This method tracks the value of the asset of the company and builds the valuation from their worth. In the case of The Oikos, this is a hypothetical method since the company does not yet exists and the assets and IP are all in production. However, we used this to calculate what the game would cost to complete and how much we’d have to sell the company for once it was complete to break even.

Through our calculations and projections we set the valuation of the company at 50 Million USD. This is a relatively conservative valuation for a game of this nature, but as we are so early in development it is better to undervalue then over.

Neuboution is an independent contractor we’ve worked with a number of times. They helped facilitate the partnership with BVB and have helped us make several crucial business contacts in the past. We asked them to do a valuation for The Oikos as well and it can be found here.

https://drive.google.com/file/d/129Me0clEaajqTrsPt8fQvPXMhxdc7tVg/view?usp=share_link

At face value Hector Network has committed 3.6 Million USD in seed funding towards The Oikos, which is 7.2% of the overall valuation of the company.

However, this does not factor in the additional costs shouldered by Hector Network during the pre-development of the game. Nor does it reflect the ongoing strong relationship that should always exist between the two companies.

We’re proposing rounding up the profit transfer agreement to an even 12%.

The portion of shares sold and agreements made can not be diluted without approval from the owner or beneficiary of those shares/ agreements. Once these agreements are signed into a legally binding contract they are non-dilutionairy without permission and consent of the signees, regardless of company valuation. In the case of Hector Network that would require a HIP and a renegotiation of the Profit Transfer Agreement.

Making an additional investment into The Oikos

If the community votes in favor of separating The Oikos a secondary HIP will be triggered providing the opportunity to make an additional investment into the new company.

If the community commits an additional 2 Million to the project an additional 5% in profit entitlement would be written into the profit transfer agreement, making the share of profit owed to Hector Network 17% of the profit payout pool.

There are both risks and benefits associated with allocating additional funds towards The Oikos project. To be abundantly clear this is a decision that Hectorians need to make for themselves, and we will provide facts but attempt to remain as objective as possible in the discussion. We encourage heavy discussion in the community and will answer as many questions as humanly possible on this topic.

Benefits:

• Of all the sub-brands developed by Hector Network, The Oikos has always represented the largest potential revenue stream. An additional 5% of profit could represent millions of dollars in steady yearly revenue in the future.
• The additional investment could ensure a smooth launch for a key investment. An additional 2M upfront allows The Oikos team to extend the development runway from June 2023 (with budget to hire 4 people, CEO, CFO, COO, CMO) to into September and hire 17 people, (5 C-levels, Business Developer, Partnership Manager, Marketing Manager, Socials Manager, Accountant, Mod Staff for Social severs (x5) 2 Artists (for Marketing department). This extended staff greatly increases the company’s chances of swiftly landing key partnerships, landing venture capitalists and having successful NFT sales.

Risks:

• Should The Oikos fail a larger share has been committed and is therefore lost, choosing to not invest further in The Oikos could provide more diversification to mitigate failure.
• If the market conditions continue the additional 2M strain on the treasury could reduce Hector Network’s runway and perhaps the project would go broke before it is able to benefit from the profit of The Oikos.
• A 2M investment might perform better if invested in another way, and produce more ROI than with The Oikos
• A 2M investment might perform quicker if invested in another way, and return funds to the treasury before profit from The Oikos kicks in.

To make savvy investment decisions the community needs to understand where we stand in the current budget for the last 6 months and what sort of environment the next budget HIP will be in.

Currently we are just over half way through the budget period and we are significantly under budget. You can review the current budget position & predictions for budget remainders for the end of the period here.

https://drive.google.com/file/d/1TbRRJkcAv6_lxK4TSLWTod3DK9qcRSPu/view?usp=share_link

Final numbers for the budget for next period are still being tabulated but by all accounts the next period will require notably less funds than allocated for this one. Predictions put that budget between 4-7 M for the 6 month period of April 2023 through to September 2023, and as shown in the charts above some of those funds will be able to roll over from this period.

What does all this mean for the Hector Network Ecosystem and Hectorians inside The Oikos?

The plan to integrate The Oikos with the Hector Network ecosystem remains intact. How we approach this will shift to a partnership model such as Hector Network uses with any number of other protocols. As part of the initial contract expectations for integration for the Mythos Collection, Library, Atlantica, and other or future Hector Network sub-brands will be mapped out, and obligations, where they are applicable, will be outlined. Such a collaboration is mutually beneficial since Hector Network has extensively invested into infrastructure for a number of Sub-Brands that have huge potential inside The Oikos. For The Oikos developing them from scratch would be a massive waste of development resources and time.

Similarly, integration into The Oikos continues to provide utility for these products and plenty of exposure. By nature, the market audience for The Oikos greatly exceeds that of Hector Network. Combining the Hector Network Ecosystem into The Oikos will provide increased traffic and an on-ramp for new community members, particularly from those outside the world of crypto.

Furthermore, as The Oikos community and Hectorians are fundamentally linked, it is important that holders of HEC, TOR, wsHEC, fNFTs, and Mythos Collections see perks as promised throughout the development of the game.

Who will be in the new company?

If HIP 38 passes, then the outcome of HIP 38A, in conjunction with how much funds are raised through grants, sales and investors in the first 4-8 months the team will range from 4 people to 17 people in the foreseeable future. Some of these positions, C- Level and below, will be filled by current Hector Network contractors who will move over to the new company. Some, such as the CEO, CFO will be hired specifically for the new company. For all new hires we’ll be seeking individuals who have plenty of experience in the gaming industry as well as their field of oversight. All positions will be paid purely by the new legal entity. Any team members from Hector Network moving permanently over to The Oikos would also be paid out entirely by that company and this would open up funds in the Hector Network budget. In the early days some team members will likely work for both companies, however no person will be collecting a pay cheque from both companies. These overlap positions will be focused on the supporting replacement contractors who are taking over work, and continued collaboration of the two companies, ensuring smooth integration for the sub brands. The Oikos will continue to work with third parties such as Magic Media and other consulting agencies to fulfill development needs.

Voting options HIP 38:

1. I approve separating The Oikos into its own legal company, but do not wish Hector Network to commit additional funds and am happy with Hector Network receiving 12% of the profit payout pool.
2. I do not approve the separation of The Oikos into its own legal company. I understand that not separating into its own legal entity prevents the team from searching for external development funding in the form of investors. I am aware that given the current market conditions the strain to develop the game entirely in house might require all the treasury funds or require a full pause on game development.
3. I am unhappy with any of the presented options and supporting data.