Next “Big Wave” – Ventures DAO
Traditional venture capital market is monopolized by big institutions. Retail investors rarely have access to all the important information. Ventures DAO provides retail investors an equal opportunity to participate in potential projects.
The nature of a Ventures DAO bootstraps a loyal community as DAO members are incentivized to support portfolio projects. Top-down decision making approach is used by traditional venture capital, where decision-making process occurs at the highest level and is then communicated to the rest of the team. DAO on the other hand emphasizes the participation of community and democratic solution through on-chain governance.
The idea of “DAO” has attracted the attention from the traditional venture capital. For example, one of the oldest venture fund in the world, Sequoia is launching a DAO. A16Z, a venture capital firm, has a significant amount of fund allocated to DAO. Mark Cuban, a billionaire entrepreneur has called “DAO”, the ultimate combination of capitalism and progressivism.
What is a traditional VC?
Venture capital (VC) is founded by general partner (“GP”), who acts as the manager of a venture capital. GPs analyse potential deals and make the final decision on how a fund's capital will be allocated. GPs gather fund from wealthy investors, investment banks, pension fund or any other financial institutions. Those are known as limited partners (“LP”).
GP’s main roles are to raise the fund and then deploy the fund’s capital effectively with the permission from the stake holder. GPs conduct follow-up on investment and keep the LPs updated on the fund’s performance. As the fund’s portfolio grows, LPs enjoys the returns from their investment.
Traditional venture capital has been a success investment model for the past 30 years. It witnesses the growth of world wide web, social medias and web 2.0 companies such as Facebook and Alphabet. However, venture capitals have its own disadvantages. A web 3.0 solution is much needed for those limitations.
What is Ventures DAO?
A Ventures DAO is a community governed group that seeks to invest combined capital of the community. Ventures DAOs stand out from traditional investment vehicles because they are transparent with decisions making. There are a lot of Ventures DAO being formed recently in order to invest in web3.0 opportunities.
Ventures DAO enables a new method of fund raising, without needing the approval from traditional venture capitals. Furthermore, Ventures DAO can gathers fund from multiple sources regardless of their geographical limitation.
CeresDAO is the world's first decentralized digital assets management protocol governed by DAO. As a web3.0 with a standardized DeFi asset investment model to provide unmanaged and decentralized crypto asset management services, CeresDAO helps to mitigate the risk of Defi such as impermanent loss and depegging event of stablecoins. In 2021, ConstitutionDAO was formed as a single-purpose DAO. They raised $42M in seven days to bid on the original copy of the United States Constitution. These two DAOs are great examples of why a Ventures DAO is regarded as a great innovation in venture capital market.
Advantages of Ventures DAO
DAO represents the vision of Web3.0. Investors with the similar visions gather fund and form a DAO. Investors perform investment according to their risk appetite and the governance (voting-right) depends on their holding of governance token.
DAO is an innovation to traditional venture capital. Ventures DAO enables early participation of retail investors in projects. Traditionally, hedge funds or venture capitals have the opportunity to participate in the seed/private round of fund raising. They are able to buy the tokens at a relatively low price, and dump on the retail investors once the tokens are traded publicly. Through a Ventures DAO, retail investors’ disadvantages can be neutralised.
- Ventures DAO makes decision collectively with the “wisdom of crowds”.
A ventures DAO leverages participation from diverse groups of people with varying expertise and from different backgrounds providing decision or solution collectively. DAO members who are technical savvy may contribute to the technology side such as UI/UX design of the website. DAO members with great design skills can create artwork for marketing purposes. DAO members with community building experience can help new projects to gain traction.
- Ventures DAO operates on-chain and fully transparent.
Instead of top-down decision from a single leadership, DAO members have to communicate effectively and make important decisions through on-chain voting. Ventures DAO uses multi-sig wallet to safe guard the treasury. All the transactions can be traced on blockchain and there are multiple tools available for effective DAO governance.
- Ventures DAOs participation is more flexible compared to traditional venture capital.
Depending of the protocol framework, any DAO members can withdraw their participation in a DAO freely while traditional venture capital requires minimum commitment period.
Challenges of Ventures DAO
Every risk is associated with opportunity, and vice versa. Even though Ventures DAOs have better organisation structure than traditional venture capital, they are not risk free. Due to the lack of definite rules and regulations for taxation and management of DAOs, there some grey area waiting to be solved.
Ventures DAO is a relatively new idea for general public. DAOs have unlimited possibilities and the future of capital market no longer relying on centralised entities, but a decentralised community.
Ventures DAOs with its unique characteristics, provide a whole new paradigm in venture capital world. CeresDAO as a Ventures DAO breaks the monopoly of traditional venture capital, ensures equality, transparency and maximises returns of an investment.