Understanding “Next Big Wave” in crypto – Ventures DAO
Conventional venture capital market is monopolized by big institutions. Ventures DAO provides retail investors an equal opportunity to participate in potential projects.
Ventures DAO invests in startups and enjoys returns through DAO governance (community self-governed, proposal, and voting), eliminating the need for conventional venture capital. A top-down decision-making approach is used by conventional venture capital, where the 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 the community and democratic solutions through on-chain governance.
Mark Cuban, a billionaire entrepreneur, has called “DAO” the ultimate combination of capitalism and progressivism. One of the oldest venture funds in the world, Sequoia, is launching a DAO. A16Z, a venture capital firm, has a significant fund allocated to DAO.
DAO (Decentralized Autonomous Organization) is predicted to be the next “Big Wave,” the idea of “DAO” has attracted the attention of investors. As Ceres DAO has been hitting the news lately, people have started understanding how a venture DAO works.
Before heading into the Ventures DAO discussion, let’s understand how conventional VC works.
What is a conventional 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.
Conventional 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 aiming to provide funding to X, Y or Z start-ups.
Ventures DAO enables a new method of fund raising, without needing the approval from conventional venture capitals. Furthermore, Ventures DAO can gathers fund from multiple sources regardless of their geographical limitation.
Ceres DAO is a decentralized digital asset management protocol empowered by Web 3.0. Ceres DAO’s mission is to bring decentralization and transparency to asset management. Ceres DAO has a standardized Defi asset investment model to provide unmanaged and decentralized crypto asset management services, which help to mitigate the risk of Defi. Investors can enjoy the return without the exposure to volatility and the need for active management.
In 2021, Constitution DAO 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 conventional 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.
1. 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.
2. 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.
3. Ventures DAOs participation is more flexible compared to conventional venture capital.
Depending of the protocol framework, any DAO members can withdraw their participation in a DAO freely while conventional 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 conventional 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. Ceres DAO as a Ventures DAO breaks the monopoly of conventional venture capital, ensures equality, transparency and maximises returns of an investment.