While DAOs cannot replace traditional VCs however, they could alter the cryptocurrency industry.
What is a DAO?
A DAO also known as a an autonomous decentralized organization is an online organisation that operates without a single leader or the governing entity. DAOs are managed by software written on a cryptocurrency like Ethereum ( ETH) and are controlled and managed by the users who utilize their services.
There are numerous types of DAOs however they all share one feature in common They are decentralized, which means that the decisions regarding the future of the company are made by the group of people not by a single person.
This decentralization makes DAOs appealing, because they theoretically eliminates the risk that fraud or manipulation through one entity. The smart contracts (and not individuals) implement the rules and regulations of an organisation and are extremely effective and able to adapt to changes
What is a DAO? function?
An DAO is set of smart contracts which reside in the Ethereum blockchain. These contracts work with each other in order to create the entity. They are designed so that anyone around the globe is able to use them.
The code of DAO’s code DAO is open to the public and anyone can read it to learn more about the way it functions. This transparency is among the most important features of DAOs. DAO. In comparison to traditional companies DAOs are a lot more efficient as there isn’t any need for middlemen or central authorities.
Another important characteristic of one of the most important characteristics of a DAO is the fact that they are autonomous, which means that it is able to operate without the intervention of humans. This is possible thanks to smart contracts that will automatically complete tasks in accordance to programmed rules.
DAOs can be self-governing, self-sustainable and autonomous. That means they are able to continue to exist and work even when the initial creators have ceased to be involved. This is one of the advantages of smart contracts. They guarantee that the DAO remains true to its initial rules, even if the individuals who run it change.
The most popular DAO platforms and tokens are Uniswap ( UNI), Aave ( AAVE), Compound ( COMP), Maker ( MKR) and Curve DAO.
Methods to raise funds from VCs after the incorporation of DAOs into DAO
On a white sheet, write your thoughts.
Once you have incorporated your DAO, you’ll have to write the details on a white paper. White papers are a vital document that will explain the DAO’s purpose and what it does, as well as how it functions. It must be simple, concise and easy to read.
The white paper you write is used to convince investors to invest in your DAO and it’s crucial to make sure it’s written well and convincing. To get you going with the writing of your DAO’s whitepaper, go through our thorough guide here..
Create a pitch deck
Alongside white paper, you’ll also have to design pitch deck. The pitch deck can be described as a brief presentation that gives a summary about your DAO and the purpose for which it was created.
The pitch deck you choose to use should be well-organized, appealing visually and easy to read. It should also contain information about your team’s activities as well as your current progress as well as your plans for the future.
Create an online website
The next step in obtaining funds towards your DAO’s needs is to design your own website. Your website must be informative and professional. It should contain your white paper, as well as any other pertinent information regarding your DAO.
The website should also include an avenue for prospective investors to connect with your. It could be via an online form or email address, or even a Facebook profile.
Reach out to VCs
After you’ve created a white paper pitch deck, website and pitch deck then you can begin making contact with venture capitalists or VCs. When making contact with VCs it is important to be clear about your goals and what you’re trying to find.
Certain VCs might consider investing in the DAO If they believe in the mission of your DAO. Others might be more attracted by the financial benefits from investing in the DAO could provide them with.
Related to: Venture capital financing: A guide for beginners to VC financing in the crypto industry
It’s important to keep in mind that VCs are very busy. They are flooded with pitches every week, which is why you must ensure that your pitch is noticed.
Set terms for negotiations
If you find an VC willing to invest in your DAO You will have to negotiate the conditions for the deal. This will include the amount which the VC will invest, as well as their equity stake that they receive in exchange.
It is important to keep in mind that you’re in a position of strength when you negotiate with VCs. They are, after all, the ones that are most keen to invest into your DAO. Therefore, you must look for terms that will benefit yourself and to your group. This means obtaining a substantial equity stake as well as a good value to your DAO.
Finish the deal
The closing of the deal is a critical stage in raising funds to fund your DAO. After you’ve negotiated the conditions of the investment you must close the deal. It involves signing an agreement with the VC as well as receiving the agreed-upon amount. It’s recommended to consult with a lawyer about the contract prior to signing it.
Make use of the money
After you’ve closed the transaction and received your money, you’ll have to spend the money in a responsible manner. It is important to spend it in a manner which will assist your DAO succeed in achieving its goals. The possibilities you can use to spend the money include hiring employees as well as advertising your DAO and the development of new features.
It is also crucial to keep in mind that you’ll have to submit a report to VCs on how you’re making use of the funds. This is why you must ensure that your expenditures and progress is well-documented.
Make sure you pay back the VCs
In the end, you’ll need to repay the VCs. It could be done by selling your business or through the initial public offering (IPO) or some other exit method. The repayment of VCs is a crucial phase in the lifecycle of the DAO. It’s also a great way to show them that you are dedicated to your company and believe in the future of your company.
Related: What is an IPO? A guide for beginners on the ways that crypto companies are able to go public.
Do DAOs take over VCs?
Are DAOs an effective alternative to venture capitalists? The answer is it is dependent on. Venture capitalists generally invest in early-stage businesses and aid in their growth by offering capital, mentorship , and connections.
DAOs are able to provide the same services, however they’re not the best choice to invest in startups. This is due to the fact that DAOs don’t have centralization and are unable to take quick and decisive actions.
VCs however are centralized and can take quick decisions that can assist early-stage companies to grow. Therefore, even though DAOs may offer certain of the same features as VCs but they’re not a ideal substitute. A VC is probably the better option if you’re searching for an organization that can invest in startups in the early stages.
A hybrid of DAOs along with traditional VCs
DAOs are a fresh and exciting method of organizing resources and people. Although they’re not able to replace the traditional VCs but they could change the way that the market operates.
It is likely that we will see a time in which DAOs along with traditional VCs collaborate to aid the growth of young-stage businesses. For instance the DAO could offer funds and capital while an VC offers mentorship and connections.
This kind of hybrid model could enable early-stage companies to enjoy the most beneficial of both The funds and resources they require to expand, as well as the connections and mentorship they require to be successful.
There are already VC DAOs, which proves that a similar model is feasible. One such example could be The LAO, a venture capital DAO. It is focused on early-stage blockchain projects based upon Ethereum ( ETH) and has funded more than 30 projects to date. The way it works is that governance remains an aspect of blockchain technology while the outside service providers is responsible for the administration of legal and administrative processes.
Another example to consider could be MetaCartel Ventures, a private DAO that is an offshoot from MetaCartel, the Ethereum grants fund for the ecosystem, MetaCartel. MetaCartel’s VC DAO arm is managed by an advisory board made up composed of “mages,” who conduct activities like presenting investment propositions in due diligence, and voting on proposed projects. They mostly fund the early stages of decentralized applications and protocols currently.