Reimagining venture capitalism within Web3 — Part 2
In a world filled with an abundance of capital, there’s limited access to sourcing and accessing this capital. Not only that much of the operations to the way capital is distributed and ideas are funded is still largely centralized.
Last week, I published the first part of this article where I explored much of the Venture Capital interest/influx within the decentralized economy and how this influx exists as tension in terms of a conflict of values with Venture capital focus profit maximization and web3s focus on collective ownership. One question that popped up within that article, which many have asked that I explore was the concept of redesigning our approach to venture funding mechanisms in ways that would enable startups to receive funding from a global pool of investors and of course, create global access to funding.
I do hope this article does some just in providing answers to this question.
Let's dig in!
Some existing ways access to venture funding is being democratized and decentralized.
The concept of building a global pool of investors is not a new one. There are currently a couple of mechanisms within the venture capital system that promotes more democratic and decentralized access to funding for both investors and startups.
Let’s explore them.
Angel investing
Angel investing is a type of early-stage investing where wealthy individuals provide capital and support to startups who’ve passed the idea and MVP stage in exchange for equity in the company. In addition to providing funding, angel investors also offer their expertise, industry connections, and guidance to help the startup grow and succeed.
Compared to traditional funding sources like venture capital, angel investing is often more accessible to entrepreneurs who might not have access to traditional funding sources. Angel investors are often more willing to take on riskier investments than venture capitalists, and they can provide valuable mentorship and connections to their portfolio companies.
Angel list
One example of a venture capital firm that operates on a decentralized model is AngelList. AngelList is a platform that allows accredited investors to invest in startups and other early-stage companies. The platform has over 100,000 investors, and these investors can invest in various funds and syndicates managed by different venture capital firms and angel investors.
While AngelList itself is not a traditional venture capital firm, it provides a platform for investors to contribute to funds and syndicates managed by other firms, which could potentially have up to 1000 investors or more.
Crowdfunding platforms
Republic
Republic is a crowdfunding platform that aims to democratize investment opportunities by allowing anyone to invest in startups. Founded in 2016, Republic is based in New York City and is a registered funding portal with the US Securities and Exchange Commission (SEC).
One of the unique aspects of Republic is its focus on providing access to underrepresented founders. The platform actively seeks out and supports women, people of color, and other underrepresented groups in entrepreneurship. In fact, more than 30% of the startups on the platform are founded or co-founded by women, and more than 20% are founded or co-founded by people of color.
Overall, Republic offers an alternative funding model that is more inclusive and accessible than traditional venture capital. It allows investors to support innovative startups and gives underrepresented founders a chance to access funding that might not be available to them otherwise.
Decentralized venture funds
This is one venture funding mechanism that aligns with the Web3 ethos/values as it involves the use of blockchain technology to create a new type of investment vehicle. Many of the existing decentralized venture funds operate as decentralized autonomous organizations (DAOs), which are essentially decentralized investment funds that are governed by a group of stakeholders through smart contracts. These DAOs allow for more democratic decision-making and transparency, as well as the potential for more diverse investment opportunities.
MetaCartel Ventures
This is a decentralized venture capital fund that is focused on investing in early-stage blockchain projects. It has a decentralized funding pool that is supported by its community of investors.
The DAO is comprised of members who hold META tokens, which give them voting rights in the organization. Members can propose and vote on funding proposals for Ethereum-based projects and startups that are looking for support. The organization has a strong focus on community and collaboration, and it aims to provide resources and mentorship to help developers build successful projects. Projects looking to get funded submit their proposal on the DAOs governance forum.
In addition to funding projects, MetaCartel DAO also provides access to a network of advisors and experts who can provide guidance on technical and business issues. The DAO has a strong presence in the Ethereum community and has been involved in supporting a number of successful projects, including Gitcoin, Pocket Network, and Raid Guild.
Overall, MetaCartel DAO is an example of how DAOs can be used to support innovation and development in the blockchain space. It demonstrates the power of decentralized decision-making and the potential for DAOs to play a key role in shaping the future of the crypto ecosystem.
Another interesting venture capital fund with a focus on the Web3 space is The LAO.
The LAO (Limited Autonomous Organization)
The LAO is a decentralized autonomous organization that operates as a venture capital fund. It is made up of members who contribute funds to the pool, and decisions about which projects to invest in are made through a voting process.
It’s structured as a limited liability company (LLC) in the United States, which allows it to operate within the existing legal system. Members of the LAO are individuals or entities that hold LAO tokens, which represent ownership in the LLC. The LAO operates using a voting system that allows members to propose and vote on investment opportunities.
When a project is approved for investment by the LAO, members can contribute funds to the project using Ethereum or other cryptocurrencies. The LAO then holds a stake in the project and receives a percentage of any profits that are generated.
One of the key features of the LAO is its ability to provide legal protections for members. By operating as an LLC, the LAO allows members to pool their resources and invest in projects without exposing themselves to unlimited liability. The LAO also provides transparency and accountability through its voting system, which allows members to have a say in how the organization operates and what projects it invests in.
Other decentralized venture funds that currently exist are; MolochDAO, PolkaDAO, dYdX DAO.
Key takeaways
It’s exciting to find that there are some existing mechanisms already democratizing access to venture funding. But Web3 needs more decentralized funding mechanisms with more focus on funding a diverse range of ideas and founders, web3 needs its own Republic and Angelist with a more global investor pool.
