Charlie Shrem's blockchain startup sees big business opportunity in waste management

Rage Comment : The uncertainty of the US regulatory environment poses great potential risks to blockchain companies. Therefore, Charlie Shrem, who was sentenced for founding the Bitcoin exchange BitInstant, is also very cautious after being released from prison. The Mainstreet Investment LP fund he founded hopes to apply blockchain technology to the financing activities of waste disposal companies in the United States; however, this ICO is not open to US and UK investors due to concerns about legal risks.

Translation: Annie_Xu

Charlie Shrem wants to use blockchain technology to process more than 20,000 cubic meters of garbage in Michigan.

Charlie Shrem, who was sentenced for founding the bitcoin exchange BitInstant, revealed in a prospectus that he plans to use an Ethereum-based platform to sell shares in an unnamed waste disposal company to global investors.

While Shrem’s investment platform is an incentive for the 20-year-old company to become a leader in the $75 billion U.S. waste management industry, U.S. investors are not allowed to participate. They will also not be able to participate in the U.K. due to the country’s regulatory environment.

Investors who can participate must be outside the judicial system.

But blockchain will not only help investors invest in companies vetted by Shrem’s firm, Intellisys Capital. It will also allow those investments to be directed to highly profitable companies by streamlining back-end processes.

Of course, the premise is that everything goes as planned.

Charlie Shrem

Shrem explained blockchain’s dual role in modernizing the investment landscape.

"What we want is a collaborative plan that allows us to integrate blockchain into businesses to help them save costs and make more profits."

Last year’s major incident with blockchain investment platform The DAO made it clear to us what we should not do.

But as the $25 million financing round approaches, people are beginning to pay more attention to future development.

Different from The DAO

The difference between The DAO and the Mainstreet Investment LP fund is that while the former was primarily a test of blockchain itself, Shrem sees the latter as a test of the technology’s enterprise applications.

He said he was frustrated that ICOs (initial coin offerings) were being used as a way to develop technology, and that existing technologies such as Bitcoin and Ethereum could meet the needs of new applications.

Therefore, he chose to cooperate with Jason Granger, a well-known investment company in the field (formerly known as The Granger Group) to develop the "first securitized asset" - MIT token (Mainstreet Investment Token).

The difference between this token and The DAO is that its owners do not have investment voting rights and require due diligence results provided by Granger and Intellisys as the basis for selecting mid-market companies in the United States.

The fund’s December “ICO Memorandum” (Initial Token Offering Memorandum) provides detailed information.

The fund is based in the Cayman Islands and plans to conduct a one-month ICO starting on January 23. One exchange responsible for issuing tokens is in China, and the other is undisclosed. The issuing platform will conduct due diligence to ensure that only investors outside the UK and the US can participate.

MIT tokens that are not sold will be burned and cannot be used or compensated.

In addition, 10% of MIT funds will be used for operating costs, including Shrem and Granger's salaries. For increased security, a million dollars will be reserved in the wallet for emergency calls, and the remaining funds will be stored in a cold wallet or an online digital currency account.

While these measures are intended to protect the security of the dual smart contract system responsible for receiving investments and issuing dividends; it is not perfect.

To avoid the fate of The DAO, Intellisys said it is working with an international accounting firm to audit the entire portfolio. Intellisys has also teamed up with two external code auditing firms to find and resolve smart contract vulnerabilities, and is offering rewards to those who find code vulnerabilities.

Shrem said:

“We will open source the system before the ICO; if you find any vulnerabilities, you will receive a lot of rewards.”

Build, Test, Learn

Of course, in addition to the code, other parts may also change. The fund structure has been adjusted and may be adjusted before the official release.

After the initial release of the memo, Shrem and Granger received feedback on how the fund's potential gains would be distributed.

The original plan was to give 70% of the profits to Intellisys and 30% to shareholders.

After communicating with potential investors, it was determined that Intellisys would receive 50% of the carried interest and 50% would be distributed to token holders.

And this ratio will be adjusted according to changes in the investment portfolio.

Granger said:

"We all know that not every investment goes according to plan. As long as we ensure that it proceeds according to plan, we can bear any losses, make profits, and return the investment; we can ensure that the project breaks even."

Shrem explained the reason for the adjustment:

"We think of risk-return as leverage, so we have to make sure the leverage is correct."

Profit from waste disposal

Another important difference between The DAO and the Mainstreet Fund is that the potential investment portfolio was announced before the ICO.

Intellisys has published the prospectus for its first portfolio. The fund is not a company, but if it receives support, it can become a blockchain company, and it hopes that this model can be used in the future.

Although the name of the Michigan Waste Disposal Company was not released, the prospectus described it as having a 20-year history. Last year, the company handled more than 20,000 cubic meters of garbage and provided 570 portable toilets, making it one of the top 10% of waste disposal companies in the state.

Granger said the company's liquidity accounts for 40% of working capital.

To fuel the company’s growth, Granger plans to use part of the ICO funds to acquire 60 to 100 wholly-owned companies within five years.

According to the prospectus, Shrem and Granger estimate that the strategy will increase the price of local corporate services by 7.5%; after the loan is repaid, the liquidity may increase by 15%. This does not include the cost savings that blockchain smart contracts can provide.

"I call it our star. Hopefully we can add it to the portfolio and grow it into a national business in the next decade."

Shrem said Intellisys will use the Ethereum blockchain to help waste management companies reduce logistics, accounting and payroll costs.

Shrem said:

“We need to understand where their biggest costs are and where they can save money using blockchain.”

Double-edged sword

Although all investments carry risks, the Mainstreet Fund has a unique business model and the potential for profit is huge.

Although Shrem has extensive connections in the industry, his previous prison experience may cause trouble for the project.

So Shrem and Granger hired cryptocurrency attorney Marco Santori to write a report on the potential impact of Shrem’s resume on the project.

Santori declined to show the document, but Shrem concluded that he could go all in.

"The information we have received is that the risk is low."

Cherish freedom

But that doesn't mean they are defenseless.

Shrem said that what he misses most in prison is "a real cup of coffee" and he no longer wants to experience that experience.

As mentioned above, U.S. investors are not allowed to participate in this financing to avoid legal issues. Shrem and Granger said the Delaware event could lead to changes in SEC regulation.

In the future, the fund may be like Airbitz; the company used the SEC's Title III provisions of the JOBS Act to obtain $1.15 million in actual equity in the company from five investors.

The real risk comes from future venture capital.

In 2015, US companies received $58.8 billion in investment, of which only $1 billion was invested in blockchain companies.

Mainstreet can be used as an example to show the growth trend of blockchain ICO investment in 2016. Smith + Crown analyzed that the total investment of 66 companies was only US$232 million, among which The DAO project accounted for the largest proportion.

But the regulatory issues that Shrem and others are concerned about have not yet been resolved, so companies like Intellisys still need to be careful and self-disciplined.

Shrem concludes:

"Currently, the development of blockchain in the United States is still in a gray area. Perhaps in the future, when the supervision is clear, investment channels in the United States will be opened. However, the risk assessment is too high at present and it cannot be opened in the United States. After all, I never want to go back to prison again."