A venture DAO (sometimes called “investment DAO” or "venture capital DAO") is a community of investors who collaborate on the investment decision-making process and support the collection of projects they invest in.
Venture DAOs differ from traditional venture firms by opening themselves up to collaboration from a broader range of people.
Different types of venture DAOs
While most people think of venture DAOs as organizations that make investments in companies, creators have expanded the structure to include investments in other entitles, including:
Creators - A venture DAO might support investments in creators and enable those creators to buy better equipment, grow their teams, pay for promotions, etc. In return, the DAO could earn a percentage of each creator’s earnings.
Real estate - A venture DAO can help grow a collection of properties, including buildings, vacation properties, and even islands. The DAO could earn a share of the rent on those properties and profits from their sale.
NFT or other digital assets - A venture DAO could enable investment in a collection of virtual assets, including digital land and art. Its upside could come from rent earned from those assets and capital gains on their sales.
More - Virtually any asset can be backed by a venture DAO.
How a typical venture firm works:
There are four stakeholders in traditional venture firms, each is siloed and the venture capital firm controls all communication among them.
The venture stakeholders:
Limited Partners (LPs)
LPs put money into venture capital firms to enable them to invest in businesses. These LPs can be individuals or bigger organizations, like retirement plans.
Venture Capital (VC) firm
VC firms make investments at their partners’ discretion. Their decisions are influenced by their firm's industry focus and published thesis, but they can be based on a partner’s “gut feel” or a private conversation among the firm’s partners. Once VC firms make an investment, their firms support their portfolio companies' growth by giving advice, making introductions, and helping land future funding.
Scouts are entrepreneurs and others who are well-networked in the community that the VC firm invests in. They find investment opportunities and earn a share of the profits the VC firm generates from investments as a result of their introductions.
Portfolio are the companies the VC firm backs. Many VC firms try to connect members of their portfolio companies to each other through in-person events and online messaging systems, but for the most part, each portfolio company has its own, unique relationship with the VC firm. Often that relationship is with an individual partner at the firm, not the firm as a whole.
How a Venture DAO works:
Venture DAOs distinguish themselves from traditional venture capital through a shared upside and combined stakeholders.
In venture capital, “carry” refers to the portion of returns earned by VC firms. Even at top VC firms, it’s common for associates to earn 0% of the carry, while partners reap the rewards of results that their associates achieved.
In contrast, Venture DAOs’ earnings go into their treasuries and DAO members get to vote on how to deploy that capital. Junior members can earn tokens and vote, just as more experienced members can.
Venture DAOs bring all the stakeholders together, often in a single Discord server. This connection allows each stakeholder to engage in the investment decision-making process, instead of being siloed from the other stakeholders.
1. Deal Flow
Venture DAOs allow members to find potential investments. Orange DAO, for example, has over 1,000 entrepreneurs. Each one of them has a network of engineers, entrepreneurs, and other creators that helps them identify little-known projects in the early stage.
DAO members can benefit from these introductions in two ways. First, if a project they nominate gets funded, they can earn a bounty in the form of the DAO’s tokens. Second, if the DAO makes a profitable investment, the DAO member’s tokens can become more valuable.
2. Due Diligence
Due diligence is the research investors do to analyze their investment prospects and mitigate risk. At a Venture DAO, every member can be a part of the due diligence. They can add their experience, research, and relationships to improve the decision-making process.
At Cult DAO, for example, each investment possibility gets its own Discord channel where every member of the DAO can ask the founding team questions.
3. Portfolio Support
At a venture DAO, managers can spread portfolio support among a broader collection of community members. That support can be formal or informal.
An example of a formal approach comes from VC3 where entrepreneurs they back receive tokens that they can use as bounties for DAO members who help them. For an informal example consider what we do on a regular basis at Origami; I keep a list of members of the DAOs that invested in us and ask those people to retweet something I wrote or help me think through promotional ideas.
The Howey Test says the criteria for a security are:
An investment of money
In a common enterprise
With the expectation of profit
To be derived from the efforts of others
Based on that criteria, a DAO’s token can avoid being called a security if it doesn’t entitle its holders to distributions.
The Origami Framework
Origami got its start when our founders helped build Orange, a venture DAO for Y Combinator alumni who want to support new entrepreneurs and startups.
The core of our approach with venture DAOs is The Origami Framework, a comprehensive method for creating and running DAOs that can benefit from the upside of venture capital, outside investors, and other investing strategies—without requiring DAO members to make investments, be accredited, or take on personal risk. Our approach also allows DAOs to scale past the 100-member limitations imposed on investment clubs.
The Origami Framework has been battle-tested by several well-known DAOs, including Orange DAO, VC3 DAO, and Constellation DAO.
Venture DAOs are more accessible than traditional venture capital firms. Therefore, while all the usual ways to connect with traditional venture firms will still work with venture DAOs, DAOs give founders more visibility and access to their process.
As with any venture funding process, relationships matter with venture DAOs, which means that an introduction to the DAO's active members through a founder whose company was previously funded by the DAO is an effective strategy. Getting an introduction to a member through a mutual friend, colleague, or associate is an ideal way to start a funding relationship.
In web3, fund transfers and votes tend to be public because they're on the blockchain. That means identifying founders of a venture DAO's portfolio company can be easier than it is in the traditional venture approach; however, asking for an introduction still matters with venture DAOs.
Many venture DAOs have active Discord servers that are accessible to non-members. Founders seeking funding from those DAOs can join the Discord conversations and build relationships with community members before the fundraising process starts. Some venture DAOs even make their past decision-making processes public, allowing founders to understand the full process they'll go through when they apply for funding.
Questions to ask
In researching this article, I found that many venture DAOs are either too early to be making investments because they lack sufficient funding or have stopped making investments. In both cases, their online presence is similar to that of active venture DAOs.
Leaders seeking funding need to do their own due diligence on the venture DAOs they're talking with. Some questions to consider asking:
What are some of your recent investments and when did you make them?
How big is your fund?
What do you invest in?
Our Roundup of Venture DAOs:
To request an addition to this list, email me, Andrew@joinOrigami.com, or DM us on Twitter @jointheOrigami
Orange https://twitter.com/OrangeDAOxyz Its mission is to bring more founders, builders, and users to web3. It does it by 1) powering the Orange Fund, which makes investments, 2) supporting its portfolio, through help with hiring, connections, and mentorship, and 3) building public goods, like its NFT onboarding software.
VC3 https://twitter.com/vc3dao It aims to reinvent venture capital by bringing together a vetted network of experienced VCs, starting with Kauffman Fellows. It invests in Web3 projects around the world. As a Web3 native investment DAO, it provides token rewards to all stakeholders, with NFT-gated access and governance based on membership type.
MetaCartel Ventures https://twitter.com/VENTURE_DAO It was created by the MetaCartel community to make investments in early-stage Decentralized Applications (DApps). Its investments are directed by its DAO members, called “Mages.” Mages source, conduct due diligence, propose, and vote on investments. The admission of new members into the DAO is permissioned and member-curated.
Cult https://twitter.com/wearecultdao It invests in projects that help further decentralization. All investment ideas come from its top 50 coin holders, known as “The Guardians” and are voted on by the rest of the community, known as “The Many.” Once The Many vote on an investment, it automatically gets 13 ETH.
DAO.VC https://twitter.com/daovc_official It’s a decentralized non-profit organization whose mission is to develop an ecosystem for launching projects in Web3. DAO members participate in governance and profit from all the ecosystem tools.
Layer2DAO https://twitter.com/TheLayer2DAO Its goal is to expand the Ethereum L2 ecosystem and invest in L2 ecosystem projects. The DAO uses its treasury to invest into high-impact L2 protocols and ecosystem plays, serving as a diversified venture fund for investors looking to gain exposure to the L2 ecosystem growth.
The LAO https://twitter.com/thelaoofficial It’s a global group of Ethereum enthusiasts and experts supporting the work of Ethereum builders. The LAO is entirely member directed and managed and any blockchain-based project can apply for funding from The LAO.
Flamingo https://twitter.com/FLAMINGODAO It’s an NFT-focused DAO that aims to explore emerging investment opportunities for ownable, blockchain-based assets. It champions the understanding that NFTs are more than pixels on a computer screen. They can be digital art, collectibles, in-game assets and tangible assets.
Neptune https://twitter.com/NEPTUNEDA0 It aims to invest in various liquidity opportunities in the decentralized finance (DeFi) ecosystem and beyond. Neptune members pool together capital and then democratically vote on investment strategies. In order to accommodate speedy and time-sensitive transactions, Neptune will have a third-party group, Alignment Engine, Inc., run by Sam Cassatt, to help facilitate strategies voted on and approved by Neptune members.
Alliance https://twitter.com/alliancedao It’s an accelerator with an optional funding add-on. Alliance requires founders in its program to attend sessions, work with its mentors and fully commit to its 3 months program. However, it does offer an optional $250k investment for companies looking for funding. Funding terms depend on company size.
Fight Club https://twitter.com/fight_club_vc It’s sub-DAO under BanklessDAO. Fight Club is a decentralized venture capital platform that provides apprenticeship programs, on-chain credentials, and curated deal flow to its community of founders, angel investors, and venture capital veterans in order to break down barriers to traditional investing.
FTW.DAO https://twitter.com/ftwdao It’s focused on investments in diverse teams by a diverse team. FTW.DAO’s lite pape refers to an Institutional Investorarticle that says investment teams perform 20% better when they’re diverse and to a Harvard Business Review study that says, 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.
Komorebi Collective https://twitter.com/KomorebiFund It’s investment DAO focused on funding female and nonbinary crypto founders. Komorebi’s core operating team consists of members from she256, a 501c3 nonprofit dedicated to increasing diversity and breaking down barriers to entry in the blockchain space, as well as Women in Blockchain an organization focused on increasing diversity through education and community building.
New Order https://twitter.com/neworderDAO It’s a community-led incubation DAO that builds startups at the frontier of decentralized finance. We incubate and launch projects while also accelerating early-stage DeFi protocols. New Order acts as a co-founder and works directly with teams by leveraging and deploying our network of developers, researchers, and business development experts
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