Question for investors in DAOs

#1

There’s a bunch of VC who talk about investing in governance now (e.g. Placeholder, Cambrial Capital, Index ventures, Coinfund, Outlier Ventures, Libertus Capital, Consensys Labs, Amentum Capital etc). Some talks between them has happened during the Aracon: https://www.youtube.com/watch?v=JhwY1svuOLo

Also in @DAO incubator almost half of the requests from DAOs touch funding. Not saying VC funding is the answer, but probably it would be interesting to know their opinion on questions like valuation, expectation, how to govern their assets after investing etc.

Help me out by answering those questions:

  • Is it relevant to involve VCs more in the DAO field now?
  • What questions you’d be interested to ask?
  • Are there better funding mechanisms for the early stage DAOs?
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#2

Is it relevant to involve VCs more in the DAO field now?

Arguably, VCs are already involved in the DAO field, as many projects who have stated a future intent to decentralize, as Digix and Tezos did during the times of their sales, received significant VC funding. This being said, we still have a rather narrow playing field, as cryptoassets are, in my experience, considered too difficult to value and are too high risk for most VC to want to touch.

What questions you’d be interested to ask?

This question isn’t super clear to me – what to ask VC, what I would ask if I were a VC, etc – can you elaborate?

Are there better funding mechanisms for the early stage DAOs?

Our BizDev team has identified the following funding mechanisms for DAOs:

  • Top down – grants from a business or businesses
  • Bottom up – donations from members
  • Continuous funding – “teal equity” using a bonding curve mechanism
  • Subscription based – members must pay in order to exercise voting rights
  • Token sale – the dominant fundraising model in blockchain thus far; either STO or utility tokens.
  • Revenue stream – offering a product or service as a firm does

I expect that VC funding would likely be either continuous funding or through a token sale. In the case of continuous funding, DAOs that are providing the demand-side liquidity of the bonding curve may be highly lucrative opportunities, at least, in terms of book value (this could be done through the DAO lending its treasury, perhaps, and immediately re-investing into its own token). In the case of a token sale, I expect that VC would want to focus on tokens with price-friendly tokenomic considerations, that is, tokens with some sort of sink/burn structure a la BNB or MKR or revenue sharing, such as DGD. These mechanics, however, dive into the security token design space. Perhaps this helps explain the rise of the STO narrative.

My own suspicion is that subscriptions will be the most popular DAO fundraising mechanism. If we consider that the members already share the same values – hence their participation in the DAO – then there’s already enough alignment to agree on bottom-up subscription based funding. The real question is, how much, and for what purpose?

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#3

Thanks so much Pat.

This question isn’t super clear to me – what to ask VC, what I would ask if I were a VC, etc – can you elaborate?

Yeah, I had some idea about another VC roundtable or AMA session. So i wondered if DAOs or to-be-DAO have something to ask VCs.

My own suspicion is that subscriptions will be the most popular DAO fundraising mechanism. If we consider that the members already share the same values – hence their participation in the DAO – then there’s already enough alignment to agree on bottom-up subscription based funding. The real question is, how much, and for what purpose?

That’s a nice one!

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#4

Maybe worth brainstorming DAOs for financial hedging, rather than for returns. For example, DAI has no expected returns, but still provides a hedge (“off the grid” store of value), eg Venezuela.

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#5

In terms of funding mechanisms for DAOs, where would something like inflation funding come into play?

Below is a resource I found useful:

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#6

Inflation funding is a mandatory tax on all existing DAO members, if they hold their DAOs’ token.

From Wikipedia:

Issuing new currency, rather than collecting taxes paid with existing money, is considered a tax on holders of existing currency.

Interestingly, Genesis will be able to utilize inflation funding if it decides to become a Coordinator DAO – albeit with a 40m GEN ceiling.

My hypothesis though, for most DAOs, is that the subscription model will be considered a better alternative than inflation funding. Why? Because if we surveyed outside the blockchain eco chamber, I’d suspect a majority of orgs have no desire to mint their own cryptocurrency.

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