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The venture capital (VC) industry is filled with household names such as Andreessen Horowitz, Kholsa Ventures, Bessemer Venture Partners, and Sequoia Capital. According to Pitchbook, there were over 300 billion dollars invested in startups in 2021. This massive figure doubled the size of the amount of funding from the previous year which seems to be the trend over the past few years. Additionally, United States VC firms in 2021 raised over 128 billion dollars which signifies the growing appetite and maturity of the asset class. Although there has been a lot of momentum in venture, the space hasn’t undergone much disruption. For instance, only a limited number of people can manage venture funds. However, the creation of investment-focused decentralized autonomous organizations (DAO) allows more people to participate in the startup investment ecosystem.

Investment DAOs feature a collection of individuals who have aligned on an investment strategy to invest in things such as startups, NFTs, or other things that can yield returns. Unlike traditional VCs, the LPs are the members of the DAO which can consist of a handful of people to thousands of members. These members in the DAO many times have tokens or some sort of governance mechanism for group decision-making. Based on the level of ownership that members have in the DAO, members stand to earn carry from the investments the DAO makes. At some traditional funds, only the top leaders will receive the majority of carry from exits.

The concept of DAOs may be very nascent to the market, but it has gained adoption in its infancy. According to Forbes, over 8 billion dollars sit in DAO treasuries as of February 2022. Typically, investment DAOs will have a wallet address, which allows for the organizations to deploy capital into new assets in a very seamless manner. Having an easy way to deploy capital is essential as it allows the projects receiving the injection of capital to trust the DAOs investing in them. For example, BitDAO held over 300 million dollars in its treasury at the end of 2021. Today, according to BitDAO's website, the organization has allocated over 600 million dollars to labs and autonomous entities. Therefore organizations like BitDAO need to have reliable and secure tools.

Investment DAOs theses vary. However, they all have the objective of injecting capital things that will strengthen innovation in Web3. For example, organizations like PleasrDao specialize in buying NFTs that have strong cultural significance and will be adding to the pieces prior to sharing them with the community. We even have a DAO designed to build a community of golf enthusiasts and ultimately create the SOHO House of golf courses called LinksDAO. DAOs like Metacartel Ventures, Alliance DAO, and The LAO are examples of organizations that invest in web3 startups. Metacartel Ventures features a talented group of operators such as the CEO of Aave, Stani Kulechov, and the CEO of Audius, Roneil Romberg, who focus on investing at the earliest stages of company life cycles. Alliance DAO is similar to Y Combinator except it is an accelerator designed specifically for web3 companies. It is led by core contributors Imran Khan, Qiao Wang, and Jacob Franek. Along with these leaders, Alliance DAO accelerators feature mentors that guide the startups in Alliance’s accelerator program. These mentors include the likes of Anatoly Yakovenko, founder and CEO of Solana, Tushar Jain, Managing Director of MultiCoin Capital, and Roham Gharegozlou, founder and CEO of Dapper Labs (read more about Dapper Labs). With a strong group of mentors such as these, it makes sense that Alliance would draw the interest of founders who want their projects to reach the heights that projects like dYdX, 0x, and Synthetix have reached. The LAO is an investment DAO that is focused on projects that are built on the Ethereum Blockchain with a portfolio that includes companies like Curve and Maple Finance. It features some of the most prominent figures in Web3 as mentors such as Ryan Selkis, founder and CEO of Messari, Amanda Cassatt, co-founder of Serotonin, and Cooper Turley, an active contributor to Bankless.

One of the things that you’ll notice about DAOs is that there is a stronger emphasis on the community not only being successful but also propelling the success of web3 as a whole. I mention that because some of the people involved with the DAOs above are members of multiple DAO communities. Collaboration is more of a strength for people who are in these communities. Unlike a traditional business where there is much competition, some DAO interactions are mutually beneficial to improve “the whole”.  In a The Daoist article, Stefen Deleveaux and Numa Oliveira write, “Building and improving the tools and platforms for DAO communities to work together will have immense impact, and will produce powerful interactions that transcend industries and unite competitors. When these communities can easily and trustlessly collaborate, coordinate, and negotiate, they will no longer view project-specific problems as ones to be solved in isolation, but ones to be tackled together.” With this in mind, investment DAOs don’t have to limit their conviction to one company solving a particular problem. Instead investment DAOs can build conviction in problems that need to be solved.

There are a few tools that DAOs are using to run their operations. Discord is the primary mode of communication for these organizations which is where these organizations can vote on investment decisions amongst other things. Another tool that has been proven to be beneficial for investment DAOs is Syndicate (Read more about Syndicate). Syndicate’s primary product currently is its investment clubs. The product has over 3000 DAOs launched on the platform including Amit Mukherjee’s ChainforestDAO, Global Coin Research, and other notable investors. With the ease of access to invest collectively due to tools like Syndicate, more projects should be able to pursue funding opportunities.

Venture capital is notoriously hard to raise as less than one percent of startups acquire venture dollars. Web3-focused venture funds are still nascent as the industry is not even 20 years old yet. Investment DAOs provide founders with another way to fund their projects outside of venture capital. As referenced earlier, many investment DAOs also provide founders with operational support from successful founders and operators. Furthermore, investment DAOs present the opportunity to have an instant community of customers. The DAO members will be invested in the project’s success due to their ownership of the projects they’ve funded. From another perspective, it is very hard for underrepresented founders to raise venture capital. According to Fortune, less than 2 percent of Black founders receive venture capital investment. Investment DAOs are in a position to improve access to capital due to their inherent global structure, communal nature, and lack of responsibility to LPs. Unfortunately, many traditional VCs rely on pattern matching to make investment decisions which leads to only a few types of founder profiles receiving funding. Investment DAOs have a great opportunity to change this and make the venture ecosystem equitable.

Investment DAOs are the future of capital allocation. These organizations are positioned to take a community approach to invest in new projects such as NFTs or startups, particularly in the growing web3 environment. For startups, in particular, investment DAOs will provide their portfolio projects with an instant, brand-loyal community of customers. Furthermore, startup teams will gravitate toward having investment DAOs as partners as they typically include experienced operators and founders from around the world who can help aid founders succeed on their startup journeys. While investment DAOs represent the future of high-growth investing, this strategy is very nascent and thus requires the tools for these organizations to thrive. Tools like Syndicate are making it easier for DAOs to function but more tools are required to run more efficiently. Lastly, venture capital is notoriously hard to raise. Investment DAOs provide startups and other projects another avenue for funding where a road show is not the only option. Particularly for underrepresented founders, investment DAO’s global and community-focused nature provides another opportunity for these founders to acquire capital for their businesses. All things considered, investment DAOs are viable competition for the traditional venture landscape as they have the potential to allocate capital more equitably, take a collaborative investment approach by investing in various companies solving similar problems, and provide loyal communities that help investments and the entire web3 ecosystem to scale.

Thank you for reading this piece. If you LOVE this article, you can send a tip to Cryptojeter.eth (my ETH address)! Follow me on Twitter @CryptoJeter and retweet this post! Feel free to shoot me a DM as I love meeting new folks!

Thank you for the support!