How to determine markup valuation as an equity investment takes on token investors?

We have a portco that we invested in as an equity investor when they were an online experience platform. That business turned out not to be venture scalable. They team pivoted and raised another equity round... then they pivoted again into a blockchain gaming company. That company is doing very well now and they are the leaders in their space and with non-trivial revenue. 

They have now raised $3M more in two subsequent funding rounds from blockchain-first investors who invest on a valuation basis of the fully diluted token value. This is good for company given that it is how their space commonly works. The fully diluted value of the token is substantial and (coupled with the progress for the company) certainly represents a mark up for our equity investment. As early equity investors, we will be receiving a token allocation as well. But determining a reasonable markup value is uncharted territory for us. I'm looking for advice from GPs who are familiar with the blockchain space on how to approach this.

For context, we are entering fundraising mode for Fund II and capturing markups is an important element of the track record we have established. If this situation occurred in year one of deployment, marking the deal at cost would be fine. And that may be the right thing to do in the end. But given that the company has made material revenue traction sufficient to attract several million in additional capital investment, it seems worthwhile to take a minute to understand the implications of what amounts to two "priced rounds" from token-based investors. 
1 answer
Accepted Answer
Dec 28, 2023
Thanks, Mike. That's helpful.
Community Member
Jan 09, 2024 8:23pm
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