The conventional venture capital market is monopolized by large institutions. DAO Ventures offers retail investors an equal opportunity to participate in potential projects.
DAO Ventures invests in startups and enjoys returns through DAO (community self-governed, proposal and vote) governance, eliminating the need for conventional venture capital. A top-down decision-making approach is used by conventional venture capital, where the decision-making process occurs at the top level and is then communicated to the rest of the team. DAO, on the other hand, emphasizes community participation and democratic solutions through on-chain governance.
Mark Cuban, a billionaire entrepreneur, called “DAO” the ultimate combination of capitalism and progressivism. One of the world’s oldest venture capital funds, Sequoia, is launching a DAO. A16Z, a venture capital firm, has a large fund allocated to DAO.
DAO (Decentralized Autonomous Organization) is expected to be the next “Big Wave”, the idea of ”DAO” has attracted the attention of investors. As Ceres DAO has been making headlines lately, people have started to understand how a DAO business works.
Before we jump into the Ventures DAO discussion, let’s understand how conventional VC works.
What is a conventional VC?
Venture capital (VC) is founded by a general partner (“GP”), who acts as the manager of a venture capital. GPs analyze potential transactions and make the final decision on how a fund’s capital will be allocated. General practitioners raise funds from wealthy investors, investment banks, pension funds or any other financial institution. These are known as Limited Partners (“LP”).
GP’s primary roles are to raise the fund and then effectively deploy fund capital with shareholder approval. GPs track investments and keep LPs informed of fund performance. As the fund’s portfolio grows, LPs benefit from the returns on their investment.
Conventional venture capital has been a successful investment model for 30 years. It reflects the growth of the World Wide Web, social media and Web 2.0 companies such as Facebook and Alphabet. However, venture capital has its own drawbacks. A Web 3.0 solution is essential for these limitations.
What is Ventures DAO?
A Ventures DAO is a community-governed group that seeks to invest the combined capital of the community. DAO Ventures differ from traditional investment vehicles because they are transparent in decision-making. Many DAO Ventures have formed recently with the aim of providing funding to start-ups X, Y or Z.
DAO Ventures enables a new method of fundraising, without the need for conventional venture capital approvals. Moreover, Ventures DAO can raise funds from several sources, regardless of their geographic limitation.
Ceres DAO is a decentralized digital asset management protocol powered by Web 3.0. Ceres DAO’s mission is to bring decentralization and transparency to asset management. Ceres DAO has a standardized Defi asset investment model to provide unmanaged and decentralized crypto asset management services, which help mitigate Defi risk. Investors can enjoy yield without exposure to volatility or the need for active management.
In 2021, Constitution DAO was formed as a one-time use DAO. They raised $42 million in seven days to bid on the original copy of the United States Constitution.
These two DAOs are great examples of why a Ventures DAO is considered a great innovation in the venture capital market.
Advantages of Ventures DAO
DAO represents the vision of Web3.0. Investors with similar visions pool together funds and form a DAO. Investors make investments based on their risk appetite and governance (voting rights) depends on their ownership of governance tokens.
DAO is an innovation compared to conventional venture capital. Ventures DAO allows early participation of individual investors in projects. Traditionally, hedge funds or venture capitalists have the opportunity to participate in seed/private fundraising. They are able to buy the tokens at a relatively low price and get rid of retail investors once the tokens are publicly traded. With a Ventures DAO, the disadvantages of retail investors can be neutralized.
1) Ventures DAO makes decisions collectively with the “wisdom of the crowds”.
A DAO ventures relies on the participation of diverse groups of people with varying expertise and from different backgrounds, providing a decision or solution collectively. DAO members who have technical knowledge can contribute to the technological side, such as the UI/UX design of the website. DAO members with strong design skills can create illustrations for marketing purposes. DAO members with community building experience can help new projects gain momentum.
2) Ventures DAO operates on-chain and completely transparently.
Instead of a top-down decision from a single leadership, DAO members must communicate effectively and make important decisions through on-chain voting. DAO Ventures uses a multi-signature wallet to protect cash. All transactions can be traced on the blockchain and several tools are available for effective DAO governance.
3) The participation of DAO Ventures is more flexible compared to conventional venture capital.
Under the protocol framework, all DAO members can freely withdraw their participation in a DAO while conventional venture capital requires a minimum commitment period.
DAO Ventures Challenges
Every risk is associated with an opportunity, and vice versa. Even though DAO Ventures have a better organizational structure than conventional venture capital, they are not without risk. Due to the lack of clear rules and regulations regarding DAO taxation and management, there are some gray areas waiting to be resolved.
DAO Ventures is a relatively new idea for the general public. DAOs have unlimited possibilities and the future of the capital market no longer relies on centralized entities, but on a decentralized community.
DAO Ventures with its unique features, offers a whole new paradigm in the world of venture capital. Ceres DAO as Ventures DAO breaks the monopoly of conventional venture capital, provides equality, transparency and maximizes returns on investment.