Balancer Foundation and Balancer OpCo
Cost update to the Balancer Community - March 2023
The Balancer Foundation and OpCo have been set up and running for several months. In that timeframe, major contracts have been re-negotiated and we’re starting to see actual numbers and a sense for the cost savings we have been working hard to achieve. I’m happy to share these with the Balancer Community.
- Actual savings for FY22 Q3 and Q4 are: US$195k
- Projected savings for FY23 Q1 and Q2 are: US$362k
Total projected expense savings for this funding cycle are: US$557k
These are primarily driven by negotiated savings for software services, and a reduction in headcount of the Front-end team as compared with the original plan. We anticipate that many of these savings will continue to accrue after FY23 Q2. Note that there are additional funding requirements for deposits that became known after the funding proposal was approved. These can be covered by the savings achieved to date, no additional funding is required.
In summary, these are the actual savings achieved at Balancer OpCo for FY22 Q3 and Q4; and what is trending for FY23 for Q1 and Q2:
Illustratively, these projected savings equate to approximately 5-months funding for OpCo at the forecast FY23 Q2 burn-rate.
There is important context explained in the details below.
As background, the OpCo budget was prepared after we were clearly in a down market, and was prepared to be lean with that in mind.
Before presenting the proposal to the community we went through an audit of every software subscription and were able to cut unused and unnecessary subscriptions before they even made it onto the budget that the community approved.
The table below shows the original forecast followed by a table of projected savings by category (as negatives), the third table lays out the revised projections for Balancer OpCo after the savings. Commentary follows.
- Full-time employee (FTE) costs benefited from the US Dollar remaining strong (most payments are in GBP, EUR and AUD). Since a very good candidate was identified, headcount increased by 1 FTE two months earlier than expected (Oct ‘22 vs Dec ‘22. OpCo was able to absorb most of this increase and had capped headcount at this level (the original budget anticipated an additional hire in FY23 Q2. The resignation of a consultant created an effective saving of ~$4k per quarter. Given the extended bear market and lower than anticipated workloads, in February 2023 the decision was taken to reduce the size of the Front-end team by two members. After notice payments, this will have the impact of reducing payroll costs effective April 2023. Collective net saving in Q4 of $6k and projected savings of $39k and $106k expected for FY23 Q1 and Q2 if actual payroll costs to date are an accurate predictor.
- We are also seeing savings in payroll taxes being less than the budget item we carried over from prior budgets. Saving $15k to $20k per quarter starting in Q4 2022.
- We have continued to challenge the fees where practical and have negotiated significant savings for the larger subscriptions, as discussed in the Community Hall updates. Some of these negotiations were protracted and it’s worth noting a vote of thanks to all who assisted in achieving these savings of $53k to $73k per quarter.
- One of these areas of saving is TRM. It is worth noting the fees are driven by usage, so if usage goes up beyond our modeling, we may see a commensurate increase in fees.
- There are approximately 20 software services in use for the Front-end, with minor variances over and under the original budget expectation in a less material way.
Operations and Administration
- We note this line item includes software services used across the ecosystem, such as Discourse, Slack, Donut, Lattice and Asana. Similarly, there are minor overages in some of these due to changes in usage or the number of active users.
- Saving of $20k for annual compliance fees paid in Feb 2022. We expect to save a further $10k in FY23 Q1 given the current expected level of work.
- Accounting services - we received service provider estimates of ~$9k / mo for three months during set-up period and $4k to $6k per month ongoing. The Foundation and the OpCo had relatively few transactions for Q2 through Q4 2022. Given the market environment, the Foundation felt that was undue overhead at this point to outsource this function. We have been doing the booking in-house. That has staved off $55,000 in expenses for Q3 and Q4 2022, and Q1 2023. As operations get set up, activity increases and other priorities are completed, the Foundation will revisit outsourcing the work.
- Recruiting costs will not be required unless there is significant disruption to the FE team. Potential saving $24,000 in FY23 Q2
- Banking - the Balancer OpCo Treasury was not impaired by recent events at US banks, however, there will likely be costs to redevelop banking relationships.
- There was $20k budgeted for D&O insurance in FY22 Q4 that has not been spent, however the intention is to continue seeking D&O insurance at a reasonable cost, so this is not counted as a saving at this point.
Items calling for additional cash not in the original budget request:
- The OpCo’s previous bank required a minimum balance of $50k. This is no longer required, given the events of recent weeks, however a new bank may have a similar minimum balance requirement.
- Deposit for the payroll provider of ~$80k (one-off) FY22 Q4, reducing to ~$60k in FY23 Q2.
Part of managing cash is about timing as much as the actual expenses. I worked on the timing of payments to suppliers where possible to bridge the cash balance without seeking additional working capital from the DAO. With the savings noted above, and the deposit now covered, the OpCo is expected to be able to significantly reduce its cash needs from the DAO for FY23.
The DAO provided the equivalent of US$1,619k funding for FY23 Q2 OpCo and Orb expenses, approximately ~$175k less than forecast burn, however the gap is forecast to be covered between the projected savings at each of the OpCo and Orb.
The Foundation budget is substantially made up of annual corporate registration fees of $10,415; fees for the directors and its sole officer, a small budget for legal and other small service fees.
The expenses in the Foundation have very few estimates. Directors started earlier than budgeted, creating an overage of $7,020 at the Foundation level for FY22, offset by savings against forecast for legal fees, Independent director fees and other minor items.
Expenses incurred totalled $168,529.13 for FY22 Q2 to Q4, against a forecast of $168,829.00, achieving a saving of $ 299.87, a great result given the lack of buffer, however a little too fine given not all expenses can be forecast with certainty, and a small change outside of our control could have pushed the figures the other way.