Context
The majority of DAOs and DeFi protocols today offer either extremely risky high yields or very stable low yields.
In other words, the web3 world hasn’t yet been introduced to the asset class that microangels around the world are using to buy back their time and create consistent liquidation events that don’t rely on the grind of bootstrapping or the luck implied by a venture-funded journey.
Outside Web3, real estate investors have polished the buy, renovate, rent, refinance playbook to create consistent, compounding results out of portfolios that historically have produced modest but reliable returns.
Today, the advantages of these two yield designs have merged through the Microangel playbook.
Cashflow as a value proposition
The yield proposed by Microangel DAO is cashflow-based and when paired with DAO Exits, the two represent the primary value proposition of the DAO.
It relies on acquiring microSaaS products that do one thing really simply, really consistently — and which enjoy low support burdens and high margins as a consequence — to reap extremely high cash-on-cash returns against those acquisitions.
In 2021, a proof of concept for this yield approach was launched by sh0 (Eyal Toledano) to test the process and viability of a cashflow-based playbook (https://microangel.so).
In total, $575k was invested to acquire two high-margin, cash flowing SaaS products
In 16 months so far (as of 06/01/2022), the results are telling:
- The $50k ARR product has grown to $100k ARR
- produced $105k in cash returns (+72%)
- valuation more than 2x’d to $400k+ (+100%)
- The $200k ARR product has maintained at $200k ARR
- produced $170k in cash returns (40%) in just a few months
- valuation arbitrage of 2x — it was bought for roughly 2x ARR, can be sold for 4x ARR (+100%)
Here’s a visual representation of that journey as of 06/01/2022:
The general concept is to create a two-part yield enabled by:
- Distributing the portfolio’s free cashflows to DAO members
- Distributing a portfolio’s proceeds from a liquidation event to DAO members
Considering the proof of concept produces cash-on-cash returns of 4% per month, or 48% per year, it is clear that aiming for an (aggressive) 15% yearly yield can be both achieved and accomplished on a reliable basis.
Yield Makeup
By design, the amount of free cashflows that can be distributed is dependent on several factors:
1) The total MRR produced by the DAO portfolio
2) The average profit margin across the DAO portfolio
3) The potentially changing free cashflows available to the portfolio
4) The dividend yield on those free cashflows
5) and more.
You can identify (and read) exactly how the CAPY Formula for Current Annual Percentage Yield (CAPY) works.
Example
Consider the following launch month scenario:
- DAO launches Daily Auction and earns 10 ETH per day on average
- 9.5 ETH goes to
DAO Treasury
- 0.5 ETH split among DAO Founders
- 27 tokens sold, 3 awarded to DAO Core Team
- Worth approx. $513,000 USD
- By Day 30, DAO closes acquisition fielding $500k
- Acquired MicroSaaS at <3x ARR multiple
- Acquired MicroSaaS thus produces $166k+ ARR
- $13.8k MRR for portfolio
- 90% profit margin releases $12.45k of free cashflows monthly
- 90% dividend yield on free cashflows releases $11.20k distribution to DAO Membership
- 27 wallets share $11.20k distribution
- $414.81 distribution per wallet
- 2.07% yield against 10 ETH investment
- 24.89% annualized yield
Assuming a 10 ETH buy in of approximately $20,000 - a monthly distribution of $414.81 would represent a 2.07% monthly yield, or 24.89% per year.
Not too shabby!
But this would likely be too high as the Target Annual Percentage Yield (TAPY) for the DAO is 15%. Thus, the 90% dividend yield from this product would likely be dropped to say, 60%-70% to hit the correct yield.
The rest of the free cashflows would be reinvested into the product and/or surrendered to the treasury to be invested in future products.
Importantly, the yield would shift based on the next month’s acquisition and the amount of free cashflows that can be released back to the membership.
This defines the concept of a Current Annual Percentage Yield (CAPY) and a Target Annual Percentage Yield (TAPY)