Are DAO funds the future of venture capital?

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Traditional venture capital firms are not well suited to support the next generation of startups. This is where DAO funds come in.

DAO Disruption

The venture capital world is small and exclusive. Even with the rise of angel investing, seed funding, and incubators, most fledgling startups struggle to secure the capital they need to grow their business.

The venture capital industry is dominated by large institutions and family offices. These players invest billions of dollars each year in venture capital firms to gain access to promising startups. But as we wrote previously, these venture capital firms are no longer well suited to support the next generation of startups.

What if there was another way? What if there was a new kind of venture capital fund that not only gave small investors the chance to get into the ground floor of the next Google or Facebook, but also allowed them to profit from their investment over time. time ?

That’s exactly what Decentralized Autonomous Organization (DAO) funds aim to do.

What is a DAO

A DAO is a type of fund that uses blockchain technology to create an automated investment system. These funds are managed by autonomous software that executes investments and returns based on the collective intelligence of its investors.

The DAO investment model has the potential to disrupt the $200 billion venture capital industry by democratizing investing. These funds use a distributed network of computers to manage assets. Network computers are owned and controlled by investors, just as a corporation is owned and controlled by shareholders. No one person or entity owns the computers on the network, so they can function as a single unit to make decisions.

Network computers are programmed to follow a set of rules. If, for example, a certain level of consensus is reached by the computers in the network, the assets held by the fund are transferred from one account to another. This is how assets are transferred between accounts, and this is what makes a DAO fund a much more efficient way to manage funds than a traditional venture capital fund.

DAO Fund Basics

As investment DAOs become more common, it’s important to understand what they are and how exactly they work. As decentralized, self-governing organizations, they offer a community-based approach to investing, allowing projects to obtain funding without ceding shares to a single large company. DAO investment funds eliminate fund sourcing hierarchies and, in short, allow more projects to have easier access to funding. Investors who are part of the DAOs form a “community”, which receives rewards while investing in a project in which they truly believe.

Over the past few years, we have seen more and more DAO investment funds popping up and making waves in the crypto world.

OrangeDAO is a collective specifically dedicated to supporting Web3 startups. Formed by a group of Y Combinator alumni (and allowing access only to other YC alumni), the fund’s goal is to create an investment structure that helps identify and finance new startups. In addition, OrangeDAO supports these startups beyond financing, by coaching their leadership and recruitment talents, helping to acquire customers, etc.

AJO offers a slightly different approach, seeking to bridge the gap between traditional legal agreements and the world of crypto. It provides its members with a legal structure that allows them to invest in blockchain projects and receive in exchange tokenized shares or utility tokens. Using a voting system, LAO chooses startups and projects that need funding, which come from members who have acquired an equity stake in LAO.

VC3 DAO, created by a network of Kauffman Fellows, seeks to build a venture capital investment model that follows Web3 principles and operates in a decentralized manner. This Web3 Investment DAO brings together an vetted group of venture capital professionals, and in exchange for their investment, members receive tokens for deal flow, expertise, portfolio support, and more.

The recent announcement of Andreessen Horowitz’s $4.5 billion fund to support crypto and blockchain companies gives us an idea of ​​the growing importance of these funds. Horowitz’s fund clearly shows us how Silicon Valley’s interest in crypto startups is growing and should continue to do so.

Last words

As the world of venture capital funding evolves, investors will look for new ways to invest in the next generation of technology companies. DAOs could be the next evolution of venture capital. These funds use blockchain technology to decentralize investments and open doors to a much larger pool of investors.

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