WRITTEN BY: Samantha Marin and Manuel Salcedo for FTW.DAO
Web3 is taking over another aspect of the legacy world: Venture Capital. Venture DAOs, or, more widely, Investment DAOs, are reshaping the way venture capital works.
A DAO is a community of people who come together to achieve a common goal.They use trustless crypto rails to record and execute key decisions. DAOs are organisation “types,” that can truly become anything they want to. And they’re starting to test the waters as investors. What does VC funding from DAOs look like, and what advantages do DAOs have over traditional VCs?
Investment DAOs allow more ideas and diverse perspectives to guide funding and investment strategy. In other words, Investment DAOs can be thought of as a community organising around a larger mission, rather than a small group of investors organising around a thesis. They’re more idea-driven rather than person-driven.
The democratic nature of DAOs allow for people with diverse viewpoints to allocate funding. Because consensus and group decision making is baked into the formula for DAOs, the investments and choices the VC makes can be guided by the hive mind of the DAO rather than one person.
We believe there are three key ways that Venture DAOs can change the landscape of funding:
**1: Greater Access to Investment and Career Opportunities
Venture Capital has, up until now, been fairly exclusively the playground of people with a certain status. The challenge preventing VC from being more diverse (and achieving better returns) is just how hard it is to get in the door and contribute without being born with significant privilege. All of the paths to work in or manage a fund in VC require an unusual level of wealth, privilege, persistence, or bravery (usually a combination of these).
The exclusive nature of VC has in the past (sometimes) had justifiable reasons related to the administration costs of fund set-ups and the minimum investment required to make a new potential investor in a VC fund economically viable. It has been for other not-so-justifiable reasons been part of the game and ethos of VC to build things that are exclusive, not inclusive.
Unlike a traditional VC, a Venture DAO (VDAO for short) is generally made up of not just a small team, but a well-sised community of investors, experts, enablers, advisors and supporters with aligned incentives from which the VDAO can source ideas, deal flow, expertise and contacts. The size and freedom of DAOs opens up a wealth of opportunities for a new and diverse set of people to be exposed to the venture space, learn the ropes and build powerful networks. Often not hiring full-time employees at all, VDAOs can flexibly leverage and reward their community for contributions, expertise, and information shared.
Venture DAOs can significantly improve access to career opportunities in the VC space. For example, AngelDAO lists both jobs and bounties that new contributors can apply for. Rather than the traditional VC world, which is largely based on where you went to college and who’s in your network, anyone in the world can apply to work at a Venture DAO or simply pick up a bounty and start earning money.
This means that it is no longer a requirement to spend years preparing for VC interviews and commit to a 60 hr/week job with travel, to build a reputation and network in the venture capital space. It means that highly-qualified talent who are also parents, carers, neurodiverse or have limitations to their work capacity for health, or any other reasons, are all able to be leveraged in flexible and mutually beneficial ways.
This proliferation of opportunity—in investments and careers—cracks open the world of VC which will demystify and diversify the industry.
**2: More diversity in who controls and receives funding
Venture DAOs also have the potential to unlock much more diversity when it comes to who controls VC funding.
Diversity in all its forms is a strong indicator and/or pre-condition for company success. Diverse-led start-ups achieved higher revenue and delivered more than twice the financial return on each dollar invested, despite receiving less than half the investment dollars that their non-diverse peers were given. McKinsey found that having more women on the senior executive team provided the single biggest performance uplift in their data-set on company performance: with every 10% increase in gender-diversity, EBIT rose by 3.5%.
Despite this, 93% of VC money is controlled and invested exclusively by and in white men. In Europe and most advanced economies, around 90% is invested in male-only teams and in the US 77% of money is allocated to white founders. With a closer look, capital allocation looks even dimmer—just 2.6% to Black and Latinx founders. The statistics are not improving, which represents a massive failure to not just the founders who are missing out on funding—the investors, VCs, and society as a whole loses out on the innovations these founders would have brought.
DAOs present an opportunity to change this.
DAOs introduce distributed decision-making, so there’s no single leader steering the ship. This opens an environment for multiple perspectives to evaluate who gets funded. And, the permissionless nature of DAOs means that traditional barriers to entry, such as the degree you have or the people you know, are far less important than what value you bring to the DAO.
So, what does VC funding look like when it’s controlled by a more diverse group? For DAOs it’s still a little too early to tell, but data shows diverse-led funds perform significantly better. Funds with diverse investment teams are shown to perform 20% better on average while a study in Harvard Business Review found that VC firms, which increased the number of female partners by 10% experienced a 1.5% increase in fund returns each year, as well as 9.7% more profitable exits.
As an early leader in the space, the LAO seeks to “build a permissionless silicon valley,” meaning that in theory one won’t need an Ivy League degree or a vast network of connections to get funding. Instead, if one’s proposal must stand up to the community’s evaluation to get funding. Such open approaches offer up many opportunities for individuals and teams who might not have been funded by a traditional VC. How many new, diverse founders will get funding from a DAO, rather than a traditional VC? We believe there will be many.
**3: Increased transparency and accountability for VCs
One of the values of DAOs is transparency. On the blockchain, all transactions are transparent and universally-viewable. Information is power, so many DAOs seek to give power to their contributors by making information widely accessible.
Venture DAOs will be transparent by default, because, in theory, all transactions will be publicly recorded on the blockchain. Anyone can analyse a DAO’s wallet address to see where funding is flowing. Venture DAOs will need to hold up to increased accountability of who they fund and why.
Another way transparency manifests in some investment DAOs is through the public posting of their white paper and governance processes. If the DAO chooses to share these documents, anyone can see exactly how the organisation is run and how decisions are made. This “building in public” ethos makes Venture DAOs, and all DAOs, more accountable for their actions and choices.
Public records of proposals, team composition and funding amounts could also allow the community, stakeholders and marginalised groups to see how much certain founders like them are getting funded. It’s like salary transparency on steroids—startup founders and other VCs can do detailed research on how much each person is getting funded, and use that when crafting their pitches or building their own Venture DAO. The more information is shared, the more the entire space can improve diversity.
We believe DAOs are the business model of a better VC future. We believe that by relieving VC’s obsession with exclusivity and creating a new form of VC that is accessible to all and built on values of fairness, transparency, openness and continuous improvement we can create real change for diverse founders and investors.
**Examples of Venture DAOs
The LAO: Investing in Ethereum ecosystem projects.
MetaCartel Ventures: A branch of MetaCartel, this venture group funds Web3 startups with the intention of using the power of crypto to make the world a better, fairer place.
BanklessDAO Fight Club: A branch of BanklessDAO that will be investing in emerging Web3 projects to support bringing 1 billion+ people into Web3
BitDAO: Investing in decentralised protocols.
PleasrDAO: Raising money to buy and fund culturally significant art pieces.
Venture DAOs are still early, but they’re coming. Are you ready? If you’re a startup founder or angel that wants to be part of a better 2030, it may be time to start looking into Venture DAOs. Or, if you work in a traditional VC, check out Venture DAOs to see what the future might hold for you.
At FTW DAO we are building a hive to find 🔎, fund 💰, and foster 🌱 diverse founders.
With our community-led approach, we are growing a swarm of operators, thinkers and investors who reflect the diversity of the society we live in, enabling them to drive investment decisions together in an efficient, transparent, and founder-friendly way. We’ve set out to form a global, diverse and thoughtful DAO-based community with the shared purpose to see more diverse teams and funds receive funding. We are focused on founding teams with bold visions for the future of society globally.
Come join FTW DAO and be part of building a VDAO ecosystem from the ground up. Follow us on Telegram or join our Discord. We look forward to DAOversifying venture capital with you!