Can DAOs Be A Good Alternative to Crypto Venture Capital

Rich venture capitalists who took pride in their status as industry insiders would traditionally source deals, meet company founders, and write cheques. DAOs with a concentration on bitcoin investments are now playing these parts.

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DAO LLC is created on the blockchain that is decentralized and uncontrolled in the traditional sense. A native cryptocurrency token frequently manages them.

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DAOs are an unproven method for funding new digital enterprises since venture capital firms have completely controlled the sector of assisting entrepreneurs in crypto and other rapidly emerging technologies.

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Founders’ and Deals’ Access

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Here come “investment DAOs,” organizations of cryptocurrency enthusiasts who can invest their funds or designate a portion of the DAO’s treasury to finance startup crypto businesses.

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Initial payment in the form of the DAO’s governance token is frequently required to join an investment-focused DAO in exchange for access to locations where deals can be identified, and checks can be signed, such as invite-only Discord channels, Telegram groups, or physical gatherings.

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Consider the members of Global Coin Research (GCR). Together, they invested in over 30 acquisitions and more than $25 million in projects like the Coinvise Web 3 management platform and the Aurora blockchain interoperability protocol. 

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GCR estimates that its investments have produced average returns of more than 40 times for projects that become liquid or are marked to market as of December.

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Crypto has enabled tiny venture capital firms to thrive because the return on investment on blockchain ventures may be hundreds of percent.  

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Perhaps the most well-known syndicate is AngelList, which enables approved investors to participate in deals alongside prominent venture capital firms.

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Founders may benefit from their contacts with the DAO, including gaining advice and recommendations about their goods from a crypto-native community. Emergent crypto enterprises and their non-crypto equivalents still struggle with user acceptability and product-market fit.

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As the market capitalization of cryptocurrencies rose to almost $3 trillion, investor money zealously followed the industry’s astronomical returns, prompting the creation of multiple well-known investment DAOs in various flavors. 

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It is unclear, given the progress, whether DAOs would eventually replace or obstruct conventional venture finance.

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Other venture capitalists assert that the DAO venture model lags below traditional VCs regarding operational efficiency.

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While projects value DAOs for their members’ caliber and capacity to forge significant coalitions, according to Kyle Wang of Valhalla Capital, who also participates in certain investment DAOs, they still overwhelmingly prefer traditional funds to lead rounds.

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A hybrid approach, however, that blends the community-driven ethos of DAOs with the significant financial, and operational expertise of venture capitalists appears to be evolving as DAOs gain greater market share on startup cap tables.

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Conclusion 

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While it is still too early to say whether DAOs will replace crypto venture capital, there is certainly potential for this to happen. DAOs have several advantages over traditional venture capital, including lower costs, faster transactions, and more democratic decision-making. If DAOs can continue to deliver on these advantages, they could eventually become the preferred funding method for crypto startups. To learn more, you can also consult with DAO experts. 

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