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It was a deal that didn’t involve a big NFT marketplace or a new decentralized crypto exchange. Yet the vote by members of Opolis, a digital employment cooperative, to launch a DAO is significant. Why? Because it’s the latest instance of venture capitalists’ love affair with decentralized autonomous organizations. It also shows the rapid financial maturation of this innovative new business model.
Opolis raised $5.5M earlier this year from a community of angels and syndicate DAOs including Metacartel Ventures, Badger DAO, and Pickle Finance. Under the terms, the VCs did not receive voting rights and only members of the cooperative can vote. The community DAO has now launched a liquidity pool to bring Opolis’s WORK tokens on an exchange. The DAO members have contributed $300K to date with a target of $1M in pool collateral. This economic collaboration is a huge feat of self-directed social participation
The Opolis deal is just the latest in a string of venture-backed moves into Decentralized Autonomous Organizations, as the Opolis Commons is a registered co-operative. This summer, BitDAO, a newly formed entity that plans to take DeFi mass-market, raised $230M in a private sale from Peter Thiel, Pantera Capital, and Dragonfly Capital. It wasn’t just tech mavens piling into the venture — British billionaire Alan Howard, the founder and former CEO of a major hedge fund, Brevan Howard, also came aboard.
Opolis coalition members such as Mystic Whales are pioneering with DAOhaus in launching a new pooled liquidity model for incentivizing collaborative liquidity options, making this community-led venture funding feasible. As discussed on a community call, the DAO members are providing $1M in collateral to help create the liquidity event, pushing the boundaries of traditional venture fundraising. VC funds invested in Opolis are now both equity and token holders and will receive reward mechanisms throughout various stages rather than a one-time traditional 10 year time horizon IPO. VCs are now double rewarded in a traditional equity exit and a token event.
The push exemplifies how the traditional elites of Silicon Valley are falling in love with one of the most provocative innovations of the Ethereum universe. When DAOs first emerged in DeFi, there was a lot of excitement about how they differed from traditional ventures. Formed on the substrate of the Ethereum blockchain, they were designed to be egalitarian cooperatives instead of the hierarchical top-down systems that have long ruled business. Now the same Silicon Valley venture capitalists who created PayPal, Facebook, Airbnb, Coinbase and Circle are falling in love with the DAO. And they’re bringing loads of cash.
“We believe that DAOs will give more power and optionality to founders, which will encourage both a greater quantity and quality of projects in the space,” Paul Veradittakit, a partner at Pantera Capital, a longtime player in the crypto space, told The Defiant. “Venture capital firms will be forced to adapt to this new reality by adding value in ways that truly matter to founders.”
Meantime, a16z, the VC firm co-founded by Marc Andreessen and Ben Horowitz, unveiled a staggering $2.2B crypto fund in June, its third such vehicle. The firm has long been active in DeFi. Back in 2018, a16z invested in Maker, which runs MakerDAO and enables users to lend and borrow cryptocurrencies without an intermediary. A16z partners Chris Dixon and Katie Hahn highlighted how DeFi fosters what they call open-source “composability,” the ability to remix and recombine software components. They anticipate this innovation will write a new chapter in the open source story.
But there’s a lot more to DAOs than software development. As organizations that shun legacy forms of distribution, labor, and finance, they function like special-interest clubs or worker-owned cooperatives. For example, WinCo Foods, a Boise, Idaho-based supermarket chain, is an employee-owned grocery store that offers workers an Employee Stock Ownership Plan (ESOP) and ownership interests.
Likewise, Opolis, a digital employment cooperative, offers a better way to get health insurance and benefits for the self-employed. Opolis also bestows its members with stakes in the organization, and they get to vote on its governance.
DAOs come in many flavors. There are social clubs like Friends With Benefits, or FWB, a new breed of venture DAOs such as MetaCartel Ventures. PartyDAO is set up to ship products and DarkstarDAO is a media co-op.
Traditionally, DAOs were funded by fees paid by pledging members. As the VC investing trend shows, DAOs are increasingly receiving big whacks of cash from investors. That means member-owned organizations are accessing capital at scale, beyond membership fees which faces the issue of economies of scale.
VCs and citizen members of the DAO now both have voting rights, unlike before where investment firms did not have to appease the customers of the companies they put capital into. DAOs receiving venture capital or institutional sized capital will now prioritize returns to the community members rather than only investors on the cap table.
The most significant development is the difference between traditional startups and DAOs. Startups are created with the mission of eventually delivering investment returns — ideally at multiples of at least 10x — to their backers. DAOs, in contrast, are designed to provide a financial return to their members. In conventional startup fundraising, company founders allocate VCs a portion of the venture’s equity in successive rounds, typically leaving employees with far smaller stock option grants. Moreover, VCs often take board seats and help shape the startup’s strategic growth plan. Sometimes they enlist allies to take management jobs at the firm.
A notable difference between fundraising as a startup versus a DAO is how investors enter the picture. Startups traditionally raise with a cap table that allocates equity to investors. The company then raises traditional funding in the form of a series raise as a convertible note or SAFE (Simple Agreement for Future Equity).
In contrast, when investors put capital into a DAO they typically buy a seat at the table as shareholders paying members of the organization. When a fund invests in a DAO, they put up capital as a pledge of their membership, and members can vote on how that capital is spent. The DAO can then fundraise through a token sale, membership fees, or potentially traditional investments. The structure of DAOs enables an equitable distribution of wealth to community members.
ConsenSys and Mechanism Capital have both been shifting their checkbooks and teams to DAOs. According to DeepDAO, there’s $745M in assets under management in DAOs and 190K members and token holders. As members of organizations find more agency in creating financial tools for themselves, venture capital is watching this signal, eager to participate alongside.
Correction: This article was updated on Sept. 9 to clarify that Opolis did not extend voting rights to VCs, and to update the amount it raised to $5.5M from $2.6M.