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Vadim Sychev at the session of the Financial and Industrial Forum of INNOPROM-2017>/p> Photo: INNOPROM Press Center
In the last issue of the weekly newspaper "INNOPROM VIEW" we have researched subjects related to "traditional" ways of fund raising of projects in the field of R&D such as grants, investments of the funds. We keep discussing start-ups' financing in industry and propose you to think over a more complex and controversial topic: blockchain technologies for plants. Is it conceivable that new enterprises avoid using banks or venture funds? Let's take ZrCoin plant as an example.
In 2018, this Russian industrial project will become a pioneer in the worldwide practice of attracting cryptocurrency towards the needs of the real sector. Several months ago, the founders of the project raised more than 7 million dollars with the use of blockchain platform in order to launch the zirconium dioxide concentrate factory.
An enterpriser, a developer of the idea, may find it difficult to attract investments in a venture project to get it started without losing control over their technology at the same time. On the one hand, startupper can address the bank, which generally doesn't have any intensions to participate in the authorized capital. Nevertheless, a credit organization only provides funding against assets. In Russian realities, the assets market value should double the amount of funding. On the other hand, investors, business angels are ready to invest into the realization of the project, yet they demand from 50% up to 80% of their shares in business. By accepting such an offer, developers of the idea mostly turn into managers working for hire. All in all, one can't really avoid the classical financing scheme in our country, though in case of venture projects there is a possibility to get started with the help of new instrument – ICO.
The ICO (initial coin offering) mechanism is an instrument of attracting collective investments modeled on crowdfunding at the expense of issuing and selling its own cryptographic tokens (coins) on blockchain platforms.
Before, not a single project, based on ICO, had any relation to the real sector of economy. Our idea to update blockchain option towards the needs of the industrial sector was the first of its kind in a worldwide practice.
ZrCoin project was organized for attracting funds with the aim of building an innovative zirconium dioxide concentrate factory. Usually, cryptocurrency within ICO is assured against expenses on mining or demand on itself; sometimes it correlates with some currency or gold. Though ZrCoin's tokens are assured against final products: one coin's cost is the same as of 1 kilogram of zirconium dioxide produced by us.
We plan to launch zircon scrap recycling plant within Magnitogorsk (Chelyabinsk region) industrial platform. With the use of unique technology, we will obtain zircon concentrate and synthetic slag-forming mixture when recycling 1 ton of zircon refractories scraps. The monthly production volume will reach 400 tons of concentrate and 100 tons of mixture. The idea hit us in spring of 2014, and after it within two years we have been making researches and developing technologies. The market demand on zirconium dioxide is high because it is used for producing ceramic (including the field of prosthesis), lightning equipment and refractories as well as it is used in the field of stove building.
The annual demand on this product inside Russia is about 150 thousand tons. Almost 100% of this volume is assured against import.
We placed ICO on the base of Waves blockchain platform and offered to potential investors to buy ZrCoin's coins at the price of $1,4–1,55 for 1 token. Each coin will be assured against 1 kilogram of zirconium dioxide which could be implemented on the market. The market value of raw materials is now $2,8 per kilogram, and we offered to investors a 100% growth of material means invested in the project. Profit of investor is assured against production produced by the factory.
The investment campaign was held in May – June 2017. Blockchain option allowed us to obtain more than $7 million and to start the next step of the project, the building of the factory. The process takes from six to eight months. At the moment, the fundamental works on construction site's geology have already been implemented. In September ZrCoin company made a general contractor agreement on building the project, and the sum of 19,5 million rubles has already been prepaid.
In order to convert cryptocurrency into real equipment, we used the services of a foreign fund, which jurisdiction makes such operations possible. We organized the utmost transparent information support of the project: there will be video observation of construction process on the construction site, all documents will be published on the official web-site. Thus, for example, we have already published a photo report on manufacturing of technological equipment for ZrCoin plant. All works on manufacture initiating will have been done by February of 2018.
Photos and videos of the future plant are published on regular basis on ZrCoin project CEO's Facebook.
Starting with March of the next year, we will launch the third step of the project, the buy-back of ZrCoin from investors at the cost no more than $2,8 per coin. We are projecting tokens to reach its price peak in one year and half after the start of the project. We will offer an exchange for factory's stock to those who will not be willing to sell cryptographic tokens. Besides, each investor will be able to obtain finished products instead of invested material means.
ZrCoin is attractive to investors because it is a derivative financial instrument which works on the principle of an option.
Any investor can quit the project by selling their tokens at the stock exchange as soon as ICO is over.
According to our projections, the cost of token at stock exchange will be higher than the purchase price as far as many people will buy ZrCoins for the further participation in stocking. Thus, such an investment will help many people to have windfall revenues. Our production project is 100% secured in order to provide assurance, and ZrCoin is not impacted by inflation and cryptocurrency's volatility.
Financing projects based on ICO system are promising in the innovative sphere, though they bring traditional business risks along. This is changes in the currency rate, delays in construction and in equipment's supply. Investor may find unstable even the novelty of allocation mechanism itself.
It goes without saying that in case we had failed to collect the minimum sum required, all money would be transferred to investors in the full volume. However, in case of the failure, we would risk not only in terms of production start's deadlines.
The founders of the project have invested more than $1 million in the development of technology itself, substantial resources were also required for the project promotion within various venues for finding investors.
As far as before the launch of the investment campaign we preferred to get ourselves properly prepared, we had a lot of broken deals with suppliers of equipment, raw materials and with customers. In case ICO had failed, we would sustain heavy losses in terms of time and material means. Although such risks are incomparable with consequences which we would experience if we have chosen the way of classical investments. In this case we would lose control over our project and our unique technologies.
Generally, our investment campaign within ICO illustrates that obtaining collective investments at the expenses of cryptographic tokens is the real instrument of attracting funds for innovative projects. The global blockchain society is ready to take in a serious way ICO technology as well as projects which are believed to be launched with the help of blockchain options.
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