This year we have seen massive use of cryptocurrencies, including Decentralized Finance (DeFi) applications, non-fungible tokens (NFT) such as digital art, crypto-focused games and the growing use of cryptocurrencies as investments and payments. instruments. One of the recent developments has been the emergence of decentralized autonomous organizations (DAOs).
DAOs have been around since 2016, when DAO, a new form of investment car that raised a significant portion of Ethereum (ETH) tokens, raised over $ 150 million at the time. DAO was considered by many to be the highest form of coordination between people. However, due to the re-entry exploitation, the hackers stole $ 50 million from the organization’s funds.
Despite initial setbacks, DAOs have experienced a rebirth in recent months. This is primarily due to more mature frameworks and tools, and less friction when building a DAO and interacting with a DAO. Some early experiments such as DXdao, Genesis DAO from DAOStack or MolochDAO paved the way for a new wave of decentralized organizations. DAOs exist today in various forms and forms, from large to small, which are used for host ecosystems, collectively buy NFTs or contribute to social goals or movements.
Beyond that, DAO will probably be the most radical change in the way venture capital funds (VCs) work. VCs need to change the way they invest in projects, the way they interact with them and the way they create value. At the same time, their business model can be disrupted by DAOs, who themselves become investment cars. But Web 3.0 will also revolutionize access to investment opportunities and provide democratic ways to invest without the need for an approved investor or net worth constraints.
How to invest venture capital in Web 3.0
Venture capital investments in Web 3.0 are no longer an anomaly. These investments range from the creation of specialized crypto funds to more traditional (institutional) funds that see the potential of blockchain-based ecosystems. However, the investment approach is different from traditional venture capital.
Notable among these is the widespread use of public sales (such as initial coin offers, initial decentralized exchange offers and initial exchange offers). This is done to democratize access to investment agreements by allowing more investors to participate in the investment round, reduce establishment barriers and coordinate overhead costs. Many Web 3.0 projects are also run primarily through a community-driven DAO, with investment decisions verified by community polls – perhaps the best-known example being the strategic collection of SushiSwap.
While investment agreements are usually made behind closed doors with little or no stakeholder participation, Web 3.0 venture capitalists need to participate more publicly to get a seat at the table. Web 3.0 projects still occasionally raise small private funds before selling public tokens. This often includes a SAFT agreement (or a SAFE agreement plus token parameters) with a party planning to issue a new token. However, this is often associated with longer maturities or holding periods.
However, especially in the NFT area, it remains to be seen how venture capital funds can somehow gain an edge over retail investors, as NFT pools are immediately sold publicly, which precludes participation in a private pre-sale.
Related topics: Airdrops, DAOs, Token Issuance, and the Public Domain – The Next Frontier for NFT
How venture capital can add value to Web 3.0 projects
Venture capital can offer startups a complete range of services and support beyond capital. Venture capital funds regularly support their portfolio companies through employment, marketing, guidance, legal advice or other services. After all, they are very interested in the success of these startups and want to do everything they can to support them.
However, Web 3.0 will revolutionize the importance of smart money for projects. DAOs often do not have a central office to offer these value-added services. Instead, venture capital funds often support projects primarily through community participation. This includes advocating for the interests of the community or being directly involved in community governance processes. But this also includes lobbying and other forms of stakeholder engagement outside the immediate ecosystem or even Web 3.0, as these discussions are often a challenge for non-business organizations.