The New Discipline Web3 Software Companies Must Develop
Suppose you launch a web3 company tomorrow. The business builds software to help other crypto companies grow. Perhaps you’ll sell infrastructure to help other startups scale or software to manage internal operations. After you’ve launched the product, you’ll encounter a new phenomenon. Your customers prefer to pay you in crypto.
Fast forward three years, your business thrives. The customer roster brims with the best names, each client increases their spend every year, and the sales team outpaces its quota handsomely.
You decide to pull up your balance sheet. You have $20m in dollars and $40m in tokens of various flavors. The token balance fluctuates quite a bit. Some months, that $40m is $80m; others, it’s $20m. You wonder, how do I best manage these tokens for the business?
Most US web2 software companies might progress through their lifespans without ever uttering the words treasury management in a board meeting. Abroad, the story differs. When a startup sells software to users outside their home country and receives payment in foreign currencies, they must manage foreign-exchange risk.
B2B web3 companies will need to manage their treasuries from the very first few customer contracts because there are consequential questions to answer from day one.
First, does the startup retain tokens or immediately swap them for dollars? By hodling, the business implicitly operates a hedge fund. Keeping tokens means taking a constructive/long view on those tokens and selling vice-versa. How should the company decide which tokens to hold and which to swap? Should the business hire a full-time analyst to manage this balance sheet question?
Second, if the business keeps the tokens, the company bears some tax risk. Imagine your top account executive books a $5m USD contract paid in tokens. The business pays 20% tax annually which implies a $1m tax liability on the tokens. In the subsequent two quarters, the token’s price collapses by 95%, so the $5m is now worth $0.25m. Signing the customer contract costs the company $750k, excluding the sales commission. Of course, the treasury could swell if the token were to appreciate significantly.
Third, how will your business manage payments and accounts receivable? A big bill comes due and the company can opt to pay in dollars or crypto. It might be monthly payroll. Which option is better: tokens or dollars?
These are just some of the questions web3 software companies face as they begin to scale. Treasury management will become an essential function even at the early stages for most web3 software businesses.