Why Venture DAO?

In real life, collective investments come in various organizational and investment forms. As previously discussed in our “Brief Talk on Venture Capital Series,” individual investors have numerous options for engaging in venture capital. These include investing directly as individual investors, joining venture capital organizations for collective investment, or purchasing financial products issued by these organizations. Unlike traditional finance, the crypto space hosts a vibrant investment community, ranging from groups initiated by venture capital enthusiasts to communities united by the principles of decentralized venture capital. Venture DAO (Decentralized Autonomous Organization or DAO) embodies this shift, utilizing blockchain technology to establish trustworthy and secure fund management systems. It democratizes investment operations, leveraging smart contracts to automate investment decisions and management, marking a significant evolution from traditional investment communities.

Why Design DAO Modes?

A noticeable trend is that many investment communities and funds are starting to pay attention to and embrace this emerging tech stack and its developmental direction. However, they are confronted with a real issue: the higher barriers to initiating and participating in Investment DAOs, primarily due to technological constraints. DAOSquare stands out as a solution provider in this domain, committed to making it easier for traditional venture capital funds and investors to utilize these cutting-edge tools and leverage their advantages.

Within the DAOSquare Incubator, we’ve engineered three types of Venture DAO models based on the common operational modes observed in the crypto investment sphere, streamlining and modularizing the establishment and operational procedures of DAOs. This significantly lowers the hurdles for creating and operating Venture DAOs, enhancing fundraising and investment efficiency. On this templated foundation, the customization of each DAO is facilitated through the setting and modification of parameters, allowing for the flexible tailoring to meet the operational needs of various DAOs.

In the DAOSquare Incubator,

• The DAO’s Summoner (creator) can deploy a lightly customized Venture DAO on the blockchain in just a few minutes with a few clicks.
• Each DAO’s Governor (manager) can swiftly manage and make decisions for the DAO through proposal voting.
• Investors can browse through multiple standardized forms of Venture DAOs on a single platform, joining different models as per their investment requirements flexibly.
• Venture DAO operations, based on smart contracts, are traceable and verifiable, making them quicker, safer, and more transparent compared to off-chain investment organizations.
• For DAO organizers and managers, this novel technological application significantly cuts down on manual, tedious work.

The Mode in the DAOSquare Incubator defines the operational framework for a Venture DAO within it, determining how the DAO operates and its smart contract structure. Given the variation in smart contract structures among different Venture DAO models, once deployed, a DAO’s model is immutable.

Currently, the DAOSquare Incubator offers three Venture DAO models for users to create or participate in:

• Vintage
• Collective
• Flex

These models encapsulate the typical mechanisms of private collective investment management and operation prevalent today. Let’s delve into the three Venture DAO models currently available in the DAOSquare Incubator.

Vintage DAO

Design Philosophy

The Vintage DAO model, inspired by the traditional private equity GP+LP structure of blind pool funds, encapsulates the essence of collective investment under uncertainty. In a Vintage DAO, funds are pooled by investors and managed by fund managers (Governors) on their behalf, reflecting the GP and LP roles in conventional funds, establishing a fiduciary relationship between them.

Roles

• Governor: This role is akin to that of a fund manager, responsible for establishing the fund, selecting investment targets, and conducting due diligence on them before making investment decisions. Governors manage the DAO and its specific investment projects through proposals and voting, without direct intervention from the Investors in the decision-making process.
• Investor: Participants in this role act solely as financiers, contributing capital to the fund initiated by Governors within the Vintage DAO. They entrust the Governors with investment authority, devoid of voting rights on investment decisions within the DAO.

Governors are compensated and incentivized through management fees and carried interest. They can also offer rewards to the proposers of investment projects, either in the form of investment amounts or Payback Tokens.

Operational Process

Upon successful deployment, a Vintage DAO allows Governors to initiate a new fund. During the fundraising phase, eligible Investors can deposit funds. If the fundraising goal is met, the fund officially commences, moving into the investment phase.

A Vintage DAO autonomously manages all phases of a fund’s lifecycle (fundraising, investment, redemption, refund) with predefined mechanisms and timelines. Only one active fund can exist at a time within a DAO, but subsequent funds can be launched quickly after the conclusion of the previous one.

Investment proportions and investor shares are locked at the start of each investment phase. Investment proposals can only be submitted if the DAO has sufficient funds to execute the investment, as restricted by the contract.

Target Audience

Vintage DAO replicates a traditional private equity fund structure within the Web3 domain, catering to:

• Traditional private equity funds transitioning or experimenting within Web3.
• Individuals with professional investment skills looking to leverage their expertise by establishing their own Venture DAO.
• Investment organizations with a pipeline of projects but lacking necessary funds.
• Investors with risk tolerance and idle capital wishing to entrust their investments to professionals.

Collective DAO

Design Philosophy

The Collective DAO model is inspired by investment clubs, particularly those in Anglo-American contexts. It embodies a framework where multiple individuals pool funds together, with every member having equal investment decision-making and governance rights. This model eliminates the traditional advisor-client relationship, ensuring no single individual acts as an investment advisor for others.

Roles

In a Collective DAO, all members have equal rights and obligations, functioning as both Governors and Investors. This structure allows every member to participate in the operational maintenance of the DAO and in making investment decisions. Management and investment decisions are made through proposal submissions and voting, with all members having the right to vote. Without trustees, each member is accountable for their decisions. Although there are no management fees or carried interest, expenses incurred during the operation and investment processes can be shared through expense proposals. Rewards for investment project proposers (Proposers) can be set in the form of investment amounts or Payback Tokens.

Operational Process

Similar to the Vintage model in terms of pooling funds, the Collective model does not have a fixed fund cycle. Once deployed, a Collective DAO allows for fundraising, investing, redemption, and membership changes without predefined periods, adapting flexibly to proposals for financial and personnel adjustments. Despite each member having voting rights, individual preferences must align with collective decisions. To preserve individual autonomy, a grace period can be set before implementing investment proposals, allowing dissenting members to exit and redeem their funds. Investment proportions are locked at the proposal stage, with proposals subject to the DAO’s fund availability (contractual restriction).

Target Audience

The Collective DAO model is suitable for groups of investors seeking to make joint investment decisions and governance. This includes:

• Traditional (offline) investment clubs transitioning to or practicing in the Web3 space.
• Like-minded investors wishing to collectively make investment decisions through an on-chain investment DAO, where members recognize each other’s investment philosophies and capabilities, willing to abide by the collective judgment.

Flex DAO

Design Philosophy

Flex DAO is designed around the concept of flexibility, inspired by the deal-by-deal syndicate model common in traditional private equity. It emphasizes the autonomy of individual will, allowing investors to decide whether to participate in specific investment proposals without pre-pooling funds. Funds are raised for each project individually, and if the minimum investment target is met, the proposal is executed.

Roles

Flex DAO distinguishes itself with two roles: Governor and Investor, each with responsibilities diverging from the Vintage and Collective models. In Flex DAO, Governors are primarily organizers, maintaining the DAO’s contract, such as mechanism modifications, contract upgrades, and member management, without directly engaging in investment decisions. Investors in Flex DAO participate on a project-by-project basis, with each project potentially having a different set of investors.

Although Governors do not make investment decisions, they can still set management fees and Carry as operational compensation. Rewards for proposers can be set in investment amounts or Payback Tokens.

Operational Process

Flex DAO operates on a project-specific basis, without creating a fund on the blockchain. Qualified proposers submit investment proposals, and potential investors, meeting the Investor Eligibility, decide to deposit based on their judgment. If multiple proposals require preliminary screening, a polling vote can be set to activate proposals for fundraising. Once fundraising meets the minimum investment requirement, the investment is executed.

Upon deployment, a Flex DAO can initiate investment proposals at any time, with multiple proposals running concurrently. The final investors and their share distribution for each proposal may vary, and proposals can fail to refund if the minimum investment target is not met.

Target Audience

Flex DAO offers a flexible, lightweight model for private equity investment, suitable for:

• Investment community organizations currently engaging in similar activities offline, looking to transition online.
• Investors preferring not to commit funds upfront and desiring autonomy over project selection.
• Institutions or individuals with financial capacity but lacking investment opportunities.
• Institutions or individuals with investment opportunities but lacking funds.

Which Mode Of Venture DAO Is Best For You?

You can quickly understand the characteristics and advantages of the three Venture DAO models through the table below.

Disclaimer：

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