Pod: How VCs started VC3

Pod: How VCs started VC3

Intro

Andrew: When I got excited about DAOs, I emailed a well-known venture capitalist. I thought he'd get excited about them too.

Instead, he doubted that a community of people could make more profitable investment decisions than he could alone, or his small team could. How could the chaos of a bunch of people chatting in a chat app actually outperform them?

In this interview, you're going to see how a decentralized autonomous organization, how a DAO, can make better decisions. The interview is with Jules Miller. She is the founder of VC3, which brings together experienced venture capitalists to collaborate through a DAO.

You know, the other thing my famous VC friend wondered out loud about was whether this whole thing was even legal.

And truthfully, I had a hard time explaining to him the two-organization structure. Why do you even need two organizations? I had a hard time explaining to him why the DAO wasn't organized in America. I mean, what's it hiding by going overseas? And all that stuff? Well, Jules does a great job explaining it.

So, if you're curious about DAOs, want to know a little bit more about the legality of them, want to know about how they're structured, and more importantly, why a big group of people chatting on a chat app can make better decisions than a single person or a small team. If you want to know why DAOs work, this is the interview for you.

And finally, I mention Origami here. Origami is the company that set up VC3's DAO. That's what they do. And they're also in partnership with me on this podcast. If you're interested in setting up your own DAO and want to talk to the people who set it up for VC3 and Y Combinator's alumni, and so many others just go to joinOrigami.com. Let's get started.

Overview of VC3

[00:01:46] Andrew: How does VC3 work?

[00:01:48] Jules: VC3 is an investment DAO intended for professional investors. The idea here is to unbundle and decentralize what a typical venture capital fund would do -- meaning deal flow, diligence, and portfolio support -- among the community of professional investors, rather than a small handful of partners in one centralized location.

We have a community of 166 venture capitalists in 28 countries now, who are all sharing deal flow, helping on due diligence and supporting the portfolio. We're also co-investing together. So the idea here is to change the model of venture capital to empower, not just the partners at a fund, but the entrepreneurs, the LPs and the community that actually creates value for the innovation ecosystem.

[00:02:28] Andrew: Do I understand this right? That there are two entities here. There is the DAO where people bring up ideas for investments and support the portfolio and help each other out. And then there's the fund that makes its investments autonomously, but with the influence of the DAO.

[00:02:43] Jules: Exactly. So we've spent a lot of time on legal and compliance. And I started two companies in the legal space, so I'm not a lawyer, but I'm probably a paralegal by now, at least. We initially were hoping to do everything on chain and we realized pretty quickly that we could not do the things that we wanted to do.

So we've set up two entities. One's a Caymans foundation company. So that is the DAO itself. That's where the investors live. That's where the tokens live. That's where all the work is done, meaning the deals are submitted. The experts are participating in diligence in some capacity. It's a little tricky. We have some lines we can and can't cross. And lastly, supporting the portfolio. And all of that is incentivized with tokens.

In tandem, there is an offshore, British Virgin Island fund, that is set up to make investments on behalf of the DAO. And we have a fairly complicated, but now streamlined, process of how we do deals, where the fund is fully responsible for the investments, does a final legal and compliance review, and has a six-person council -- called the GPAC, General Partner Advisory Council -- of the most experienced Web3 investors from the DAO who are very seriously doing a final review of the deal before we write it so that you don't get the kind of negative implications of sometimes crowdsourcing deals.

So it's two entities. They work together very effectively. We have one fund partner that is doing deals on behalf of the DAO. The bigger picture vision is to have multiple funds sourcing deals from the DAO, tapping into the DAO for things that the DAO is good at, which are, again, diligence, portfolio support, and deal flow.

[00:04:08] Andrew: Jules, I want to understand how you set it up and then how you run it on a day-to-day basis. But before we do, let's quickly understand why you would even bother setting this whole structure up. Jules, I'm talking to you on software that was backed by a VC. I'm looking at a Mac computer that was created thanks to venture capital support. This system seems to be working. Why did you need to go and create something brand new?

Changing Venture Capital

[00:04:31] Jules: Venture capital has been extremely successful. It's an industry that I love, I participate in. I'm a full-time investor at a fund called Mindset Ventures, and have been an investor for a little over five years now.

This is why we started with the venture community. Every industry, no matter what it is, can get better. We come from a group of venture capital investors. All of us, at least the first group of members, are alumni of the Kauffman Fellows network, which is kind of like a Y Combinator for VCs, I guess.

It's the most well-known leadership program for venture capital investors. We have alumni of over 800 investors around the world. I co-lead the blockchain special interest group and it's a group of VCs who understand that Web3 is different and we like sharing deals.

And we know that sometimes venture capital works for traditional Web2 companies and also for Web3 companies. And sometimes it doesn't. And sometimes there are things that we can do better.

What VC3 will change

[00:05:17] Andrew: What doesn't work that you're going to be doing better.

[00:05:20] Jules: Yeah. So a couple of things. In the Web3 space in particular, we have a very different way of doing deals than we do in the traditional Web2 industry.

Meaning the deals are a little bit faster. The founders don't necessarily want the ownership percentages that a traditional venture capital fund would have because you get into issues that we've seen in the industry, like a VC owning 30, 40, 50% of the tokens and therefore their own company becomes not decentralized.

So you have some philosophical misalignment with VCs who have big ownership stakes, and a company that is trying to be decentralized, and is out there promoting the values of decentralization. So you're seeing more things that look like party rounds in the venture capital world in Web3. You're seeing founders who are very careful about not wanting to sell their tokens in a way that makes their own business, not decentralized, because it would be not aligned with the thing that they're promoting.

With VC3, we're a Web3 native entity, right? So we're an investment DAO. So we're philosophically aligned. We're also writing relatively small checks. Our average check size is about 250 K, but then we aggregate deals from our community.

Meaning we've got 166 VCs, most of whom have their own funds. So instead of having to talk to a hundred different investors to get your round closed, you can come to VC3. We write a check, and then we will also open it up, if there's allocation, to our community and you can have 10, 15, 20 VCs through one process, in a way that no one owns 30% of the company. That becomes a more authentic way to invest in Web3, and a better experience for the founders.

Another issue in the industry is VCs always say that they're going to be helpful. Some VCs are actually very helpful and they build out very established portfolio platform teams, with real firepower to do portfolio support, a lot of funds don't or they do it in a very inconsistent way. So we give entrepreneurs tokens. They have a mechanism of exchange to ask for things from their investors.

So they say, "Hey, I need help hiring. I'm going to post a bounty of tokens that you have given me in addition to your capital investment." And there will be a real incentive for the community to support the portfolio.

So those are two issues that in the Web3 community are very, very clear. I think there's other issues in the venture world, such as lack of diversity, a geographic concentration, and just general ability to manage returns in a sophisticated way at scale, that are being tackled and that can be better with a structure, like a DAO.

This is all still an experiment, right? It's still so, so new, but what we're here to do in a very serious way is say, "can there be a better experience for VC, for founders, for the GPs, for the LPs, using a decentralized structure?" The jury is still out, but we're well on our way.

Rewarding with tokens

[00:07:55] Andrew: You're getting some currency to use to incentivize the members of the DAO.

[00:08:00] Jules: Exactly right. The beautiful thing about Web3 is the two things that matter are decentralization and the token economy, right? So having community-based decisions, community-based work. Rather than a small group of people, you have a community that can add value. And then incentivizing that community with tokens.

And those are the two things that a normal venture fund can't do, and that we can do in an investment DAO.

How VC3 started

[00:08:21] Andrew: Let's understand how you put this all together.

[00:08:24] Jules: The Kauffman Fellows is a really great group of highly vetted and curated VCs from around the world. I co-lead the blockchain group with a guy named Jehan Chu, who's a fund called Kenetic, which has been investing in the crypto space since 2013. The intention there is to have affinity groups. It's like an alumni organization where we're all investing in similar things or want to learn about similar things. So it's a group that likes to do deals together that we're all friendly. We know each other. It's a community.

And I think with Web3 and with DAOs in particular, having a community to start is really important. It's hard to build a community after the fact. This is an existing community where we know each other. We like each other, we do deals together. We respect each other. We know everyone is at a certain level because they've been vetted and gone through this program and been accepted to the program.

And so that gives it a certain level of quality and then sharing the deals together has happened already. It's something that we just generally do. We're all investors. We constantly are sharing deals, having people comment and give feedback on the deals we're doing. We've got a very active communication platform in both Slack and WhatsApp, and we meet regularly in person as well. So that has been happening since the beginning.

The thing that has been happening in the last two years or so is that we've started doing more dedicated deals together. We've done some SPVs together where the network will come in together as SPVs.

Someone started a crypto fund where a lot of the folks ended up being LPs. And so we're actually deploying capital in a more sophisticated way. And there was a lot of interest in discussion and DAOs because it aligned very naturally with what we were already doing. And so we started that journey of very seriously looking at it in December of last year of 2021, and ended up here.

Kauffman Fellows have a history of mutual support

[00:09:52] Andrew: Kauffman Fellows were already helping each other. This now has some way of rewarding the people who helped the most

[00:09:57] Jules: A hundred percent. I think this happens with any community, any affinity group, especially alumni groups, especially nonprofits, especially things that people are passionate about, but don't necessarily have a business around, is that you get people who are very active and want to help. But then they burn out because they're not getting anything for that help.

They're, they're doing it out of the goodness of their heart and there's not a direct reward for it. And I think that's great, but it only goes so far. You have a lot of other people who don't contribute, but could and could add a lot of value. And so having a token system on top of exactly as you mentioned, what everyone was already doing, incentivizes people more and it also really rewards the people that are creating value.

And I think that's the beauty of Web3, you are rewarding and incentivizing people to create value and people who create value, earn more. And that is what is very fundamentally changing the dynamic. Even in venture funds, you have partners who have the highest amount of carry, have the highest compensation overall, but they're doing very little to create value for the entrepreneurs. And you have associates who are creating enormous value, but not getting compensated as much. That's the type of dynamic that something like a DAO can change.

You have fund managers in different parts of the country or in the world who are not in Silicon valley, who have very different economics than the Silicon Valley folks. And so what this does is level, the playing field and people who are contributing value, earn value in return, and that's pretty radical.

Why they chose Origami for DAO setup

[00:11:13] Andrew: Jules, there are lots of different apps that you can use, lots of different services you can use to create your DAO. Why go with Origami instead of using something that's free or nearly free. I mean, you've got a bunch of experts who could figure this out.

Why Origami at all?

[00:11:28] Jules: So what's interesting in this space is that everyone who says they're an expert is still learning, right? This is just the nature of blockchain. If anyone says they're a bonafide expert, they probably know a little bit more than most people. But this industry is evolving every second. It's still extremely early. And we learn that every day.

The tooling's early, the processes are early. It's exciting and there's a ton of potential. But the real challenge here is making decisions and, and working through the chaos, the gray areas, the regulatory uncertainty, and making smart decisions that can set up your DAO, your organization for success.

When we decided to go down this path, we did our diligence we're investors. This is what we do. So we looked at every possible tool. We tested everything. We talked to the founders, and we set up demo accounts. We looked at every different chain. We talked about building something ourselves.

And when we were introduced to the folks at Origami, a lot of our members in the network have already known Ben and the team for a long time. The Y Combinator group and the, and the Kauffman Fellows know each other really well. We've deployed a lot of capital into Y Combinator companies collectively.

And so we talked to them and what was impressive about them is they were more focused on helping people make decisions. The tooling only takes you so far in this industry. You have to be able to navigate a lot of different unknowns, where there's really no precedent.

What DAO-in-a-box options miss

[00:12:39] Andrew: Like what? I was going to say anyone could create a token, but it's a little bit harder than anyone could create it, but you could figure out how to create a token. That kind of thing, those kinds of mechanics are easy. And that's what the DAO-in-a-box services do.

What are some of the decisions that you had to make? What are some of the legal issues that you had to go through when you were creating your own DAO?

[00:12:58] Jules: There's a bunch of things. Compliance is really important in this space and understanding the regulatory landscape is really important. So for example, the jurisdiction that you choose for your DAO is really important.

Some DAOs don't have a jurisdiction. They don't register the entity at all. There's some real liability challenges with that. Some do in the US. Some are elsewhere.

And there's a bunch of different jurisdictions like Wyoming, the US, who's made a specific DAO law. I'm based in Nashville, Tennessee. Tennessee just passed a law as well. I was part of that process. There's progress, but there's upsides and downsides to each jurisdiction.

So something like where you set up the entity is really important to understand. Some of the DAO in a box products just set it up for you and you're not part of that decision and that's okay if you want something very simple you're experimenting. But I think for something at the scale that we're building, we needed to really understand the pros and cons of everything.

Legal and tax considerations

Jurisdictions

[00:13:44] Andrew: Can you teach me a little bit about this? What, what are the pros and cons of working say with Wyoming in the US or with an international jurisdiction?

[00:13:52] Jules: The main issue is liability. Anyone in a DAO entity, whether you're an investment DAO or anything else, you may be viewed as a partnership, in which case, if you are sued, all members of the DAO would have joint several liability, meaning that every single DAO member would be responsible for any sort of settlement.

There was a case in California that was the first one that brought this up. They weren't registered at all. Someone sued the DAO and they said all members may be jointly and separately liable for the damages. And that is something that is incredibly damaging to the DAO industry as a whole, for example, because then people don't want to join DAOs if they're going to be responsible for any sort of issues.

Setting up an entity is important. Setting up an entity in a state or jurisdiction that recognizes DAOs, and provides limited liability for the DAO members is really important. So for example, Delaware can, but you have to register every single member, which is very hard to do, especially if you have pseudonymous participants.

Wyoming was the first state that allowed DAOs to be considered for limited liability, meaning that if the DAO was sued, then there would be limited liability to the members. Tennessee has followed suit. So liability is the first thing. And so making sure that you, number one, have an entity set up and number two, you have an entity set up in a place that has limited liability for the DAO participants is critical.

We decided to go offshore, so we're Cayman's foundation company, and then the fund is a BVI fund and BVI structures on top of that. And the reason we did that is there were other things that made it more complicated to operate in the US only. If you're a US company and most of your members are in the US, it's one thing. We have a global group, and there are tax implications for our members that are better in offshore entities.

And then we had a legal memo drafted by our law firm around The Investment Advisor Act. What is considered being an investment advisor, what is not?

So these are little tricky things where we have very nuanced ways of implementing. But in most investment DAOs, for example the members are responsible for doing their own decision-making, doing their own diligence. You have to because otherwise you would be violating The Investment Advisor Act of 1940 and violating securities laws.

So if you're giving someone else advice on what could potentially be a security or an investment in general, then you need to be registered and most DAO members are not registered.

DAOs and investment advice

[00:16:00] Andrew: If the DAO members are giving the DAO fund investment advice, that's what triggers it.

[00:16:06] Jules: Exactly. So if you start a DAO on syndicate, for example, to do investments together is completely fine to do. But what you cannot do is have one DAO member, "Say I really like this deal for X, Y, Z reasons. I've done it. I've done my research. Here's my homework. Here's my deal memo. And I would recommend this deal for XYZ reasons." You cannot do that in an investment club, unless you're registered as an investment advisor.

So that's part of the reason we set up the two structure entity, the fund, which is a typical venture fund has the venture capital exemption from being a registered investment advisor, completes all diligence, completes the deal memos, and then submits it back to the DAO.

The DAO does not make the final decision, the DAO votes on it to provide a signal to the fund and the fund ultimately makes the final decision. And so this is where you have this interesting partnership between two entities, but you have to understand securities laws. You have to understand broker dealer laws to compensate people for things like to give tokens to people for certain things.

And so we've navigated this in a very particular way with our legal counsel helping us make these little nuanced decisions, but this is complicated. And we see DAOs all the time. We've talked to several other DAOs who are doing things that are just very clearly violating securities laws.

And this is why having a group of professional investors who navigate this anyway in our daily lives is a really interesting thing because we're able to make decisions in a way that we know are compliant or at least minimizing risk in a way that if you're entrepreneur and you've never been at an actual venture fund, you just don't have the experience to do.

And not that it's complicated. It's just that you haven't seen it. You haven't done it and you're not navigating as a professional investor.

[00:17:36] Andrew: Sorry, the, the distinction that you're making is if the DAO as a whole votes to give the fund advice, that's okay. If an individual in the DAO gives the fund advice, that's the no-no that you're trying to avoid. Right?

[00:17:48] Jules: If the DAO is not registered as a registered investment advisor, giving advice as a whole on deals is complicated.

[00:17:53] Andrew: Just voting is okay. Giving advice is bad. Voting is okay?

[00:17:57] Jules: Voting okay if it's not the final word.

Orange DAO is the Y Combinator alumni DAO, and they have taken the approach, from my understanding, that the DAO is sourcing deals. The fund does the diligence and does all the work after that. We have taken the approach that is slightly different, where we wanted the DAO members to be engaged on the deal, to give their feedback and advice. They're professional investors.

We have four voting stages along the way where each vote is considered a signal to the fund partner. So it is not the final decision. It is not considered investment advice. We have all sorts of caveats and legal language around it. And we navigated in a very specific way.

But we wanted the DAO members to be involved in every step of the process, because that's where the expertise is. So, whereas Orange DAO kind of completely separated it, we have a lot of back and forth between the fund and the DAO so that we can tap into the expertise of the DAO members to make smart decisions or to signal smart decisions that the fund is ultimately responsible for.

The fund and the British Virgin Islands

[00:18:49] Andrew: Where is the fund? It's not in the Cayman Islands.

[00:18:53] Jules: It's the British Virgin Islands. So they're both offshore entities. So the fund is BVI. The GP is BVI. The management company, Investment managers, is BVI. So we have very good attorneys in Caymans and BVI that are navigating this for us. We have very good tax advisors who are navigating this for us.

And what's interesting is there is a foundation that is not new, right? Like a lot of this is very basic managing a venture fund and managing the returns and managing the LP experience for a venture fund. And then, there is added layer of crypto and DAO and Web3 on top of it. That is kind of new.

We spend a lot of time with our lawyers navigating this stuff. And it's interesting and we're pushing the boundaries of how things can work at a normal venture fund. But it's complicated.

What Origami does

[00:19:32] Andrew: I see. Okay. And so that's why you wanted to have Origami set up your DAO. You weren't looking for the mechanics. You wanted someone who had organized DAOs like this to come in and advise you.

[00:19:43] Jules: Origami is more of a partner and I would call it a consultant than a pure technology platform. The vision for it is a dashboard that integrates all of the different tooling we need and they can swap in and out things as they come, which is very, very useful.

Thing we found most useful at the beginning is: "Here's the playbook. Here's a charter." we have to write a charter which operates the DAO. "Here is an example charter, you can take this, you can adapt it. You can do whatever you need to do. Here are the issues that you need to tackle. Here's how voting works."

So we use NFTs to access the network. So we have our tokens that are issued and so origami helped us issue both the NFT and the tokens. The tokens are the governance tokens that are used for voting, for the work of bounties, for all the different mechanisms of exchange.

The NFTs are the permissioned-gate into the network. And you can do certain things depending on your NFT. And so Origami helped us think through that process: What do we need? Why do we need it? How should we set it up? And then they set it up for us and did it for us. And so that type of partnership is much more valuable than something where we could do all of that on our own, certainly.

But helping to make the right decisions is the critical piece of the industry right now that is not available in some of the other pure technology plays.

DAO tools

[00:20:52] Andrew: Before we get into how things run day to day. What are some of the tools that are involved in managing it day to day?

[00:20:58] Jules: We have four committees. One of our committees is called "programs," which focuses on the tooling and then also the membership. And so we spend a lot of time looking at various DAO tools. There's a lot out there. It's all still pretty early. But you need tooling for a bunch of things.

So you need something to manage your tokens. You need something to vote for. And so sometimes they're the same. Sometimes they're different. And then you have Discord for the community.

The first thing that we did was we got everyone onboarded to Origami, and then we got them on Discord. So Discord people either love it or hate it. But the beautiful thing about it is that you can token gate it and you can permit different things in different areas. So we got everyone on Discord and we do a lot of our discussion and communication on Discord. And so, for example, when we vote on the initial stages of the deal, we do all of that and discuss it all on Discord. And it's gated to only the people that have permission to do that.

When we do a final deal we have still been doing on Discord, but we're starting to move to Snapshot. Snapshot is an off chain voting tool. So it's, it's public. You can see the information it's a little bit more formal and serious than a Discord vote, which is done with emojis, which I still think it's crazy.

That so much in the DAO world is done with emoji votes. It's kind of hilarious, but it works very well. You do a thumbs up or thumbs down when you're voting on something. It's very effective. You can do other emojis. Like if someone has read the deal memo, for example, and is unsure, wants to vote, but doesn't have a strong opinion one way or another. We have a money bag emoji where if people are interested in co-investing in the deal, they vote with the money bag emoji. In some ways it's a little silly, but it is an extremely effective way to get at least a sense check of what people are thinking.

[00:22:23] Andrew: Any other tool that goes into managing a DAO?

[00:22:26] Jules: There's a lot of things that are off chain. I think we're testing a bunch of things. It depends on how technology-focused you are. I think issuing the tokens is really important. So figuring out how you issue the tokens on what platform we have ERC 20 tokens for our actual VC3 tokens. And then we have NFTs issued on Polygon for the NFTs.

Origami dashboard manages the tokens and the membership for us. And then that's all we're using right now. We're experimenting with a few other things.

[00:22:51] Andrew: The NFTs are for what?

[00:22:52] Jules: The NFT is basically your entry card, right?

So it's your membership card and your membership card allows you to do certain things depending on your type of membership. So for example, our Kauffman Fellows members can vote on everything. We are adding in our LPs and our founders, and a few hand curated selected community partners. They cannot vote on governance.

Some of them will be able to vote on deals. So our co-investment partners will be able to vote on deals. The NFTs basically determine what you can and can't do and automate that. So it's not a manual check.

Why DAO communities are worth the work

[00:23:22] Andrew: You told me before we got started, "Look, if you have no one engaged, voting becomes super easy," which made me wonder why do you want to have everyone engaged? Doesn't it become complicated?

[00:23:30] Jules: Yeah, I mean, dictatorships work really well. You know, there's no reason to have other people involved in decisions. It's a completely effective and efficient way of doing things. If you want to tap into the power of the community, the community has to be engaged, right? There are huge benefits from having community members participate and vote on things. And it's hard to get that engagement.

Most DAOs might have big numbers of membership, but there's usually a core group of 5, 10, 15% of people who are actively doing things on a day to day basis and voting on things. And we're seeing a little bit of that too, although depending on what we're doing, we get a different contingent, which is kind of interesting.

So with a FinTech company, we get a certain group of people who are excited. We have a deep DeFi company that is a different group. This is complicated. This is very time intensive and labor intensive to do and manage.

If you do not have active engagement from the community, it's not worth doing. That is where the value is. So you really have to cultivate your community intentionally and well. We have a dedicated community manager in our team who does a lot of content who helps on Discord who gets things moving, who does the newsletter, so that we're communicating in the right way.

And the idea here is that the power of DAOs is the community. And if the community is not engaged, Then there's no point in doing a DAO, you can do a traditional venture fund.

What DAO members do

[00:24:44] Andrew: How can they contribute beyond being Scouts? What else is the community contributing? How are they helping? How are they vetting? How are they helping you make decisions?

[00:24:53] Jules: So I, so there's, there's two pieces of this one is on the actual deal side and the other is on the DAO operations side. So on the deal side, the three things that we are unbundling are the three things that a venture capital fund does. It's deal flow, diligence, and portfolio support. And so people earn tokens for all of those things.

So yes, it's scouting, kind of at the beginning at first. But then it's more than that. So number one, we have more scouts. We have 166 Scouts. If you count all of our members of Scouts who can submit deals and own deals through the process it's a lot more than any one venture fund could ever possibly, or ever want to, possibly have. And so we're getting just more access. They earn tokens for when they submit deals and we do those deals.

The things that become more interesting are tapping into the expert network. This is a group of very sophisticated, experienced people. So the fund does the full diligence, but we're offering bounties for expertise.

For example, we did a deal in the NFT space. We offered a bounty for insight on the NFT market. And we had within 30 minutes, six people from our community who were deep in the NFT space and offered their references on that particular space so that we had extreme expertise in a very, very short period of time that was incentivized by tokens. So you can see how that supports making better decisions, because we have access to good community members.

The last thing and the thing that we're just starting to do now, cause we're just getting up and running. We've made six investments, so we have six portfolio companies. Is the value creation piece of this. So portfolio support. Is one of the most powerful things that a DAO can do. And so when you see other venture funds who have launched DAOs just for their one venture fund, usually it's focused on the community on the portfolio support piece, meaning how can we help the members? We have 166 VCs around the world who have their own networks and own, you know, amazing connections when you have a need, right?

"Hey, I need to be introduced to this potential customer." Someone in the group probably has that connection. Whereas if you have a venture fund where you only have five partners, you're not going to have the networks that we have.

So those three things are the things that are important to get the community to be engaged in.

The other thing, and this is the reason we're doing this, is the governance, right? How do we make decisions as a DAO? This is a group of professional VCs who are trying to evolve the venture capital industry. And so how do we do that together? And so making decisions on how we set up certain things, how we do co-investments and how we govern the DAO. What's important? What's not important?

Those are the things that this collective hivemind of VCs is trying to shape and build the next version of a venture capital fund that is deploying capital at scale, using decentralization, which is just building a new venture model, is the part where we really want high engagement, because this is a group of people who live and breathe this world every day and are the best place to know how to change it.

Avoiding chaos

[00:27:29] Andrew: One of the big objections that people have come to me with is, "there's just too much democracy, too much chaos in DAOs. There's just too many people distracting from the work." How do you avoid all that distracting from the work?

[00:27:43] Jules: I don't think you avoid it. I think you embrace it, right? This is, again, this is the intention of DAOs. Embrace the chaos, but manage it in a way that you can still make decisions. So part of the reason for DAOs is to get people's opinions on things. Yes. Sometimes loud voices tend to overtake the conversation in a way that can be distracting and not particularly effective, but this is why we have a governance committee that manages it. This is why we vote.

So we have a very clear governance process, meaning there is a decision we need to make. There's a proposal. You have a certain window of opportunity to discuss and debate it, and then you vote.

So this is what happened with one of our recent proposals, where it was a pretty basic one. We have a group of people who are working on partnerships and they wanted a commission contract to be very standard like any sort of sales team would have if they sell something that they get commission on it. We submitted that for proposal, it brought up an enormous amount of debate over a weekend, right?

So there was a Saturday, Sunday, like vigorous debate about this. And the people who dissented had very specific reasons that they dissented that we didn't think about before we submitted the proposal. Then there was a very clear end point to that, right? The voting ended at a certain time.

So people heard the discussion, they voted. The vote, it didn't pass because the flags that people raised were good ones. And then we learned something from it. We reconfigured the proposal and are actually now just resubmitting it and I expect it will pass, but this is the whole point of a DAO. You don't just make decisions in isolation.

You allow people to share their comments. And it did get a little distracting at some point, but there was a window of time where they had the ability to do that. And then you vote. And the beautiful thing about a vote, especially if it's quorum voting, it either passes or fails.

It doesn't drag on forever. The decision is made in a certain timeframe. The challenge with DAOs is that you really have to manage that process very effectively. And that's what is hard. It can derail things. But when you have a process that you stick to and that works and that you iterate on every time and you learn something from every time, you can make good decisions in a short timeframe that are very, very powerful, because you have a lot of smart people contributing their thoughts and their opinions.

But you have to stick to a process and that's what's really hard in DAO management.

DAO and fund membership

[00:29:46] Andrew: Are your DAO members also LPs in the fund? Have they put money in too?

[00:29:51] Jules: A lot of them have. More than half of them have. So it's optional. We don't require it. But more than half of the DAO members are also LP. So you get both sides of it. And there are certain things that the LPs can do that the DAO members who are not LPs can do. And so again, we manage that in a very particular way.

[00:30:06] Andrew: Through the NFT is how you can track who's what, and what access they have.

[00:30:09] Jules: Yep. The LPs all have LP NFT, and they can do certain things with that LP NFT that the normal members can't, for example, earning tokens for deal flow. There's some issues around that. Being an LP in the fund minimizes the issues around that.

So we only right now allow our members who are LPs to earn tokens for submitting deals. And so they're little things like that that you can get with the NFTs that are really interesting.

Raising money from DAO members

[00:30:31] Andrew: Is it easier to raise money from LPs because you give them more access to the conversation and you include them? Or do you think that it does matter?

[00:30:40] Jules: For some LPs, some LPs don't want to be engaged, right? They just want to write a check and get the annual report. And that's fine. Those are not the LPs that are excited about working with us. The LPs that are excited about working with us want that access.

We allow all of our LPs to opt into the NFT to participate in the DAO. And that's a very different experience. It's transparent. They see the deals they can do co-investments on the deals in a more structured way than they can with other funds. And so those are the LPs that we are excited about because they add to the community.

Ideal investors

We don't want passive LPs who just write a check. There's no value in that. The whole point of this is building a community of engaged and smart and value added people to make the venture experience better. And that's what we're trying to build here.

Closing notes

[00:31:17] Andrew: And there's the interview.

There was a lot there. Wasn't there? If you want information about how to set up your own DAO, if you're DAO curious, if you have an organization with people who you want to work better together, or any kind of group of people who want to work together more profitably, go to Origami and set up a conversation with somebody who has set up multiple DAOs and can help you think it through.

Here's the website: joinOrigami.comjoinOrigami.com.

And of course, thank you to Jules. Her website is VC3dao.xyz.

And of course we'll have a link to both of those in the show notes.

Thanks everyone.