From 2018 to 2021 I was member of MetaCartel Ventures, a Web 3.0 investment DAO. I saw the model work in real life. It continues to be a fantastic merge of digital governance (following the Moloch V2 primer) and real-world practicalities (investing effectively in Delaware-based LLCs). A bunch of smart people gathered together to find gems and analyze investments. I learned a lot. I’m sure the same is true for a lot of people out there attached to any number of burgeoning DAOs - the LAO, Flamingo, etc.
I left the Cartel because I reached a point where I preferred to call my own shots 100% and because I was trying to find a model where I could invest quickly into any startup around the world, without being confined to US corporate structures. Somewhere along the way, I toyed with the idea of raising a traditional VC or hedge fund. But, in 2022, the opportunity cost of doing so, just in terms of the time necessary to go and chase the LPs, looks prohibitive. So I’ve been trying to understand what is needed for a funding model that favors speed and flexibility over procedure. Here are some postulates that must hold:
It’s a hedge fund model, not a VC model. You must let investors come in and out in the fast-moving web 3.0 space.
You need two tiers of investors. MetaCartel calls them Mages and Goblins. The former must be involved in research and decision making, the latter can be passive but provide the capital. They latter are typically accredited investors.
We need an improvement to the decision making process. Current investment DAOs work practically on a consensus model. That’s the equivalent of an investment committee in a typical firm but my hunch is that 1) this is not scalable 2) often the best opportunities look counterintuitive - sometimes you can convince others of their worth and sometimes not.
There needs to be a freedom to invest anywhere in the world. The current playbook - asking companies to form a Delaware LLC, might not work for teams based in tricky jurisdictions. The legal assistance to teams invested in needs to be one of the added values of the fund.
There should be almost no investment thesis. This is a controversial one, but the Web 3.0 space is moving quickly and any thesis sold to the LPs today is a lie one year down the road. The investment team members should be aware of this from day one. You need smart, connected people, able to adapt; the thesis will find itself.
The philosophy should be to start small and build from there. Nothing wrong with a two-person team with a bit of capital unified around a Discord server as they analyze projects, pitch to one another, and expand the team from there.
Transparent tokenomics. Those not actively participating in the management of the fund need a way to invest in it, as above. This is best executed via tokenomics. That makes leaving, transfering of funds etc pretty easy to accomplish.
The benefits of a flexible structure like above are considerable. It doesn’t mean that Investment DAOs will all of a sudden replace traditional VC firms but I’m predicting their continued growth in the coming period, with more regional focus and narrower specialization. We need Europe-focused ones, for example, quickly.