Grow with Catalyst

-Inclusion of various inactive members on Catalyst

-Huge potential to attract new people to Cardano

-A self-sustained challenge

-#RealFi

-Engagment of current members

-Attracting new people to Cardano

-Setting-up of profitable businesses which reach their goals

-Proposals put forward by community members who had never posted a proposal before (community engagement)

-Tracking winning proposals from new challenge and seeinf they are profitable and slowly refunding the grant rewarded

-Competitor (competitors of actural businesses set-up throigh the challenge) adoption of crypto payment system (when theg see thwae winning proposals adopt crypto - given also the reduced transaction fees)

-New community members/entrepreneurs who join Catalyst specifically due to this new challenge

Introduction and Summary

This challenge will be about aligning Catalyst's interests with that of its community and society in general. The challenge for fund 7 should be to take Catalyst to the streets by financing, at a 75% level (open to changes), various community proposed projects with a common goal. The original idea was that these outlets/businesses would have one thing in common: any sales made in ADA would come at a 10/15/20% discount. For example, a coffee or restaurant which sells a coffee at 1$ would sell it at 0.85$ (15% discount) if paid in ADA.  However, proposers could come up with other creative ways to incentivise and facilitate adoption of ADA through their projects.

The idea of this new challenge is to fund at a 75% aid intensity proposed projects which incentivise adoption of Cardano. This challenge would involve inactive people already present within Catalyst since it opens up Catalyst for anybody who wants to start his/her own business. The reason for not fully funding the project is that one would want some accountability by the proposer. 

Refund Process

2/5% of all sales generated (depending on the operating margin of the business) is to be sent back to the treasury (or a separate treasury specifically for the challenge). On a base case, I would expect that investment is fully returned after 5 years time. However, evaluation of projects is crucial and must be strictly conducted. 

Spreading adoption / Avoiding Concentration of projects

I would suggest that such fund be divided in countries where only 1 project per country can be awarded per fund. There can be a bonus project with double the fund allocation to allow for market penetration in acclaimed areas where rent costs (amongst others) would be much higher. This project is giving incentives to people to join the Cardano ecosystem by providing them with financial motivation to have their project funded. Secondly, once a funded project is up and running, customers of this project's business would have a reason why they should hold at least in a small portion, some ADA currency. The reason being to have a discount for their purchases.

The business must clearly advertise the 'discount' and in case where there are sales persons or cashier's they must clearly tell each customer that there is a discount for those paying with ADA.

Also, there must be a sign where it says "Funded by Project Catalyst (Cardano)". 

E-commerce portals

This is also very easily done on websites with an online payment option, where a discount is shown to apply if you chose the 'pay with ADA' option. 

Evaluating a proposal

A business plan with clear revenue and profit forecasts must be put forward. Rationale of how one arrived to the figures must be clear and expenses must be substantiated by evidence where possible. Community advisors should have a background in finance or be successful entrepreneurs themselves. Ideally a scoring sheet is agreed one, a project would at least need 50% to be considered and then stars allocated accordingly to scoring.

Diversification from competitors:

The idea is to incentivise people to set-up a wallet and purchase ADA. Projects which are diverse from the competition should be preferred. So we are talking about product differentiation, price competition, innovative products. 

Location:

Obviously, highly frequented locations would be preferred since they would have the greatest potential since they would reach much more people.

Grant requested:

The higher the grant requested the lower the score. This would automatically balance other evaluation criteria (eg. location) and the right balance between exposure (for proposals in densely populated areas and popular neighborhoods) and cost of investment (proposals in popular neighborhoods would naturally require a higher investment).

Time of completion:

The lower the time of completion of the proposal, the higher the score. We want proposals to be set-up in a short time to start making an effect as fast as possible. A maximum limit of time (eg. 1.5 years) should be also put in place.

Readiness of proposer:

The readier and the more prepared a prospective entrepreneur is, the better. Does the propose already have a lease contract in hand? Has the proposer contacted and acquired quotations for work needed? Has contact with suppliers been established? Has and marketing study been undertaken to identify the need for the business (especially in case of innovative ideas or niche markets) ?

Capability and experience of entrepreneur:

Is the entrepreneur knowledgeable in the proposed business venture? Has the proposer owned or does he/she still own similar businesses or any business at all? 

Branding and Copyright:

This has not been tackled yet and ideally a brand would be set up by IOHK with free licensing to the selected projects or even external investors upon review of their project. This licence could also be used to set an agreement for the 2/5% revenue ´fee´ (which then the treasury should hold the licensing rights). It would be very powerful for Cardano to build an empire of "Cafè ADA" around the globe. How could it be ignored? Or even have the 'ADA journal' or 'Cardano Times' with its newsroom. As long as the projects are profitable, the treasury will grow exponentially and in 10 years any project would be practically possible. 

Auditability

How do you know that the proposer is respecting the terms of the grant?

First of all, when issuing the grant, it has to be done upon presentation of invoices, proof of payment and evidence of work done. Community advisors can do this, or a separate committee appointed.

Secondly, the way payments in ADA are to be effected would be though a QR code displayed on the cashier counter. The code would hold the business wallet address. This should be a function which will become present in wallets.

Now, how does one ensure that these guidelines are being followed ? One should first rely on the community to flag irregularities.  As the community is quite large and continues to grow, it should be enough to regulate or check these businesses (simply by visiting these places). Secondly, especially at the start of the challenge, a set of mystery shoppers can be tasked to visit certain place at a certain frequency to ensure that the project is reaching its goals. One would simply have people shop at these businesses and report back. Mystery shopper should be paid say 50$ in ADA for each visit. 

How does the business make a profit if it has lower margins than the discount offered?

The discount given to ADA payers would be essentially written off against the rest of the sales. Furthermore, most businesses like supermarkets, coffee shops and bars have higher profit margins than 20%. Besides the margin, one has to consider the fixed costs including rent, wages, water and electricity and more. However, once the business scales there will be enough sales to cater for these expenses. Problems could arise if the ADA sales represent a sizable portion of total sales. This is highly unlikely especially at the early stages, nonetheless, in this case the discounts can be scaled down proportionally with the increase in ADA paid sales.

Reporting back to Catalyst:

It is important that the proposal winners submit monthly reports on the Sales made in ADA as compared to other sales (cash or card). Reporting should include, Sales value in ADA vs Total Sales Value, Number of sales in ADA vs Total number of sales, Sales made to Community Wallets (from anonymous wallet register to rewards voters, CAs and VCAs), Payments received from New Wallets (not as accurate since people can have different wallet addresses but still useful) and Repetitive sales to known wallets. Reports shall be strictly confidential and to issue data in percentage terms or absolute numbers.

Problems solved

1)Community engagement:

This has often been limited to developers as many people lack knowledge and skills to even put forward a proposal. This challenge opens the gates to literally anybody who is willing to open a business.

2)Cardano Exposure:

Many proposals talk about marketing and advertisements. Well, what better advertisement that to have a coffe shop named "Cafè ADA" or "Cafe Cardano" in the middle of a busy street which offer large discount for crypto payments. And through the community already existing in Cardano, we can have at least 10 places in various countries open at each Fund round, increasing at an exponential rate through revenue generation of the fund itself.

3)Incentivise and Retain Community advisors and voters:

Outlets themselves can offer increased discounts to Community Advisors and Voters (a wallet register would be set-up - identity can still be kept anonymous) thereby incentivising participation of both advisors and voters. This can be linked with an eventual honour/tier system which has been proposed for the advisors and voters based on their output.

4)Attracting new Entrepreneurs to the Ecosystem:

These sort of grants would definitely attract the ear of various entrepreneurs who either do not have the funding or else do not want to take on the risk of opening their business. Naturally, the set-off would be that any project must incentivise the use or adoption of Cardano.

5)Expand the network through actual use cases and incentives

Incetivise the general public to become part of Cardano by offering them a reason to do it - purchase at a discounted rate. Aligning interests of the public of cost savings with those of Cardano.

6) Sustainability; A Self-financing Challenge:

If all goes well, this challenge will be self sustaining and could also feed the treasury as a profit will eventually be made by the business and the treasury (be it the existing one or a separate one) will continue to benefit.

Attachment: Actual figures from existing coffee shop

Please find attached the figure of an actual coffee shop who is not very popular, an average coffee shop (max capacity 40 persons), operates at some 50% capacity during weekdays and maybe 75% on weekends. The figures have been exchanged from Euro to Dollars. A projection for proposals has been extracted which assumes that there are 10% of total sales made in ADA and that such sales have a 15% discount. Furthermore, a 5% refund to Catalyst has been added. This shows that it is quite doable and that projects are basically refunded after 4-5 years assuming a 100k investment. I myself am a financial advisor (warranted accountant and auditor) dealing with start-ups and creating realistic business plans (often to determine amount of funding required from banks). As part of my job, I also help businesses apply for a number of EU grants and local government funding which adhere to very strict regulations and checks.

Existing businesses

A fund can be set-up to incentivise existing businesses to introduce crypto payments and offer discounts for ADA payments. This would also apply for those already offering ADA payment options, these would then have to introduce applicable discounts. This can be seen as a marketing fund where monthly payments (say $500/m) can be sent out to each business which is chosen. Ideally, for auditability purposes, e-commerce business should be given priority since these can easily be verified just by accessing their website.

Funding

Assuming a 100,000 grant which would mean an investment of 100,000/0.75=133,333 , a 1,000,000 allocation could finance 10 businesses every funding round or 9 businesses if the double financing project is added. This is a good starting point.

Thank you for taking the time to read. Please submit any ideas that you might have to improve this proposal.

Challenge amounts should only be proposed in increments of $25K. Other amounts not in these increments will be rounded up. E.g. $27,500 will be rounded up to $50,000.