The COVID-19 crisis may have been the last straw for a non-profit digital identity organization, breaking its efforts to raise funds to pay staff and carry out a regulated token issuance.
The Sovrin Foundation, a U.S.-based umbrella organization that oversees the development of blockchain-based digital identity standards (also known as self-sovereign identity or SSI), laid off nine full-time and six part-time employees in March, officially becoming a volunteer-run operation.
“Sovrin’s transition from a permanently staffed organization to a volunteer-led one is now complete,” Paul Knowles, Sovrin’s external press representative, said in a statement emailed to CoinDesk. “We are pleased to state that the Sovrin MainNet remained stable throughout the process with new stewards and clients continuing to come on board. The internal structure of the Foundation has gone through a revamp and is now more dynamic than ever before.”
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Nathan George, the firm’s former chief technology officer, said the Sovrin community – which is closely linked to SSI tech provider Evernym – reacted quickly and volunteers stepped up, calling the downsizing a “success story” of sorts. The Sovrin Foundation works with the likes of IBM, Cisco, T-Mobile and many other companies.
“Everybody went through kind of crazy mode with COVID. We were in the middle of fundraising which was going to keep us going through 2020. That fell apart faster than you could blink,” said George, who now works with Kiva, the microfinance and digital identity partner of the Libra Association.
“So we went from being super excited, everything was going great, to having a meeting where the CEO said she was resigning and we were all let go the next day. It was a chaotic couple of weeks,” George said.
Sovrin debt
There appears to be some difference of opinion about Sovrin’s fundraising process, which pre-dates the COVID-19 financial meltdown, particularly around procuring the funds needed to conduct a regulated token sale, known in U.S. Securities and Exchange Commission (SEC) parlance as a Regulation A+ (Reg A+), an amendment to the JOBS Act which came into effect in 2015.
This became a bone of contention between the Sovrin Foundation’s trustees and board, and its CEO and executive director, Heather Dahl, who resigned on March 15.
CoinDesk obtained a copy of Dahl’s resignation letter, which states: “I have made the choice to resign based on a philosophical division between myself, the Board and its business partners.”
The letter goes on to say:
“When we cater to the needs of the few, we do not serve the many. While there are many paths to a destination ... it is with great disappointment that the ones that I have chosen and brought to the Foundation no longer align with those chosen by the Board of Directors and other interested parties.”
The Sovrin Foundation mentioned the state of the funding for the proposed token issuance back in March. Launching a token under Reg A+ would require $1 million to $2 million in additional funding in order to file with the SEC, and a further $1 million to $2 million to complete the registration, according to the Sovrin Foundation update.
“Given the current market conditions, we do not anticipate a Reg A+ filing for the Sovrin token in 2020,” said the statement.
But a source at the Sovrin Foundation, who wished to remain anonymous, said that when this decision was taken, COVID-19 was a minor and limited factor. The problem stretches back over two years, said the source, when Evernym sold pre-functioning Sovrin tokens to investors.
Funding shortfall
Despite the Sovrin Foundation forming a number of alliances to facilitate additional revenue, there remained a shortfall in the funds needed for issuing a regulated token. But in October 2019, an investor with $5 million was brought to the table, according to the person speaking on the condition of anonymity.
“The Sovrin Board and Evernym then negotiated back and forth on this investment for four months while the Foundation’s finances were running out,” said the source. “The Foundation opened a Sovrin Series A raise mid-February which was already too late.”
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As the financial situation became more abject, the multi-million dollar investor changed their initial terms to further dilute Evernym investors, the source said, adding that these terms were deemed unacceptable by Sovrin’s board of trustees.
“Given the climate for non-profit donations was turning grim, and the investor terms were not as good as what was offered in October, the decision was made to release the staff and move to volunteer mode,” said the source.
“If the Foundation had not focused on protecting Evernym investors from dilution they could be in a very different financial position today,” the source added.