M&A for Arbitrum DAO

Proposals
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18

Proposal Amendments

Hi all,

After wrapping up the M&A working group last week with our recap call, we are reflecting on 6 amazing weeks spent iterating on the proposal, carving out the initial structure, defining the operating model, and refining granular details. Big shoutout to the more than 20 people involved in this process.

Key amendments

During the process, we’ve gathered valuable feedback both on and off the forum to advance this proposal.

Please find below the detailed amendments made to the core proposal.

1. Legal entity workstream
  • Legal set-up: There are several initiatives, all preceding the GCP initiative led by @Djinn, that requires similar entity structures to address key questions around the equity ownership of assets. To prevent overlaps, we have been working closely with these initiatives from the start. The foundation has also laid the groundwork for a legally feasible setup that takes our initiative into account, which will now be tested via the GCP. This will allow us to build on the existing entity work and saves us from undertaking our own full-fledged legal sprint, thereby removing this from the proposal (where we initially had optionality).
  • Dedicated M&A legal support: For M&A-specific considerations that are not immediately relevant for another initiatives, we plan to work together with a specialized legal party.
2. Entity structure
  • Equity entity: Amended the proposal to implement an intermediary body between the DAO and the fund to prevent the DAO from turning into an investment fund.
3. DAO oversight
  • Stronger collaboration flows: Due to privacy restrictions of M&A transactions, we need stronger collaboration flows with the DAO. Based on feedback received, we added the following elements:
    (1) Increased transparency checks and scrutiny, esp. for first 2 transactions
    (2) Independent auditing that is detached from the DAO Steering Committee to prevent incentive misalignments akin to a fairness opinion in the traditional context.
    (3) Narrowing down the target selection criteria in collaboration with the DAO. This way, the DAO is involved in defining what characteristics an ideal target should have.
    (4) Integrating sentiment check for first two transactions as additional mechanism in place to consistently check if the DAO was satisfied with the previous transaction
    (5) Adding an additional independent party for DAO oversight that is detached from the DAO Steering Committee to guarantee no incentive mismatch of audits
4. Pilot phase
  • Extending the Pilot Phase: Adding benchmarks on financial value upside and opportunity.
  • Emphasis on strategic target areas: We understand the feedback on the merit of conducting a more extensive strategy analyses as part of the pilot phase to provide deeper decision-making ground to the DAO. We are amending the pilot phase with these additional deliverables (at no additional cost to the DAO).
5. Codify post-acquisition relationships
  • Codify post-acquisition relationship between acquired firms: Added an outlook to the topic for future exploration, e.g., using programmatic cash flows for profit participation, or decision-making rights within the firms.
6. Mixed feedback

Fork vs. build analysis: Adding a fork vs. build analysis as part of the due diligence process. An analogy from the traditional M&A world is “build vs. buy”

Next steps

With the amendments in place and a perceived level of positive interest across the DAO, we aim to move the M&A pilot phase to Snapshot by the end of the week.

  • LINK TO PILOT PHASE PROPOSAL: HERE
  • Any feedback on this, whether on or off the forum, is greatly appreciated.

The pilot phase (as detailed in the proposal) will entail an 8-week sprint with a focus on:

  1. Analysis of M&A value upside for Arbitrum DAO, incl. benchmarking
  2. Development of strategic areas for Arbitrum DAO supported by in-depth analyses, incl. alignment of target areas with key stakeholders in the DAO
  3. Analyses of target examples and presentation to the DAO

The 8 weeks will further be used to provide an extensive platform for discussion before moving to the operationalization phase

Helpful links

  • M&A Working Group Progress: here
  • M&A Telegram Group: here
  • Easy-to-digest Video Summary (s/o to Sinkas): here

Acknowledgements:

@krst, @AlexLumley, @stonecoldpat, @coinflip, @jacobpphillips, @hiringdevs.eth, @JoJo, @Sinkas, @MattOnChain, @Djinn

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