What is Investment DAO?
In real life, there are many forms of organization and investment activities for collective investment brought together by many people. As we have previously introduced in “A Brief Talk on Venture Capital”, individual investors have a variety of options to participate in venture capital, such as direct investment as an individual investor, or joining those organizations in the field of venture capital for collective investment, or through the purchase of financial products issued by venture capital organizations.
Compared to the traditional financial field, there are more investment communities active in the crypto space, either initiated by one or several individuals who are good at venture capital, or a group of like-minded people based on the concept of decentralized venture capital.
Investment DAO is a kind of typical Decentralized Autonomous Organization, a form of on-chain collaboration based on blockchain technology, which can help communities or institutions establish a more trusted and secure fund operation and management system (a system deployed on the chain), and it can also achieve a democratic investment operation mechanism. Compared to the Investment Community, Investment DAOs typically use blockchain technology to raise and escrow funds and empower different participants (investors, managers) through self-executing code programs (smart contracts). It is then used for automated investment decisions and investment management.
THREE Venture DAO Modes Designed in DAOSquare Incubator
A clear trend is that many investment communities or investment funds have begun to look at and embrace this emerging technology stack and direction. However, the real problem they face is that the Investment DAO has a higher threshold for initiation and participation, mainly due to the technical threshold. DAOSquare is a solution provider focused on this space, and we are working to make it easier for venture capital funds and investors in the traditional space to use this emerging tool and take advantage of its benefits.
In DAOSquare Incubator, we design three modes of Venture DAOs according to the common operation modes of investment organizations in the crypto field and templatize and modularize the establishment and operation of DAOs. This can greatly reduce the creation and operation threshold of Venture DAOs, and improve the efficiency of fundraising and investment. Based on these templates, each DAO can be flexibly customized to meet the operation requirements of different DAOs through parameter setting and change. In the DAOSquare Incubator,
- The DAO Summoner can deploy a lightly customized Venture DAO on the blockchain in minutes with several clicks.
- The Governors of each DAO can conduct DAO management and decision-making by quickly initiating proposal votes.
- Investors can browse multiple forms of relatively standardized Venture DAOs on one platform, and flexibly join different modes of Venture DAOs to participate in investment according to their own needs.
- The operation of Venture DAO is based on smart contracts, all activities are searchable and verifiable, and it is faster, safer, and more transparent than many off-chain investment organizations.
- For the organizers and managers of DAOs, this emerging application of technology could save them a lot of manual dirty work.
The Mode in the DAOSquare Incubator defines the operating framework of a Venture DAO in the DAOSquare Incubator, which determines how a DAO operates as well as the smart contract structure. Different modes of Venture DAOs have different smart contract structures, so once a DAO is deployed, its mode is unchangeable.
Currently, DAOSquare Incubator offers three Venture DAO modes for users to initiate and participate:
- Vintage
- Collective
- Flex
These three modes cover the relatively typical private collective investment management and operation mechanism. Let's take a deeper look in the next chapter.
Vintage DAO
Design Concept
The Venture DAO in Vintage mode, referred to as Vintage DAO, was originally designed with reference to the blind pool fund in GP+LP mode of traditional private funds, that is, fund managers and investors put their funds into a pool when the investment targets are uncertain. The fund manager shall carry out the investment act on behalf of the investors. In Vintage DAO, there are two types of roles, Governor and Investor, which are similar to the functions of GP and LP in traditional funds, and there is a fiduciary relationship.
Roles
Governor is a role similar to a fund manager, conducting the establishment of the fund, the sourcing & selection of investment targets, due diligence, and decision making. Members of the Investor role only acted as pure investors, injecting money into the Fund initiated by the Governor in the Vintage DAO and entrusting the Governor to make investments. The Investors do not directly interfere with the DAO's investment decisions.
The Governor's management of the DAO, as well as decisions and management of specific investment projects, will be accomplished by submitting proposals and voting on them. Investors have no voting rights in the Vintage DAO. The Governor(s) can ask for compensation and incentives by charging management fees and carries. For the Proposer of each investment proposal, the Governor can set rewards such as the % of investment amount or/and Payback Token.
Operation Process
After the successful deployment of a Vintage DAO, the Governor(s) can start a new fund, and investors who meet Investor Eligibility can deposit during the fundraising period. After the fundraising closes, if the raised funds reach the fundraising target, the fund will be formally established and enter into the investment period.
The Vintage DAO is free to set the mechanism and time range of all periods (fundraising, investment, redemption, refund) within a fund and run it automatically. At present, a Vintage DAO can only have one active fund at the same time (That means the fund operation in DAO is serial). When one fund concludes, DAO can quickly initiate the next one of the same or different fund.
The investors and share ratio of the investment project are locked at the beginning of each investment period. The executive is allowed to submit an investment proposal only if the amount of funds in the DAO is sufficient to complete the investment (restriction in smart contract).
Suitable Groups
Vintage DAO provides a framework that is similar to the operation of a traditional private equity fund. Suitable groups include but are not limited to:
- Traditional private equity funds that want to transition or practice in the Web3 space.
- Investment experts set up their own Venture DAO to leverage their investment expertise.
- Investment organizations that have investment pipelines but are short of funds.
- Investors who have the appropriate risk tolerance and idle funds wish to entrust professionals to invest on their behalf.
Collective DAO
Design Concept
The Collective model of Venture DAO, referred to as Collective DAO, was originally designed with reference to the investment clubs in the USA and UK. That is, many people put money in a pool, and all members have investment decision-making and governance rights, and no one is the investment adviser of others or any fiduciary relationship.
Roles
In the Collective DAO, everyone has the same scope of rights and obligations, and all members are the Governor and Investors at the same time. All Members have the right to participate in the operation and maintenance of the DAO as well as specific investment decisions.
DAO members' management and specific investments in the DAO will be completed by submitting proposals and voting on them. Everyone has the right to vote. Since there is no trustee and each person is responsible for their own decisions, the Collective DAO has no management fees and Carry settings but all members will share expenses incurred during the DAO operation and investment process via the Expense proposal. For the Proposer of the investment project, the DAO can set rewards such as the % of investment amount or/and Payback Token.
Operation Process
Although it is a blind pool just like the fund in Vintage DAO, Collective does not have a fixed fund cycle. When a Collective DAO is successfully deployed, there will be fund changes arising from fundraising, investment, and redemption activities, as well as members in and out. However, Collective DAO does not fix periods for various activities in advance, but can flexibly adjust funds and personnel through proposals at any time.
Although each DAO member has the right to vote, ultimately individuals are subject to the group decision (voting). To give each member more options, before the execution of the investment proposal, the Collective DAO has a Grace Period for members who are not satisfied with the collective decision to redeem their money from the pool.
The Investors and investment shares are locked at the time of proposal submission. Investment proposals can only be submitted if the amount of funds in the DAO is sufficient to complete the investment (restriction in smart contract).
Suitable Groups
The Collective DAO is suitable for group investors who want to make investments and decisions together. Suitable groups include but are not limited to:
- Traditional (off-chain) Investment Club that wants to transition or practice in the Web3 space.
- A group of like-minded investors looking to make joint investment decisions through an on-chain investment DAO. DAO members agree with each other's investment philosophy and investment capabilities and are willing to accept the collective judgment results.
Flex DAO
Design Concept
The Flex mode Venture DAO, or Flex DAO for short, is a very flexible Venture DAO operating way where funds are raised and invested on a project-specific basis. Flex DAO is originally designed to reference the deal by deal Syndicate in traditional private equity.
The Flex DAO was named Flex to emphasize the flexibility of individual will. Investors do not need to put money into a pool to invest in multiple unknown targets in the future, instead, potential investors see the specific investment proposals, decide whether to participate in an investment project, and then deposit. If a project raised amount has reached the minimum investment target, the investment proposal will be implemented.
Roles
Flex DAO also has two roles, Governor and Investor, but the scope of work is different from Vintage and Collective. In Flex DAO, the Governor role is not responsible for specific investment work but only acts as the organizer of the DAO to maintain DAO contracts, such as mechanism modifications, contract upgrades, Governor member management, and so on. The Investor in the Flex DAO refers to the investors of specific investment projects, and the investor for each project is often different.
Although the Governor(s) are not responsible for investment decisions, they can also set Management Fees and Carry for operational compensation as an organizer. For the Proposer of each investment project source, the DAO can set rewards such as the % of investment amount or/and Payback Token.
Operation Process
The Flex DAO will raise and invest funds for a single specific project as an investment unit, so the DAO will not create a blind pool Fund. The investment proposal is submitted by a Proposer who is qualified to propose, and the deposit is made by potential investors who meet Investor Eligibility based on their judgment. If there are a large number of investment proposals and preliminary screening is required, the DAO can choose to set up a Poll Voting process for the investment proposal, and only after the vote is passed, the proposal will be activated and enter the fundraising process. When the amount of deposit reaches the minimum required amount for this project, the investment will be executed.
When a Flex DAO is successfully deployed, a project investment proposal can be initiated at any time, and multiple investment proposals can be made simultaneously. The final investors and allocation of investment shares may vary for each investment proposal. The investment proposal may fail and the deposit may be refunded if the funds raised do not meet the minimum investment goal.
Suitable Groups
The Flex mode of Venture DAO provides more flexible, light VC modes suitable for people including, but not limited to:
- Investment communities or organizations that currently conduct similar investment behavior off-chain move to on-chain.
- Investors who are not willing to deposit in advance when investment targets are not clear and want to have the right to choose the project.
- Institutions or individuals that have enough capital but lack investment opportunities.
- Institutions or individuals who have investment opportunities but lack capital.
Which mode of Venture DAO is best for you?
