What are investment DAOs and how do they work?
A decentralized autonomous organization (DAO) that raises and invests capital into assets on behalf of its community is an investment DAO. Investment DAOs tap into the power of Web3 to democratize the investment process and make it more inclusive.
DAOs can have their units in tokens that are listed on a crypto exchange. The community rules are agreed upon and governance is enforced through smart contracts. Governance rights (voting) can be prorated based on the holdings in the DAO.
Related: Types of DAOs and how to create a decentralized autonomous organization
A decentralized organization that invests in cryptocurrencies, real estate, nonfungible tokens (NFTs) or any other asset class has several functional differences from traditional investment vehicles. This is particularly true when the underlying investment opportunity is a crypto startup company. DAOs investing in startups differ fundamentally from traditional venture capital (VC).
Before elaborating on the differences between traditional VC and investment DAOs, let us understand how traditional venture capital works.
A venture capital fund is founded and managed by general partners (GPs). GPs are responsible for sourcing investment opportunities, performing due diligence and closing investments in a portfolio company.
Venture capital is part of the capital pyramid and acts as a conduit that efficiently sources capital from large institutions like pension funds and endowments, and deploys that capital into portfolio firms. These large institutions, family offices and in some instances individuals who provide capital to a VC fund are called limited partners (LPs).
The role of the GPs is to ensure they raise funds from LPs, source high-quality startups, perform detailed
Read more on cointelegraph.com
