An Overview of the Venture DAO Ecosystem
What is a Venture DAO?
A Venture DAO is a community governed group that seeks to invest combined capital of the community.
Venture DAOs stand out from traditional investment vehicles because they are typically egalitarian, transparent and meritocratic by design, lacking a single leader and instead relying on community voting and consensus.
Because the allocation of venture capital shapes the future world we will live in, Venture DAOs may very well be the most important use case of any DAO application.
Venture DAO ecosystem
Metacartel Ventures was the first Venture DAO founded in 2018. Metacartel is composed of a large group of crypto-native founders, builders, engineers, thought leaders, and investors. Not only do they provide a huge amount of value to investments, but they have also provided open-source tooling and apps to help support the DAO ecosystem.
The LAO was founded in 2019 by OpenLaw consisting of Ethereum enthusiasts and accredited investors in the crypto ecosystem. Co-founder Aaron Wright recently made the press by drafting the now passed “Wyoming DAO Bill” that has made DAOs legally recognized in the state of Wyoming.
AngelDAO was founded in 2020 by a group of crypto-native founders, developers, researchers, growth hackers, biz developers and community builders, already completing ~18 early-stage investments. Being a small DAO we found it helps us work collectively close with these projects for their needs and form consensus to move quickly in this fast-moving space.
Flamingo DAO was founded in 2020 by members of The LAO who are NFT enthusiasts dedicated to investing and managing NFT assets, giving its Members the ability to develop and deploy NFT-focused investment strategies.
Free Company was formed in 2021 by 10 highly respected founders and builders in this space Regan Bozman, Freddie Farmer, Don Ho, Kerman Kohli, Fulvia Morales Clay Robbins, Cooper Turley, Joyce Yang, Zhuoxun Yin and Mike Zajko already completing ~10 early-stage investments this year.
Additionally, CSP DAO, Duck DAO founded in 2020 HoneyDAO and Stacker Ventures founded in 2021 are large tokenized community DAOs that can leverage the resources of their large communities to support early-stage crypto investments. Duck DAO is a good example of this, having a community of ~25,000 members and has supported ~50 investments, together they have created a unique ecosystem of yield farming, staking, NFTs and incubator service.
Each of these DAOs have made different design decisions in their governance structure, membership structure, and investment process. Each Venture DAO offer unique value propositions and a wide array of choices available to the people, projects, investments and ecosystems they are involved in.
How Venture DAOs work
Venture DAOs need to coordinate activities with all their members. For minor tasks, off-chain consensus on social media platforms like discord may suffice.
For important tasks, such as agreeing on and funding investments, some sort of on-chain governance mechanism must take place.
One of the first design decisions is the quorum for a vote to be passed. Having a lower threshold will make it easier to reach final consensus, but will leave out a larger portion of the community from the decision.
It is possible to enable DAO members to vote by signing multi-sig messages with their private keys. These messages, when combined, allow for a transaction to be sent from the DAO contract.
It is also possible to use a tokenized DAO system such as Aragon or Moloch. These DAOs will represent voting rights with tokens. Normally each member gets one voting token.
Many new tools are being developed to help Venture DAOs improve governance. One such tool is Prysm, which will allow DAOs to make governance decisions using user reputation based on on-chain data.
When combined with quadratic voting, as is used in Babylon Finance, in the future this mechanism will enable DAO governance to evolve beyond a 1 token 1 vote pure democracy and establish a quantitative algorithmically determined hierarchy.
What makes Venture DAOs different than VCs?
The key difference between Venture DAOs and normal VCs is governance and consensus.
Rather than the leader(s) determining the thesis and direction of the group, the community must evolve and adapt to changing circumstances by keeping open communication and having cryptographic votes when necessary.
Venture DAO capital is aggregated through a smart contract, either using multisig voting or tokenized voting mechanisms to fund investments.
Venture DAO Investments
Venture DAOs have been very active over the last few years, investing in many of the top DeFi, NFT, and Infrastructure projects in the web3 ecosystem.
According to our research, Venture DAOs have completed over 120 investments in total.
One recent example was the fundraise of Opolis, which consisted of many DAOs (including AngelDAO and Metacartel Ventures) and decentralized communities more than traditional VCs. This was an intentional decision by the Opolis team to make their ecosystem more distributed and community-oriented.
Benefits of Ventures DAOs
Venture DAOs take advantage of the phenomenon of “wisdom of the crowd” to make decentralized decisions that may be superior to the decision making capabilities of an individual.
This is especially true in cases where diverse groups of people with varying expertise and from different backgrounds are participating together in a DAO.
The distributed nature of Venture DAOs also means that many stakeholders have skin in the game on any given investment, effectively bootstrapping a loyal community. DAO members are incentivized to support portfolio projects.
Because Venture DAOs may be diverse and have a wide array of participants, there are many angles for value-add contributions to support portfolio projects.
DAO members who are software engineers may be able to contribute on the technology side. DAO members with graphic design skills can create artwork and materials. DAO members with community building experience can leverage those skills to help new projects gain traction.
We believe that the wide array of support that a venture DAO can offer portfolio projects is going to become increasingly compelling to founders and new projects, and Venture DAOs will be recognized as having a unique capability in this regard.