DAO - an alternative to venture capital

DAO – an alternative to venture capital

By bit.team

Perhaps now the DAO seems to be something out of the ordinary, but in a practical sense, they open a lot of new doors for ordinary people.

Imagine that you are starting a project and you need a little extra capital to get started. Or you are going to expand and need additional capital. Therefore, you turn to a venture company to get this capital, but in return, it may threaten you with losing your business. And it is clear that you do not want to give up your shares and lose control. If only there was another way.

And there is such way.

Decentralized autonomous investment organizations are a modern ticket to capital, which eliminates the hierarchy of finding funds for your project and allows you to quickly and easily create an investment mechanism for any idea. Let’s take a closer look at how they change the status quo for future projects.

Traditional venture capital

Like all over the world, there are big businesses and small ones that are trying to break through with their ideas and need funding. The little one goes to the big one and asks her for some money. If big business likes the idea, it agrees. In return, the small one gives away part of the shares, and then control, and the big business becomes a little bigger.

Such dependence on several centralized structures means that we still have a couple of insanely powerful individuals at the very top who can solve all issues and act as guardians in the pool of ideas. The company must like the idea of the project in order to offer financing, and it costs us all a lot. For aspiring entrepreneurs, this means that good ideas are wasted due to a lack of business support: for the business ecosystem and the end user, this means a lack of diversity in what is available.

There is another problem – when most of the new enterprises rely on the capital of a faceless firm, not everyone gets a fair reward for their contribution. The people generating ideas and maintaining the momentum of the project should share the benefits of their efforts just to get started.

Sounds ridiculous, doesn’t it?

The democratization of capital is not a new idea: the growth of crowdfunding platforms is an example of how you can attract money from a large group of people to achieve a goal. But the crowdfunding participants do not maintain a permanent relationship with the project they support, since there simply was no infrastructure for this. Still.

This is where investment DAOs change the situation.

The future of financing

Blockchain has made two big steps forward for the human organization: in the most basic sense, it has made possible the autonomous transfer of value, and the development of smart contracts has allowed the creation of rules and relationships governing this transfer. So the DAO was born.

At its core, the DAO is a community formed around a central idea in which, according to each member of the community, it is worth investing. The money combined in the DAO allows you to track the contribution of each person and provides proportional management rights.

According to the description of the projects, on Coinmarketrate.com Thanks to their ability to attract capital to achieve the main goal and a ready-made management structure for the use of this capital, DAOs are quickly gaining a reputation as a very effective alternative to venture capital firms. It is not surprising that many different investment DAOs have appeared in order to finance the concept of X, Y or Z.

Investment DAOs are a means of democratized investment, allowing you to raise capital for an emerging idea without relying on the approval of large venture capital companies. Moreover, they make it possible to implement a much greater variety of ideas by decentralizing the source of funding.

Krause House DAO is “a community of hockey fanatics crazy enough to buy an NBA team.” It is an organization run by DOA members, consisting of basketball fans who strive to raise enough money to buy an NBA team. This takes fan engagement to a new level, and also shows how DAOs overcome investment barriers and allow people to participate in what they are passionate about, rather than limiting things like owning an NBA team, billionaires, and corporations.

Meanwhile, ConstitutionDAO was launched in 2021 and was an experiment to raise funds to put up for auction an original copy of the Constitution of the United States, which was auctioned at Sotheby’s. The DAO raised enough funds to make a confirmed bid at the auction (about $47 million).

Both of these examples are excellent examples of projects that were able to bypass the central financial tycoons to promote their idea.

Barriers to use

Sounds great! So how exactly do you create a DAO? Do you know how to manage on-chain transactions, smart contracts, compliance, and legal aspects?

If your heart skipped a bit, don’t worry, you’re not alone.

With Web2 platforms, creating the structure needed for a DAO can often be difficult and time-consuming, which alienates groups and individuals who could potentially benefit from this model. In addition, most DAOs use Discord and a fragmented set of tools for their activities. This entails a number of difficult obstacles. With tools like Collab.Land for community management and the Snapshot voting system, there are problems such as security and the possibility of fraud.

This is where Syndicate DAO comes to the rescue.

“Syndicate is revolutionizing investing by changing the way communities and capital interact with affordable, effortless, and social web3 technologies.”

This is the Syndicate keyword, and we like how it reflects the key points of the investment DAO: they are accessible, effortless, and put communities at the center of projects.

Syndicate is focused on making the seemingly complex process of creating a blockchain-based organization simple. The platform provides ready-made investment DAO templates that anyone can use to create investment clubs. In fact, these are DAOs that can be created in a few minutes using the Ethereum wallet as a basis. It’s an easy-to-use system with a neat UX design, but it has amazing functionality that allows you to create quite powerful DAOs. Your wallet becomes a DAO that holds everything: deposits, community management, signing legal documents. All together, without the difficulties associated with its creation.

Syndicate DAO allows investors to easily pool money and invest it in a project, and you can easily manage both the chain and off-chain processes of your new DAO.

On the legal side, the platform has recently received support from Doola, a company that helps web2 and web3 entrepreneurs easily create an LLC, C Corp or DAO LLC in the USA. This makes it easier for the DAO to create the necessary legal documentation for the business.

In the long run, Syndicate also aims to become a community hub, allowing new members to easily find and join the DAOs they support, and the DAOs themselves to gain access to people who support their core idea.

In fact, Syndicate decentralizes the ecosystem that decides the fate of your business idea, removing barriers that prevent most ideas from being realized, and allowing you to freely and democratically attract capital from an expanding audience.

What do the participants get in return?

Investment DAOs have a number of advantages – for investors, for projects and for the business ecosystem as a whole.

  • For the business ecosystem as a whole

Diversity is not only a spice to life: it adds something to the business ecosystem. The opportunity for diversity in innovation is good for business, and by avoiding big bosses, DAOs contribute to this. It’s not necessarily just about creating competitive products. It’s about enabling a person with an incredible, maybe wild, maybe bizarre idea to launch their project and see where it can branch out. The success of innovation leads to new innovations, and opening doors to new ideas leads to the improvement and diversity of industries.

  • The Future of small business

DAOs open doors without relying on the approval of large corporations, allowing people who see the potential and value of the project to support it, and benefit from both profit and the diversity of the ecosystem.

Investment DAOs are still quite new to the world, and there is still a lot to debug, but their capabilities are incredibly exciting. Decentralized capital means that great ideas no longer depend on the rich, but can be selected by the community itself. And thanks to DAOs like Syndicate, which eliminate the frightening details of the process, more people than ever can actively shape the options for the future.

  • For projects

If a person has a big, interesting, whimsical idea, and he is looking for financing, the DAO opens the door without relying on the approval of large corporations passing through the red ribbon. This gives a double benefit: this means wider access to various projects and a fairer remuneration system for all participants. When investing, any participant who helps finance the project actively participates in its success and receives a proportional reward.

  • For investors

In traditional finance, to become an investor, you need to be a big “fish”. Money makes more money. But with the DAO, ordinary people get access to the world of promising ideas, they can be involved in the process, help finance and participate in the success of the project, receiving a reward in return.

DAOs eliminate the need for venture capital by allowing community members – people who see the potential and value of the project – to provide the project with liquidity and receive a proportionate share of profits.

This means that less control is given to corporate heavyweights and more power is offered to the community, which sees the value of the project not only in dollars.