Decentralized venture capital giants will devour the investment field

This article is authored by Lucas Campbell and translated by DRD, proofread by StampSoda.

Dear Bankless Community,

Many people believe that the first community-based venture capital fund on Ethereum was The DAO.

This was Ethereum's first demonstration of its potential as a digital coordination layer. Anyone in the world could contribute to this fund and, in the future, have ownership of the capital pool as well as voting rights on how the funds would be invested.

But we all know that it did not end well.

Regardless, it brought a new paradigm to the investment world. It democratized venture capital, allowing thousands of individuals to coordinate funding on global digital assets and giving anyone the chance to apply for funding for the projects they are building.

But the problem was that it was still too early—because the infrastructure was not yet in place.

Today, organizational tools have improved significantly, and we see this space reshaping.

So we invited Callum from the distributed venture capital fund MetaCartel Ventures to give us an update on the current situation.

Like everything built on these decentralized networks, there is a great opportunity to disrupt traditional venture capital.

Let’s explore the reasons behind this.

------ Lucas

Guest Contributor: Callum Gladstone, Mage and Operator at MetaCartel Ventures

How MetaCartel Ventures is Distributing Venture Capital

Back in 2016, the idea of creating tools for collective investment within the Ethereum community was born, such as The DAO.

As we all know, this early attempt ultimately ended with "PTSDAO" due to issues like fund depletion. This experimental project is widely regarded as a technical failure, but perhaps more importantly, the community, tools, and breadth of investable projects were not truly ready at that time.

Fast forward to early 2020, the soil for decentralized venture funds had become much more fertile. Driven by Ameen Soleimani, Gabriel Shapiro, and Peter Pan, the MetaCartel Ventures DAO (referred to as "MCV") was publicly launched at ETHDenver 2020, creating a new paradigm for non-bank investment tools within the Ethereum community.

Investing in a Decentralized Future

The mission of any decentralized venture capital fund is simple: to allow a group of individuals to pool funds without authorization and invest them in projects that further the mission of a decentralized future.

For MCV, members are referred to as "Mages"—they are liquidity providers, directors, deal sources, technical due diligence auditors, analysts, and more. Mages bring investment deals to the DAO, conduct due diligence on projects, negotiate with teams, and ultimately propose on-chain proposals for other members to vote on.

Investments are decided by a simple majority rule: if a deal receives 51% approval, the DAO will invest in the project according to the terms outlined in the proposal.

Today, joining the DAO is managed through permissions and member governance, while exiting requires no approval at all, allowing exiting members to proportionally receive the DAO's assets and investments at any time. Each member's share (and voting weight) depends on their contribution to the DAO's wealth—although shares can also be awarded to members for non-monetary contributions.

Thanks to Moloch V2, if a member of a DAO disagrees with a consensus that has already been reached, they can retain the ability to "rage quit" the DAO before the decision is actually executed. Within a seven-day grace period after each proposal passes, any member can choose to exit before the funds allocated to the proposal are withdrawn.

Members can also protect the DAO's interests by using "guildkick" proposals to expel free riders and malicious participants, which are subject to voting and yield results similar to rage quits, allowing for the extraction of proportional assets.

MCV members find that this new design space offers additional flexibility and reduced bureaucracy compared to traditional venture funds. By leveraging a combination of smart contracts and legal structures, MCV is able to remain compliant while investing and allocating capital in an efficient, transparent, and fair manner.

The Advantages of Community

Members of MetaCartel Ventures include founders, builders, community operators, economists, lawyers, designers, and investment professionals with years of experience in the web3 and crypto space.

Investing alongside a group of deeply rooted individuals in the Ethereum ecosystem gives MCV a unique advantage in having a complete, clear, and profound understanding of potential investments.

There is no need for technical advisors. MCV's Mages understand the feasibility of potential investments because many have already solved the same challenges in their own projects. All members have practical experience in the field, which is key for the DAO to select the right investment projects and form its foundational capability to effectively support projects. As these projects grow and mature, they will become household names in the future.

As part of MCV's venture capital portfolio, the opportunities to leverage its network, experience, and expertise are invaluable. Whether it's helping to resolve a complex smart contract vulnerability, designing a token economic model, or making introductions to a project or team, MCV has always aimed to support the community and its portfolio, viewing the Ethereum ecosystem as a whole.

MCV members are core contributors or founders of major projects, including Nexus Mutual, Aave, Reflexer Labs, CoinGecko, and more. This cross-pollination of the MetaCartel family and external communities has created an unparalleled scale within the Ethereum community and facilitated effective deep collaboration.

Disrupting Moloch & Ineffective Coordination

So you might think that venture capital DAOs have solved all the problems of venture capital. Unfortunately, that is not the case!

Like any new technology or community (in this case, both), there are always difficulties and challenges to overcome, and of course, it is much simpler if it were a traditional fund!

First, inactivity and free-riding can be an issue. It often happens that some people do a lot of work, some do a little, and some do almost nothing. This is a compensation incentive problem that is not easy to solve. MCV is currently trying out some different mechanisms to reinforce the culture of collaboration and shared accountability that we lean towards.

By voting for the "Monthly Best Mage," the winners receive additional shares based on their work contributions. MCV designs incentive mechanisms targeting direct and indirect work participation, dynamically adjusting income. In the face of real monetary stakes, we are exploring the boundaries of decentralization and the relationship between projects and people.

The willingness and ability to experiment and iterate on these mechanisms, as well as the capacity to accept, learn, and try again after failures, are key to long-term success.

As mentioned above, coordinating over 70 members globally is quite challenging—especially when these individuals all have their own projects, funding, daily jobs, and countless other things to do.

When there are so many people and no hierarchical structure, making decisions and assigning tasks can also be difficult. It could be said that MetaCartel Ventures has no CEO, no interns, and no command chain.

Instead, all DAO members have equal speaking rights in discussions. This can obviously lead to some headaches at times, but it also fosters a sense of teamwork and respect. Everyone's opinions and efforts are given a chance to be showcased, which often leads to final solutions and desired outcomes. This is something that would never happen in traditional investment funds where decisions are made by a small number of limited partners (LPs).

Where to Next?

Since its founding in the depths of the bear market, MetaCartel Ventures has come a long way. Our assets under management have multiplied to over $25 million, with more than 70 members and over 25 investment projects. We are very excited to continue exploring new ways of investing and collaborating to grow the Ethereum ecosystem and make it better.

Interestingly, at the onset of the pandemic, most of our Mages had not yet met in person. Everything was coordinated through ZOOM, DISCORD, TELEGRAM chats, and of course, on-chain proposals (provided by DAOHaus!).

While this is a testament to digital communication, our first "Mage Secret Meeting" will be happening soon! We are very happy to have such an event that can strengthen coordination and collaboration, as non-pixelated faces, warm handshakes, and real laughter can come together.

The "Mage Meeting" event of Venture DAO. Notable members include Hugh Karp from Nexus Mutual, Leighton Cusack from PoolTogether, and Cooper Turley from Audius.

New Pathways for Community Investment

MCV believes that in the future, decentralized technology will become the backbone of venture capital funds, investment clubs, startups, and other institutions. In this world, most people will work for DAOs rather than traditional companies; in this world, compensation and value exchange will be discussed in an open and transparent manner; in this world, no one will have an unfair advantage over another.

We are looking for new ways to coordinate, incentivize, collaborate, and new tools to enhance all of this. The functionality and usability of the DAOHaus front-end governance tool, when it was still an ETHBerlin hackathon project, now seems like a mere shadow of what it has become today.

There are many projects in the Ethereum ecosystem that are expanding functionalities and providing more options for decentralized communities.

To wrap this up, if you are launching a project within the Ethereum ecosystem and are seeking funding, please reach out to us!

If your project is not yet at the stage of receiving funding, MetaCartel Grants is always looking for impactful builders and projects that aim to push the world towards a decentralized future.

A big thank you to Rolf Hoefer and Victor Rordvedt for their feedback on this article!

"If you want to go fast, go alone. If you want to go far, go together."

-MetaCartel

Action Steps

• Learn about the future of decentralized venture capital

• How to approach the MetaCartel ecosystem with a project that needs funding

• MetaCartel Venture (Investment)

• MetaCartel (Grants)

Author Bio

Callum Gladstone is an active contributor to the DAO ecosystem, including managing the operations of MetaCartel Ventures. He is also a member of ?_?(Fire Eyes DAO), where he spends a significant amount of time designing token economic systems and writing governance proposals for projects like Balancer, Aave, and DAOhaus.