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PicoStocks Business Plan

0. Executive Summary is an online platform that facilitates valuation and fundraising for high
tech startup projects and companies and offers valuable services and benefits for both
bitcoin investors and entrepreneurs. The platform operates just like any other stock
exchange with the main difference that all assets are denominated in bitcoins (BTC) and
the assets remain legally owned by PicoStocks. This enables anonymous virtual trading
of shares and profit sharing. The issuers of shares are not anonymous. The platform
provides a technical and legal solution to previously failed bitcoin based stock exchanges.
The main revenues of the platform will come in the next 5 years from 4% fundraising
fees collected during floating of the shares (Initial PicoStocks Offering, IPO*). Due to the
limited size of the bitcoin community and the available bitcoin investment capital the
expected revenues from the platform are much below revenues from formal regulated
stock exchanges. We expect profits at the level of 8k BTC in 2013 and hope to reach 12k
BTC in 2017. The Net Present Value of the project calculated using 10% discount rate
reaches 111k BTC (1.1M EUR).

1. Product description

a. Product: the platform

PicoStocks operates a platform for virtual investment into shares of stocks of startup
companies and projects. The platform operates just like any stock exchange but the traded
stocks remain legal property of PicoStocks and the platform user can remain anonymous.

b. The clients

The platform facilitates valuation and fundraising for high tech startup projects (funding
agencies and private sponsors) and companies (entrepreneurs) and offers trading
opportunities for bitcoin investors.

c. Benefits for the clients

Benefits for Investors:

- instant access to the platform facilitated by the global bitcoin network
- valuation of assets owned
- option to sell assets to PicoStocks
- long term profits from the sold assets through a share in future dividend payments
- rewards by evaluating assets offered by other investors
- profit from transactions on the PicoStocks platform
- participations in profits from dividends from assets hold on PicoStocks
- benefit from the anonymity of the bitcoin network while transacting
Benefits for Entrepreneurs:

- initial valuation of the company even at the project stage (before creation)
- option to raise capital for the company through sales of shares to PicoStocks
- continuous valuation of the company as it grows
- brand promotion and increased visibility
- advantages when applying for loans (objective track record)
Benefits for Funding Agencies and private Sponsors:
- assessment of the business maturity of a project funding applications
- close-to-market valuation of the project at proposal stage
- monitoring of the effects of the project on the value of the company

d. Innovative aspects of the platform

PicoStocks benefits from the innovative character of the bitcoin network and enables
instant global access to the platform. Currently the bitcoins in circulation are worth over
100M EUR. Every bitcoin owner can start using the platform within minutes. No type of
private information or confirmation thereof is required. Potential users who dont own
bitcoins can obtain them instantly on various exchange platforms if they have other
virtual currencies.

PicoStocks offers unprecedented transparency of its operations. All transactions, fees,

rewards, dividend payments and bitcoin transfers between users and PicoStocks are
public. Transparency will boost the trust in the functionality and safety of the platform.

Facilitated by the bitcoin network PicoStocks offers unprecedented anonymity for the
investors. All accounts on PicoStocks are linked only to a bitcoin account and are
therefore anonymous. This offers anonymous peer review of projects and companies.
Despite the anonymity of account holders evaluations are expected to reflect real market
valuation because the evaluators have to use valuable bitcoins they own to place bids for
offered assets

Because the initial valuation process is inexpensive, anonymous and relatively accurate it
can be used by funding agencies to evaluate plausibility of grant proposals submitted
by the listed companies and assess the effects of projects conducted or completed with
public funding support.

e. Competitive comparison

Various platforms that offer similar services are or were available: has offered direct investment into project or shares of stocks. The platform
has used bitcoin as the trading currency. The main difference between GLBSE and
PicoStocks is that here PicoStocks is the legal owner of the traded assets. This is a
substantial advantage because it shifts the legal aspects of relations between investors and
the traded stocks towards the platforms operator. GLBSE has offered anonymity to the
investor and the issuer of shares leading to a lack of information about the legal status
and legal identity of the traded assets and through this to numerous frauds. At the same

time GLBSE did not take any responsibility for the authenticity of the offered assets.
GLBSE has also operated without proper licenses under a jurisdiction where it is illegal
to offer stocks over internet without a license. GLBSE has been started on April 27, 2011
and has been shut down on October 9, 2012 because it was impossible to solve the legal
problems under the proposed business model. PicoStocks offers a solution by legally
holding all traded assets and sharing legal responsibility with the traders. At PicoStocks
there are no anonymous issuers that have been a problem at GLBSE. PicoStocks is
operated under a jurisdiction where its operation does not violate any laws. The listing
fee on GLBSE was 8 BTC. During the last days of operation GLBSE reported daily
turnover in the range of hundreds of thousands of dollars. The largest asset on GLBSE
(gigamining) reached a market capitalization of 250k EUR (25k BTC). represents a project funding platform. However users can not invest
into shares of stocks of the project or company. The platforms resembles a pre-order
service were investors are reworded with products developed during the course of the
funded project. Kickstarter enables fundraising for projects that generate consumer
products at a level exceeding several million USD. Kickstarter is unable to support
fundraising for projects aimed at development of products or services for other businesses
because the platform is unable to reward the funding community (crowd). Kickstarter
does not charge a listing fee but collects 5% fee from raised funds plus 3-5% payment
processing fees. is an alternative stock exchange market in Poland (sub-market of Warsaw

Stock Exchange) deployed in 2007 primarily for high tech startups but in fact the
exchange does not differentiate between high tech and low tech during floating. In 2011
the exchange had a turnover of 1954M PLN (500M EUR, 50M BTC) and 351 listed
companies. Now (end of 2012) 418 companies are listed. 7 of them are foreign (from
outside Poland). 134 companies are marked by the exchange with High Liquidity Risk.
19 are marked with Super High Liquidity Risk inidicating companies close to
bankruptcy. This means that over 30% of the assets are likely to disappear from the
exchange in the future and are unlikely to generate revenues for investors. This shows
that even at regular exchanges a large fraction of publicly help companies failed to stand
up to its initial promises. The cost of floating a company at Newconnect are in the order
of 100k 200k PLN (25k-50k EUR, 2500-5000BTC) plus a success fee for the
nominated advisor (Nomad), which is usually between 4% - 6% of the funds raised
during private placement or IPO. There are only minimal formal requirements for the
companies (legal status and number of share holders) and no requirements regarding

AIM (Alternative Investment Market), is a sub-market of the London Stock Exchange,

focused on smaller companies with a more flexible regulatory system than is applicable
to the main market (London Stock Exchange). AIM launched in 1995 and has raised
almost 80B GBP (80 thousand million GBP, 100B EUR, 10B BTC) for more than 3300
companies. It is the worlds biggest stock exchange for startup and early stage
companies. The turnover of trading on AIM amounts to 38B GBP (50B EUR, 5B BTC)
in 2011. Despite its size and reputation AIM is also not immune against scams and

frauds. The biggest share fraud on the Exchange to date was the listing of Langbar
International valued at 375M GBP (500M EUR, 50M BTC). It was discovered in
November 2005, that Langbar had none of the assets it declared at listing and this was
due in part to the failure of the Nomad (Nominated Adviser) to carry out Due Diligence
and the Exchange failing to ensure that the AIM rules had been complied with.
According to Financial Times (Cost of listing on Aim continues to rise) the costs of
floating a company on AIM are about 7% of the raised capital. The admission fee for
smallest companies (capitalization below 5M GBP) is 7056 GBP (10k EUR, 1k BTC).
The annual fees paid by the Nomads are below 3k GBP (4k EUR, 400 BTC).

Picostocks has a listing/evaluation fee of 50BTC and a fundraising fee of 4%. In

comparison to the competing platforms PicoStocks can offer a service that has the lowest
fees (only GLBSE had lower fee but was shot down due to legal concerns) and most
benefits for issuers and investors. It combines the advantages of small unregulated
platforms (GLBSE and Kickstarter), as it offers the listing of projects that have no legal
person status, with the benefits of formal stock exchanges, which offer the option to gain
profits from transactions with shares of stocks.

PicoStocks does not solve the problem of frauds initiated by issuers related to false
claims regarding the value of the assets of the company nor does PicoStocks protect
against insider information exploitation. However, none of the competing platforms offer
efficient solutions for these problems.

f. Sources of revenues

PicoStocks collects following fees:

- There is a minimum admission fee of 50BTC to for launching an IPO* (Initial
PicoStocks Offering) process
- There is a 4% fundraising fee from all bitcoins (BTC) collected via the IPO* process
- There is a 2% dividend fee from dividends and income from delisting (sells of the
assets by PicoStocks) distributed across shareholder of the asset
- There is a 1% trading fee from all trading transactions on PicoStocks paid only by the
seller of the asset
- There is a 0.0005 BTC network fee from all outgoing bitcoin transfers
PicoStocks collects annual listing fees in form of an invoice from the listed companies
but this fee is not mandatory. 50% of the funds collected though the admission fee
(minimum 25BTC) are forwarded to shareholders as a reward for initial assessment of the
company. Dividends and income from delisting are converted into bitcoins (BTC) before
rewarding the shareholders. 1% of dividend and delisting income is given to the initial
owner of the asset who sold it to PicoStocks through the IPO* process. Another 1% is
kept by PicoStocks.

We expect that the dynamics of the growth of PicoStocks will be similar to the dynamics
observed in the case of GLBSE, which after one year of operation has surpassed the
speed of development of Newconnect. The biggest revenues will come from 4%
fundraising fee. The annual trading turnover is expected to be around 50% of the market

capitalization of the shares of the listed companies available for trading (this value is
around 20% for Newconnect and around 50% for AIM where all shares are available for
trading). Newconnect has reached a turnover of 35M EUR (3.5M BTC) in the first year
(83 session days). AIM has reached a turnover of 270M GBP (320M EUR, 32M BTC) in
its first year (137 session days).

PicoStocks may become a legal vehicle for other projects for example those doing
business in the bitcoin economy that have no registered legal status yet. Example of such
a project could be a bitcoin mine that operates without separate legal registrations and the
distribution of mining profits will be handles solely by PicoStocks. Revenues from such
projects are distributed separately based on separate business plans and will not represent
income for the PicoStocks internet platform and for the PicoStocks share holders. The
mine will be listed as a separate asset on the platform and will pay dividend based on the
ownership of the shares of the mine.

g. HR and technical Requirements

The main responsibility for the correctness of the floated assets will reside on the side of
the Nomads (nominated advisors), who in the case of PicoStocks will be the users
launching the IPO* process on the platform. However, because PicoStocks management
team will sign the purchase contract on behalf of PicoStocks the team takes also
responsibility for the validity of assets listed on the platform. Thus some human
resources are required to validate the floating of stocks. We expect that 10% of the
revenues of PicoStocks will be spent on the management team that will oversee the
listing and delisting of assets. Nomads will be rewarded from 1% of future dividends and
delisting fees of the listed assets, which hopefully will provide some motivation for
floating valuable assets.

The platform is designed in a multi tier fashion. The http server connects to the database
layer to perform online transactions. The database layer is separately accessed by the
transaction layer that controls the correctness of the data stored in databases and
schedules, accepts and initiates bitcoin transfers. The transaction layer sends excess funds
available in its hot storage wallet to a cold storage wallet that can be controlled via the
bitcoin network from a geographically separate location. The database layer is replicated
to another machine which is also used as source for backups. The whole system requires
several servers in several locations with internet access, but only the main http server
must have a broad band connection and must be located close to the database layer. The
servers are currently hosted in the computing centers operated by BioInfoBank. The
backups will be stored in geographically separate locations. The monthly service
maintenance costs will be kept below 10% of the revenues (ca. 100 BTC in the first year).

h. Future technical development

Current version of the platform provides basic functionality. It offers all elements needed
for the IPO* process, virtual sales of shares and the distribution of dividends and rewards.

The platform does not offer o forum for the exchange of information about the stocks,
and for facilitating discussions with the issuers. This could be added as a separate service
or additional module (additional, separate service would create lower security risks and
would reduce the load on the transaction service host).

The platform could offer direct purchase of BTC at current exchange price via a bank
transfer of EUR or another major currency to the PicoStocks bank account. This would
simplify the participation of bigger investors not familiar with the bitcoin concept. The
platform could also offer the conversion of BTC to other currencies. The exchange could
be conduced internally or via third party exchange platforms.

The platform could be formatted in a way that would make it compatible with standard
trading tools like metatrader ( Adding this option would
help professional traders to analyze the stock charts displayed on PicoStocks.

In the more distant future the transaction network could be rewritten to enable
distributed decentralized operation just like the bitcoin network to protect the platform
from legal and technical (DDoS attack) challenges. PicoStocks must keep a legal status
that allows the entrance into stock purchase and sells agreements.

PicoStocks as legal entity will remain vulnerable to local jurisdiction (currently Marshall
Islands) challenges. To limit the risk of legal challenges PicoStocks will make an attempt
to collaborate closely with governmental organization to prove benefits of the
platform for the local SME environment. To further eliminate the risk of local jurisdiction
challenges PicoStocks could be transformed into a multinational organization or move
under a jurisdiction of a predictable and stable micro nation operated by the bitcoin

2. Management

The PicoStocks project is managed by Dr. Leszek Rychlewski and Dr. hab. Marcin

Dr. Leszek Rychlewski was born on 1971-02-10 in Pozna,

Poland. He was awarded dr. med. degree in 1998 at Charit,
Humboldt Universitt zu Berlin. Between 1996 and 1998 he was
appointed as Research Fellow at the Scripps Research Institute,
La Jolla, USA. Between 1998 and 1999 he was employed as
Postdoctoral Researcher at the University of California, San
Diego, USA. In 1999 he moved to Poland to create and lead a
bioinformatics group in the newly formed International Institute
of Molecular and Cell Biology. In 2001, he founded the
BioInfoBank Institute in Poznan (, one of the
first private research institutes in Poland. The main focus of the institute was
bioinformatics, biotechnology and technology transfer. The bioinformatics group lead by
Dr. Rychlewski became famous for the development of protein structure prediction

methods and services and achieved top ranks in global protein structure prediction
competitions (CASP). The Institute was awarded Center of Excellence status in 2004 and
is one of the most efficient Polish research institutions based on rankings compiled by the
Polish Ministry of Science. Dr. Rychlewski is author of over 100 research publications
including articles in Cell, Science and Nature. The articles have been cited over 6000
times and have an h-index of 38. The institute directed by Dr. Rychlewski has a very
active spin off and high-tech startup support program. The institute has co-founded a
dedicated seed fund, BIB Seed Capital SA, to support financially the technology transfer

Dr hab. Marcin Hoffmann was born on 1972-12-02 in Poland. In

2000 he was awarded PhD degree in chemistry from the
A.Mickiewicz Univeristy in Poznan, and in the same year MBA
degree from Georgia State University in Atlanta and the University
of Economics in Pozna. In 2001-2002, he was a beneficiary of a
scholarship for young doctors from the Foundation for Polish
Science at Emory University in Atlanta. In 2002-2003, he worked
as a consultant at McKinsey & Co. in Warsaw, where he
participated in projects for the largest Polish companies form the
telecommunication and energy sector. In 2004-2007 he worked as
the Director of Investment and Development at BioInfoBank and was responsible for
investments in innovative startups and their coaching. Since 2007 Dr. Hoffmann is CEO
of BIB Seed Capital SA., a seed capital fund. The fund invested in 2007-2008 in seven
high-tech companies at their seed phase of development. One of these companies
(Medicalgorithmics SA.), in which BIB Seed Capital holds 30% of shares, is currently
listed on NewConnect the alternative market of the Warsaw Stock Exchange. The market
capitalization of Medicalgorithmics reached 70M USD in December 2012. Dr. Hoffmann
is a chairman of the supervisory board of the company. Since 2010 Dr. Hoffmann is also
court appointed expert at the District Court in Pozna in the area of capital investment,
economic analysis, enterprise creation, division, merger, conversion, organization and
management as well as in the area of chemistry and biotechnology. His scientific and
business experience facilitates effectively communication with scientists, entrepreneurs
and investors and helps in the planning, launching and coaching of high tech startups.

PicoStrocks will require additional human resources at a later stage. This includes people
responsible for investor relations, for communication with the users, with the issuers and
with the Nomads. To conducts future technological development additional
programmers will be needed as well. We will try to recruit these people from the bitcoin
community and try to finance their involvement within the bounds of the foreseen
management, marketing and server maintenance budget.

3. Market and competition

a. market growth

Stock exchanges experience a constant influx of new issuers. Yearly ca. 100 new
companies are floated on AiM or NewConnect (see plot below).
Annual Admissions
519 NewConnect


300 277 284

200 177 172

160 162
123 114
107 102 102
100 75 86 90 77
61 61
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

The number of assets listed on GLBSE within the first year exceeded 100. We
conservatively expect to list 50 assets in 2012 and 50 new assets annually in the
following years. The current plan assumes reaching a total of 250 assets listed at the end
of 2017. This is also a very conservative estimate because just in the year 2005 AiM has
floated over 500 companies.

b. market segmentation (size, profit margins)

PicoStocks operates in the segment of startup projects and companies. From our own
experience the number of companies interested to be listed on exchanges like
NewConnect or AiM exceeds many times the number of admitted companies. The main
reason preventing floating are the costs of listing (admissions and annual costs) and costs
of raising capital (marketing costs, legal costs, etc.). PicoStocks will focus on the
companies that are too small for formal regulated national and international exchanges
and will be the only available services in this market. PicoStocks will benefit from a
market created and left by GLBSE but will expand the market substantially by attracting
companies not related to the bitcoin economy. This is only possible though a different
legal status of PicoStocks and through a change of the business model where assets are
legally owned by PicoStocks. Nevertheless we expect bitcoin related projects to appear as
a major group in the initial admissions.

The bitcoin related projects floated on GLBSE could have been grouped into (1) mining
operations, (2) lending companies, (3) arbitrage funds, (4) hardware (asic) projects and
others. This is a quite constrained group focused on bitcoin economy and the legal step
outside of the bitcoin related projects will greatly expand the market of potential issuers.

We expect to attract a substantial fraction of startup created using public funding from
the European Cohesion Funds and Polish national public sources. In the last 3 years

several hundred of such startup companies have appeared in Poland, funded (using the
de-minimis model) with a small amount of up to 200k EUR (20k BTC). We expect that
ca. 100 of these companies will be interested in floating on PicoStocks. The Polish
National Center of Research and Development is launching a project (BRIdge VC) to
fund dozens of high tech startup companies in the coming years with financial support
(investment) between 250k EUR and 4M EUR (400k BTC). The largest market
capitalizations observed on GLBSE exceeded 250k EUR (25k BTC) and was achieved by
a mining project (gigamining). We expect that the capitalization of stocks listed on
PicoStocks will reach higher maximum values and average at 100k EUR (10k BTC).
The value will be below the capitalization of successful companies listed on regulated
exchanges such as AiM or New Connect, where a single company can be worth more
than the value of all bitcoins in circulation.

The profit from trading fees collected from assets with lower market capitalization will
be of course much smaller than in the case of high value stocks on regulated exchanges.
We expect that the annual trading volume will be approximately equal to 50% of the
market value of the shares listed on PicoStocks. Thus the yearly revenues from trading
fees will be in the order of 0.5% of the total market capitalization of all listed shares. To
achieve revenues comparable with regulated exchanges the number of PicoStocks assets
will have to be many times bigger.

c. competitive advantage

In comparison to GLBSE PicoStocks has the advantage of having a clear legal status
and conformity with local regulations. This makes it much simpler to list assets of
companies regulated under national laws to. In comparison to NewConnect, AiM and
other regulated exchanges, PicoStocks can focus on much smaller projects, even those
that have no legal person status yet. Because the profit from listing assets with small
capitalization is proportionally smaller while the effort is identical, regulated stock
exchanges are unlikely to move their focus in this direction, as it would dramatically
increase technical and legal requirements while providing a negligible additional revenue
stream. The main revenue of regulated exchanges comes from trading fees while
PicoStocks revenues will be mainly shaped by fundraising fees.

d. predicted reaction of competition

Regulated stock exchanges are interested in improving their reputation by lowering

number of defaults of listing companies. This can only be achieved by further tightening
the requirements for the issuers. In contrast, allowing the floating of less mature assets
would lead to increasing number of defaults and is most likely perceived negatively by
the managers of regulated stock exchanges. Because of this we think that PicoStocks will
not be seen as a competition by current alternative platforms and there will be no
reaction in the initial phase. Only if the capitalization of the assets listed on PicoStocks
will come close to the values observed on regulated exchanges a reaction could form.
This is not expected in the first years.

e. entrance barrier

Creating a PicoStocks like platform requires a set of programming and legal skills. Some
knowledge about the venture capital market and established relations to public funding
agencies are useful for the marketing of the platform. All these assets are not unique so
they do not comprise a strong entrance barrier. An effective barrier will be built over time
through the brand name formation and creation of a growing liquid investment
market around PicoStocks. In most countries there is only one stock exchange. We
expect that the bitcoin community will also support only one major exchange that will fill
the vacancy left after the closure of GLBSE.

f. weak elements of the project

- bitcoin network size

The market value of all bitcoins is only 100M EUR (10M BTC). Only a fraction of these
bitcoins are owned by people willing to invest it in over the counter (OTC) shares of
other companies. We expect the available capital is around 1% of all bitcoins, i.e. 100k
BTC. At the same time we plan to raise 250k BTC yearly and consume on PicoStocks
1M BTC in 2016, which by that time will represent ca. 7% of all bitcoins. Of course these
bitcoins will remain in circulation as the raised BTC capital will be exchanged against
fiat currencies to buy goods and services required for the issuers. Nevertheless we expect
that PicoStocks will play a significant role in the bitcoin economy.

- innovative character of bitcoins as currency

To reduce the negative effect of the small bitcoin investor population and the small
available bitcoin investment budget we will try to attract other private and institutional
investors to join the PicoStocks community. This may become quite challenging as
crypto currencies are still quite exotic for most people and only few people that view
private equity investments as a source of income will be willing to take the step towards a
virtual currency environment. We expect that PicoStocks will remain an experimental
investment form for many years. PicoStocks is more likely to be successful in gaining
market shares in alternative funding schemes, such as philanthropic sponsoring of
research (see doi:10.1038/481254a).

- bitcoin deflation and volatility

The deflationary character of bitcoins represents a serious problem for issuers of shares
denominated in BTC. Investors may prefer to invest in bitcoins as a commodity rather
than investing in more risky OTC shares. Real world companies may have problems to
deliver revenues from investments that exceed the revenues from rising BTC exchange
rates. Only companies operating primarily in the bitcoin economy and generating
revenues denominated in bitcoins (such as mining operations) are more or less immune
against the deflationary nature of bitcoins. The volatility of the bitcoin valuation should
also affect the valuation of shares denominated in bitcoins and contribute to an increased
exchange related risk of investments in PicoStocks listed shares.

- novel legal form
To facilitate virtual stock exchange the legal ownership of the virtually traded shares
must remain at PicoStocks. This may represent a serious barrier for institutional investors
that are willing only to invest in startup companies if they have a possibility to intervene
in the operation and management of the companies in case of derail from the routes
presented in the initial business plan. PicoStocks would create a barrier for such
interventions. To address this problem PicoStocks will try to develop a model where big
shareholders of shares traded on PicoStocks can represent the interests of PicoStocks in
the management and supervision of the issuers.

g. market entrance plan

In December 2012 PicoStocks will start with the floating PicoStocks itself. In early 2013
we plan to float a bitcoin mining platform equipped with novel ASIC devices that will
start mining in March 2013. We have also contacted BIB Seed Capital CA and came to
the mutual agreement to list several stocks owned by the fund starting with Proteon
Pharmaceuticals SA. In early 2013 we will also contact a dozen other small Polish
investment funds focusing on IT startups with small market capitalization.

4. Marketing and sales

a. Pricing and payment process

The main fees collected on PicoStocks are the IPO* fee (>=50BTC + 4%), the trading fee
(1%) and the dividend fee (2%).

The a priori flat IPO* admission fee of minimum 50 BTC is collected directly before the
IPO* process begins. In fact after 5 confirmations of the arrival of the bitcoins on the
dedicated IPO* account the IPO* process starts automatically. The fee of 50BTC is much
higher than the 8 BTC on GLBSE . This fee represents a barrier for small issuers. A
bigger value changes the floating preference towards more serious, larger issuers. This is
the intention of PicoStocks to attract larger operations than those listed on GLBSE. At the
same time the PicoStocks IPO* fee is much smaller than fees on regulated exchanges
such as NewConnect or AiM. This is also mandated by the desire to attract the segment
of smaller companies and projects than those listed on regulated exchanges. 50% of the
IPO* admission fee is used as reward for bitcoin investors to reimburse for potential
losses from lack of investment in stocks that have been withdrawn from PicoStocks due
to limited IPO* success (to small amount of collected funds) or have been removed
intentionally during IPO* because the IPO* was only used to assess the value of the
project or asset. The remaining 50% of the fee (>=25 BTC) should be sufficient for the
platform operator to cover costs of signing the stock purchase documents.

The IPO* fundraising fee collected as 4% of the raised funds (total sales price of shares
sold to PicoStocks) is in line with other equivalent fees collected by other fundraising
platforms or during the fundraising process before floating on regulated exchanges. Fund
raising on kickstarter costs 8-10% (including transfer charges). Fees collected by Nomads

on Newconnect or AiM differ but are in range of 4-6%. PicoStocks fundraising fees are
not higher and are generally accepted by the market.

The trading fee of 1% (paid only by the seller) is the same as the fee collected on
GLBSE abut much higher than the fees collected by regulated stock exchanges. The
regulated stock exchanges do not provide direct transaction access to the public. Only
authorized partners are allowed to place orders. A private person is required to place
orders through middleman. This increases the order costs often to above 1% per
completed transaction (filled buy and sell order). PicoStocks is intentionally focused on
crowd financing thus the high transaction cost is justified. Less concentration in share
ownership (wider distribution of shares across the population of investors) contributes to
a smother fluctuation of the value of the listed shares and is also a desired feature of the
PicoStocks platform. The relatively large transaction fee will present a barrier for more
sophisticated derived financial instruments, but these have a bad reputation and are
believed to have contributed to the recent global financial crisis. The large fee reduces the
liquidity of the market but the low liquidity has the advantage to present a barrier for
insider trading. In the future PicoStocks may decide to lower the transaction fee.

The dividend fee of 2% is collected for a unique service that is not offered by regulated
exchanges. On regulated exchanges dividend payments are conducted by the issuers not
by the exchange. The dividend service offered by PicoStocks can be used for example to
pay dividends to anonymous investors, something that other issuers and exchanges can
not provide. The 2% is similar to money transfer or exchange costs that would be
expected by private international investors. The 2% dividend payment fee is probably
smaller than the total costs associated with dividend payments paid by large issuers listed
on regulated exchanges and their private shareholders. Institutional shareholders would
most likely not accept a 2% charge on dividends but the PicoStocks platform focuses on
crowd investors.

b. Marketing plan

We plan to promote PicoStocks by contacting the following communities:

- bitcoin community through the bitcoin forum
- direct contact with bitcoin based businesses
- venture capital investors in Poland
- venture capital investors outside Poland
- public funding and investment agencies in Poland
- public funding and investment agencies outside Poland
- funding applications within FP7 and FP8
- researchers and entrepreneurs at conferences

c. Planned revenues

We expect to list 50 companies in the first year (2013) and 50 more companies annually
in the following 4 years. We expect the average size of raised capital per IPO* to be 5k
BTC (50k EUR). This is much smaller than IPOs on regulated exchanges but larger than

average IPOs on GLBSE and larger than the average projects funded through kickstarter.
Using this assumption PicoStocks is expected to raise for the issuers 250k BTC annually.
We expect that the annual trading volume will be equal to 50% of the value of listed and
traded shares. This is similar to the sizes observed on regulated stock exchanges.

In the first year 80% of the revenues will come from the 4% fundraising fees. After few
years we expect 55% of the revenues from the fundraising fees and 35% from
trading fees. The remaining revenue sources (25BTC from floating fee per admittance
and from 1% dividend fees) will stay marginal but are required for the correct operation
of the platform.

Annual revenues in kBTC
14 6.25
12 2.5
6 10 10 10 10 10

2013 2014 2015 2016 2017
dividend fee (1%) 0.125 0.25 0.375 0.5 0.625
trading fee (1%) 1.25 2.5 3.75 5 6.25
capital fee (4%) 10 10 10 10 10
floating fee (25BTC) 1.25 1.25 1.25 1.25 1.25

d. Market share

It is difficult to estimate the market size for PicoStocks. We base our market estimation
on the values observed in the last 10 years on AiM. The average annual capital raised on
AiM over the last ten years (2002-2011) amounted to 8 375 M EUR (837 M BTC). The
average annual trading turnover amounted to 42 923 M EUR (4 292M BTC). After 5
years PicoStocks is expected to raise annually 250k BTC, which corresponds to a market
share of 0.030%. After 5 years PicoStocks is expected to have an annual trade volume of
625k BTC, which corresponds to a market share of 0.015%. We expect PicoStocks to
play a very minor role in the global capital market and remain a niche project that is not
seen as a competition to regulated exchanges. In fact we can foresee that PicoStocks
could be treated as a global capital market entry stage before floating on larger

e. Marketing costs

Due to limited revenues PicoStocks can not spend significant funds on marketing.
PicoStocks is expected to achieve efficient brand awareness within the bitcoin network

just through its presence on the bitcoin forum. Outside the bitcoin community
PicoStocks will be promoted by nomads and by companies listed on PicoStocks. The
PicoStocks management will also promote PicoStocks actively among the community of
venture capital funds. 10% of the revenues are foreseen as funding for marketing costs
and will not exceed 1200k BTC in the first year, unless additional funding sources are
found for promotion of the project. More intense advertising is probably not justified as
the limiting factor for the growth of the platform is the size and wealth of the bitcoin
investor community.

5. Tasks and milestones

a. Launching the platform and first IPO*

The launch of the platform is expected in December 2012. The launch will be
accompanied by the Initial PicoStocks Offering of PicoStocks shares. This will be a
technical floating needed to provide the first listed asset for trading. There will be no
share purchase agreement signed because PicoStocks can not buy its own shares. We
expect to raise 5k BTC for the old shareholders with this IPO*. The raised capital will be
reinvested on PicoStocks and used to buy assets that will be listed after PicoStocks.

b. IPO* of local companies and bitcoin projects

In the first half of 2013 we expect to float 10 startup companies from Poland. In this
period we expect to list also 10 projects operating in the bitcoin economy as their
business models will be most familiar to the community of bitcoin investors. In this
period we will also actively promote the project in the community of private venture
capital companies in Poland and Europe. We will also apply for public funding to
establish PicoStocks as a general high tech project evaluation platform among public
funding agencies.
In the first half of 2013 we will also focus on the finalization of the legal work needed for
the fluent processing of admission. We will create an international version of the share
purchase agreement and standards for the contracts for profit sharing from projects that
have no legal person status at the time of floating on PicoStocks. In the first half of 2013
will also spend most of the time on communication with investment funds, funding
agencies and with potential nomads.

c. IPO* of European companies

In the second half of 2013 we expect to attract 10 more bitcoin economy projects, 10
more companies from Poland and the first 10 companies from the European Union. This
period will be also used to establish relations to nomads in United States. PicoStocks will
open a US office and a bank account denominated in USD.
In this period we will focus on the promotion of the platform internationally. We will
contact leading business magazines and participate in international conferences. We will
try to contact at least 100 venture capital funds in Europe and present them the
PicoStocks early stage exchange floating concept.

d. IPO* of global companies

In 2014 we expect to list 50 additional assets including assets from United States and
other non European countries. We expect that after one year of operation the platform
will gain international recognition and our promotion effort will be reduced to passive
response to demand rather than proactive expansion.

6. Risks

a. Service failure

Due to the nature of the transaction database the PicoStocks platform can not be easily
duplicated and made redundant. Also the limited revenues of the platform dont enable a
sophisticated service setup. We expect to take the service down for maintenance
periodically at least once a month. We also expect that there can be several unplanned
interruptions in the first year. These problems should not affect the business significantly
as the PicoStocks platform will not facilitate high frequency trading. The low volatility of
the prices will reduce the negative effects of trade delays.

b. Loss of connection

We expect multiple interruptions due to loss of connectivity in the first year. The servers
are in a location that permits simple expansion of the computing power and addition of
computing or replication nodes. However this comes at the expense of network quality
that is at the level of the Polish academic network. As in the case of previously
mentioned service failures the network failures are not expect to have a significant
negative effect on user experience and overall trading behavior.

c. Loss of data

Transaction data will be replicated to an archive sql-server and a backup of the archive
server will be performed periodically. In addition transaction date will be sent to 3 rd party
services such as twitter as was done on GLBSE. Transaction data will be provided by the
service to anyone so anyone will be able to make a copy and analyze it. The chance of
loosing the data will be minimal. In case of lost the integrity checks would fail. Loss of
transaction history would not affect the wallets of the users. However loss of other tables
in connection with the transaction data would potentially destroy the information about
users funds and assets stored on PicoStocks. All database tables undergo the same
backup procedure and are accessible to the public but it is not feasible to store the history
of bid/ask orders on 3rd party services. We expect that careful backup and replication will
solve the problem of data loss even after intrusion because the backup services are
logically and physically separated and different.

d. Loss of bitcoins

A potential intrusion into the http service gives limited exploitation possibilities. The
intruder would gain only restricted access to the transaction database. The database is
located on a separate server and is accessed by the PicoStocks bitcoin hot-wallet client
that is not accessible from outside. The cold wallet is stored on a completely separate
machine that communicates with the hot wallet only through transactions on the bitcoin
network. All wallets are protected by passphrases not stored on disks. It is unlikely an
intruder would ever gain write access to any of the wallets (to the private keys stored in
the wallet). The weakest and most vulnerable point of the system are the PicoStocks
managers that have access to cold wallets. If the number of bitcoins stored in the cold
wallets will exceed quarterly profits of the system we will consider insuring the platform
against theft. The number of bitcoins received by the system through profits from fees
will be kept minimal by monthly dividend payments.

e. Legal challenges

Based on current projections the platform will not pose a thread to any regulated stock
exchanges. PicoStocks will also make an attempt to convince authorities and public
funding agencies that the platform provides many benefits for local SMEs and helps
boost technology transfer and innovation of the local economy. However, if legal
challenges will become an eminent thread PicoStocks will change jurisdiction and/or its
legal form. In the more distant future PicoStocks could be converted to a multinational
society or into a virtual network just like the bitcoin network. In the virtual model
nomads would represent the connection between the virtual and real world and would be
responsible for signing documents on behalf of the PicoStocks network. This would
spread the legal responsibility for the PicoStocks operation across the globe and would
make the system resistant against national challenges.

7. Financial projections

Financial projections are provided for 5 years starting with 2013. We assume that each
year the number of assets listed on PicoStocks will grow by 50. For simplicity we present
a calculation with the assumption that no assets will be delisted. In reality we think that
some assets will be delisted but this will be compensated by more admissions and this
will have only positive effects on the revenues of the platform. We assume that the
average capital raised by the IPO*s will amount to 5k BTC. At 50 admissions annually
this results in a total raised capital of 250k BTC per year. The 50BTC admission fee of
which 50% is kept by PicoStocks will generate yearly revenue of 1250 BTC and the 4%
fundraising fee will generate a yearly income of 10k BTC.
The total value of the shares available for trading at PicoStocks will rise with the new
admissions by 250kBTC yearly. We expect that the annual trade volume will be at the
level of 50% of the total capitalization of traded shares and will of course rise with their
annual increase. The collected 1% trading fees will generate revenue of 1250 BTC in the
first year and 6250 BTC in the fifth year, reaching 34% of the total revenues in the fifth
We expect the listed assets to pay a dividend of 5% of their market capitalization each
year, which amounts to 12.5k BTC in the first year and reaches 62.5k BTC in the fifth

year. The 1% dividend fee kept by PicoStocks will generate yearly incomes starting from
125BTC and reaching 625BTC in the fifth year.
The total revenues from the PicoStocks trading platform will start at the level of 12 625
BTC in the first year and will reach 18 125 BTC in 2017. We expect the marketing costs,
the service maintenance costs and the management costs to be each at the level of 10% of
the revenues and in total less than 30% of the revenues. The net profits of the platform
will reach 8838 BTC in 2013 and 12 688 in 2017. For simplicity we assume that the
profit remain at this level for the time after 2018.
At a discount rate of 10% we assume that the residual value of the platform after 2017
will be 10 times higher than the yearly net profit and reach 126k BTC. Assuming the
10% discount rate the Net Present Value of the platform today reaches 111k BTC and
this is the starting point for the valuation of the project.

The financial projections are summarized in the table below (in blue the fractional
revenues from fees are shown). The market shares are relative to values reported by AiM.
2013 2014 2015 2016 2017
number of assets 50 100 150 200 250
new IPO capital [k BTC] 250 250 250 250 250
admission fee [k BTC] 1.25 1.25 1.25 1.25 1.25
9.9% 8.9% 8.1% 7.5% 6.9%
fundraising fee [k BTC] 10 10 10 10 10
79.2% 71.4% 65.0% 59.7% 55.2%

traded cap [k BTC] 250 500 750 1000 1250

anual turnover [k BTC] 125 250 375 500 625
trading fee [k BTC] 1.25 2.5 3.75 5 6.25
9.9% 17.9% 24.4% 29.9% 34.5%

divident paid [k BTC] 12.5 25 37.5 50 62.5

dividend fee [k BTC] 0.125 0.25 0.375 0.5 0.625
1.0% 1.8% 2.4% 3.0% 3.4%

revenues [k BTC] 12.625 14.000 15.375 16.750 18.125

marketing costs [k BTC] 1.263 1.400 1.538 1.675 1.813

servers [k BTC] 1.263 1.400 1.538 1.675 1.813
management costs [k BTC] 1.263 1.400 1.538 1.675 1.813

costs [k BTC] 3.788 4.200 4.613 5.025 5.438

profit [k BTC] 8.838 9.800 10.763 11.725 12.688

ipo market share 0.030% 0.030% 0.030% 0.030% 0.030%

trading market share 0.003% 0.006% 0.009% 0.012% 0.015%

discount rate 10%

residual value after 2016 126.875
NPV [k BTC] 111.723