What is a DAO?
A DAO, or decentralized autonomous organization, is an online-based organization that exists and operates with no single leader or governing body. DAOs are run by code written on a blockchain like Ethereum (ETH) and are owned and operated by the people who use them.
There are many different types of DAOs, but they all have one thing in common: they are decentralized, meaning that decisions about the organization’s future are decided by the collective group and not a single individual.
This decentralization is what makes DAOs promising, as it theoretically removes the possibility of corruption or manipulation by a single entity. Smart contracts (and not people) execute the terms and conditions of the organization, making them incredibly efficient and resilient to change.
Can DAOs replace VCs?
Are DAOs a viable replacement for venture capitalists? The answer is that it depends. VCs typically invest in early-stage companies and help them grow through the provision of capital, mentorship and connections.
DAOs can provide some of these same services, but they’re not well suited to invest in early-stage companies. This is because DAOs are decentralized and cannot make quick and decisive decisions.
VCs, on the other hand, are centralized and can make quick decisions that help early-stage companies grow. So, while DAOs can provide some of the same services as VCs, they’re not a perfect replacement. A VC is probably a better choice if you’re looking for an organization to invest in early-stage companies.
A hybrid future of DAOs and traditional VCs
DAOs are a new and innovative way of organizing people and resources. While they can’t exactly replace traditional VCs, they can potentially disrupt the industry.
We’ll likely see a future where DAOs and traditional VCs work together to support the growth of early-stage companies. For example, a DAO could provide the capital and resources while a VC provides the mentorship and connections.
Such a hybrid model would allow early-stage companies to get the best of both worlds: the capital and resources they need to grow, and the mentorship and connections they need to succeed.
VC DAOs already exist, proving that such a model is possible. One example is The LAO, a venture capital DAO. It focuses on early-stage blockchain projects based on Ethereum (ETH) and has funded over 30 projects so far. How it works is that governance remains a function of the blockchain while an external service provider takes care of the administrative and legal procedures.
Another good example is MetaCartel Ventures, a private VC DAO and a spin-off of the Ethereum ecosystem grant fund, MetaCartel. The VC DAO arm is managed by a board of “mages,” who conduct functions like presenting investment proposals, due diligence and voting on proposals. They mainly fund early-stage decentralized applications and protocols at the moment.