Venture Capital vs. Decentralization: How Venture Capital Should Evolve for Adoption

This year alone, we witnessed a genuine spike in the adoption of crypto-based systems across different industries. These kinds of systems include decentralized applications (DApp), decentralized finance (DeFi), non-fungible tokens (NFTs), which include digital arts, and crypto-based gaming. Likewise, we saw that cryptocurrencies become investment tools and consumers use them as a payment option.

Another significant development is the evolution of decentralized autonomous organizations (DAOs). DAOs in 2016 came with the employment of The DAO organization as an innovative form of investment medium, which attracted enough size of Ethereum (ETH) tokens. During that time, they raised over $150 million.

Meanwhile, many individuals believed that it was the peak of human coordination, and the organization lost about $50 million to hackers during a reentry.

Regardless of this setback, DAOs received another open hug from the crypto community in the past months. However, setting up a DAO and engaging those communities became easy through the primary enablement of the whole system via advanced frameworks and tools.

The early experiments conducted with DAOs paved an innovative way for decentralized organizations. Such experiments are Dxdao and MolochDAO. Due to this development, we have DAOs with varying shapes and sizes serving different purposes based on specific requirements. Mainly, this involves the collective purchase of NFTs and community contribution via social services.

Beyond the scope of transactional purposes, DAOs can transform the operations of venture capital (VC) funds. This will change their approach to how venture funds would be invested in projects, engagements, and value propositions. At the same time, they might become investment vessels themselves as a result of DAOs’ disruption.

Ultimately, Web 3.0 will change the face of investments. This will transform access to opportunities and make it easy for individuals to participate in investment opportunities anonymously without being restricted based on net worth capacity.

Venture Capital Investment in Web 3.0

Today, the venture capital ecosystem has shifted from seeing abnormalities in investing in blockchain and crypto-related projects to becoming the new norm. But there are different variations in this kind of investment. It varies from establishing crypto funds to traditional (or institutional) funds leveraging the potential of blockchain. Above all, there is a different approach in the venture capital ecosystem.

The typical approach in this regard is the adoption of crypto-related public sales for a project. Examples of these public sales are initial coin offerings (ICOs) and initial exchange offerings (IEOs). This system allows investors to participate in a democratic form of investment that enables participants to engage in the investment scheme with no boundaries or coordination.

An example of Web 3.0 projects significantly monitored by a DAO running via community support is SushiSwap fundraising. In this kind of DAO, a community vote determines the investment decision to make.

As opposed to the traditional settings of engaging investment deals, venture capitalists won’t be making investment decisions without stakeholders. Thus, Web 3.0 will force them to be more public about their deals to secure a spot in the circle. Like, you can conduct a small private fundraiser before the public token sales of your project.

But the NFT space is extending more opportunities to retail investors. This gives retail investors an edge over the VC funds because NFT is sold publicly in an instance, which removes the option for private presales to happen.

VC’s Value Proposition to Web 3.0 Projects

Taking a critical look at the range of opportunities VC extends to startups, you would agree that they can range from legal advisory to marketing, mentoring, and recruiting. They do all of these since they’ve shown interest in ensuring the success of startups they support. As such, they see it as a way to participate actively in the success pursuit.

Meanwhile, a fundamental shift will happen to the context of “smart money” for project funding. Often, DAOs lack that central entity that will possess those additional services. Instead, the VC funds will achieve this via community engagement. This can go on with advocating in the community or being directly involved in the governance of the community.

Likewise, they can involve in lobbying with the stakeholders outside of Web 3.0 because it will be a challenge for organizations without any legal personality. Andreessen Horowitz’s active participation in their portfolio projects is a significant example of a VC fund that proposes such value to their portfolio projects’ governance.

Investment Decentralized Autonomous Organizations (DAOs)

Since the inception of venture capital funding over six decades ago, the rich has been using it as a medium to fund projects they are convinced of their successes. But there is a paradigm shift happening in that space due to DAOs. DAOs are becoming the definition for the next generation’s VC funding. Meanwhile, these venture capital funds are now evolving into DAOs.

Aside from participating and investing in DAOs, they are now attempting to give authority to early-phase investors for emerging assets. An example of a VC fund doing this is Stacker Ventures. And another is BitDAO protocol and its collaboration with other top protocols to create a future of finance that integrates DAAs, DeFi, gaming, and NFTs.

Venture Capital is a social tool used by the rich to employ resources at their disposal to drive a project to succeed. But Web 3.0 will present innovative means of doing this in this space and leverage resources beyond the rigid systems existing in the VC ecosystem.

Venture Capital and Identity Crisis

With Web 3.0, venture capital funding will take a new form, and it can’t remain the same. They have to embrace innovation and propose their values while distinguishing themselves from community-dependent investment DAOs.

Adopting DAOs will make traditional VC funds create investment activities with more accessibility, community support, and transparency. As such, venture capital should evolve with Web 3.0 if truly it wants to be relevant in the new decentralized virtual era.


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