Will investing in DAO replace VC?

Source: Empower Labs

Investing in DAO has a strong compliance structure.

There is no GP in investing in DAO. Successful investment in DAO is essentially a successful member network.

Investing in DAO will not replace VC, but it will become an important force in the market and lead the market from time to time.

A few days ago, I was a guest on Web3 101 and talked about how my friends and I invested in AI by organizing a DAO.After the podcast was released, many friends were interested in asking questions, and a considerable proportion of them were focused on the details of investing in DAO, so I would like to write an article and share it.

Before starting the introduction, I would like to emphasize it.There are many models for investing in DAO. I will introduce a more mainstream one, but it cannot cover the entire market.

If we look at the most influential investments in the market, such as The LAO, MetaCartel, Flamingo, we will find that they adopt a similar model.

• Semi-closed structure, no external fundraising.

• There are registered entities, some have bank accounts.

• Strong compliance.

• The maximum membership is 99.

• There is no GP, no management fees, and no Carry.

• DAO members need to invest funds and be certified by KYC and Accredited Investor.

• Without issuing assets, the DAO’s rights and interests correspond to each specific member through a set of legal structures.

The reason why mainstream investment DAOs generally adopt similar models is that investment behavior involves asset holding, asset appreciation and dividends.There is no room for evading supervision.Compliance is crucial to protecting the safety of members and the safety of investments.

Strong compliance naturally means high thresholds, so it discourages most people in the market who want to participate.But this is not a problem in investing in DAOs.This involves more important elements in investing in DAO than technical compliance –The composition of the member network.

A successful investment in DAO is not about the number of people, but about whether it can build a high-quality member network.The compliance structure requires that the investment DAO members cannot exceed 99. In fact, no investment DAO has used up this upper limit. Even the most lively investment DAO is about 60 people, and more are 20-40 people.

Investing in DAO isThere is no GP investment institution, so the GP work will be undertaken by each member..Can such a grass-roots team who uses their spare time get enough Deal Source, can make efficient and reasonable decisions, will the founder be willing to ask for money from such an institution, how to help the portfolio after investment, and how to design the exit strategy?And execution, each of these is a test for members.

soIt is not enough to just pay money. Most members need to have great enthusiasm for the areas they invest in and be able to make continuous and effective contributions.Contribution can be to share deal source, to capture opportunities in the open market in a timely manner, to have rich investment experience to judge projects, or to have specific capabilities in specific fields that can complement everyone.Generally speaking, it is best to have a certain proportion of members who are good at outputting to form a larger volume.Leading institutions like A16z are very good at content output and benefit from it, and the same is true for investing in DAO.

Taking this AI-themed investment DAO as an example, this idea was October 22, and the official launch was February 23.During these four months, in addition to preparing suitable structures, most of the time is to curate people, that is, to pick people.The invitations of each member were discussed and communicated in depth.Currently, there are about 30 members, including founders of AI projects, game studios, and several other technology fields, as well as producers who have won Emmy Awards, AI scientists and legal experts from major manufacturers, and invest in the DAO field.Old cannon, and even traditional investors who have invested in almost all outer space projects.Of course, the people who are most familiar with DAO are the people in the crypto circle, so the highest proportion are investors from various crypto funds, accounting for almost half.Regionally, we have the largest number of people in the San Francisco Bay Area, the base camp for this round of AI innovation, and are also distributed in the eastern United States, Europe and Asia.This diversified background is the key to being able to access a large number of high-quality deals in the early stages.

Of course, choosing people is a two-way choice. If you choose others, they will choose you too.There are also friends we really hope to get in, but after communicating, they did not join in the end, which is normal.

Many investments in DAO have begun to achieve results. A common problem is,Will investing in DAO replace VC?My answer is clear, no.

The positioning and operation methods of the two are hugely different. Whether from the perspective of market positioning or from the perspective of capital magnitude, there is no possibility of investing in DAO to replace VC.But this does not mean that I am pessimistic about the prospects of investing in DAO.On the contrary, I think as investment in DAO gradually achieves good results and as the penetration rate of this concept becomes higher and higher, investment in DAOs in various sub-sectors will emerge in large quantities.

Now we can see investment in DAOs focusing on different directions such as zero-knowledge proof, DeSci, Generative Art, DeFi, Web3 games, etc., mainly focusing on the field of encryption.But investing in DAO is not necessarily limited to encryption. Our AI-themed investment in DAO has broken through the crypto market and entered a broader field of AI investment. We can not only invest in projects, but also the quality of the projects we invest in is online, thereby verifying thatThis model can also gain a strong foothold in the traditional investment market.

In the future, DAO investment will gradually step out of the crypto circle and enter a broader investment world.In another year or two, we may see investment DAOs focusing on different topics such as life sciences, quantum technology, robots, film and television.Investing in DAO will gradually become a force in the investment market, coexisting with VCs for a long time.

The advantages of investing in DAO are theme focus, collective wisdom and collective strength.A small group that is diversified enough and has a good insight can make forward-looking judgments in many fields through long-term internal wisdom collisions and lead the market through collective voice.