DAOSquare Incubator Introduction: Three DAO Models

Why Venture DAO?

In real life, collective investment by multiple people can take various organizational forms and investment types. As we introduced in the article "A Brief Discussion on Venture Capital Series," individual investors have various options to participate in venture capital, such as investing directly as individual investors, joining organizations in the venture capital field for collective investment, or investing through financial products issued by venture capital organizations.

Compared to traditional finance, the Crypto space is home to more Investment Communities, some of which are formed by one or a few individuals skilled in venture capital, while others consist of like-minded people gathered around the concept of decentralized venture capital.

Venture DAO is a typical Decentralized Autonomous Organization (DAO), a form of on-chain collaboration based on blockchain technology. It can help communities or institutions establish a more trustworthy and secure fund operation and management system (a system deployed on-chain), while also enabling a democratized investment operation mechanism. Compared to Investment Communities, Investment DAOs typically use blockchain technology to raise and custody funds, empowering different participants (investors, managers) through executable code programs (smart contracts), and then making automated investment decisions and management through it.

Why We Design DAO Modes?

An obvious trend is that many investment communities or funds have begun to pay attention to and embrace this emerging technology stack and development direction. However, they face the reality that the initiation and participation threshold for Investment DAOs is higher, mainly due to technical barriers. DAOSquare is a solution provider focused on this field, and we are committed to making it easier for traditional venture capital funds and investors to use this emerging tool and leverage its advantages.

In the DAOSquare Incubator, we have designed three modes of Venture DAOs based on common operational patterns of investment organizations in the Crypto field, templating and modularizing the establishment and operational procedures of DAOs. This can significantly lower the creation and operational threshold of Venture DAOs and improve fundraising and investment efficiency. Based on templating, each DAO can be flexibly customized to meet different operational needs through parameter settings and changes. In the DAOSquare Incubator,

• The DAO's Summoner (creator) can deploy a lightly customized Venture DAO on the blockchain in just a few minutes with a simple click.
• Each DAO's Governor (manager) can manage and make decisions for the DAO through quick proposal voting.
• Investors can browse multiple relatively standardized Venture DAOs on one platform and flexibly join different modes of Venture DAOs to participate in investments based on their needs.
• The operation of Venture DAOs is based on smart contracts, and all activities are traceable and verifiable, making it faster, safer, and more transparent compared to off-chain investment organizations.
• For DAO organizers and managers, this emerging technology application can save them a lot of manual dirty work.

The Mode in the DAOSquare Incubator defines the operational framework of a Venture DAO, determining how the DAO operates and its smart contract structure. The smart contract structures of different modes of Venture DAOs vary, so once a DAO is deployed, its mode cannot be changed.

Currently, the DAOSquare Incubator offers three Venture DAO modes for users to create or participate in:

• Vintage
• Collective
• Flex

These three modes cover the current typical private collective investment management and operational mechanisms. Below, we will specifically introduce the three Venture DAO modes currently offered by the DAOSquare Incubator.

Vintage DAO

Design Concept

The Vintage mode of Venture DAO, abbreviated as Vintage DAO, is designed with reference to the blind pool fund model of traditional private equity funds' GP+LP structure, where in the case of uncertain investment targets, fund managers and investors pool their funds into a fund pool, and the fund managers represent the investors in making investment decisions. In Vintage DAO, there are two roles: Governor and Investor, which are similar to the functions of GP and LP in traditional funds, and there exists a principal/agent relationship.

Roles

Members in the Governor role take on responsibilities similar to fund managers, establishing the fund, selecting investment targets, conducting due diligence, and making decisions. Members in the Investor role act solely as contributors, injecting funds into the Fund initiated by the Governor and entrusting the Governor to make investments. Investors do not directly interfere with the DAO's investment decisions.

The Governor's management of the DAO, as well as decisions and management of specific investment projects, will be completed through proposal submissions and voting. Investors do not have voting rights in Vintage DAO. The Governor can receive management fees and carry as compensation and incentives. For each investment project proposer, the Governor can set rewards such as investment amounts or (and) Payback Tokens.

Operational Process

Once a Vintage DAO is successfully deployed, the Governor can initiate a new fund. During the fundraising period, eligible Investors can make deposits. If the raised funds reach the fundraising target by the end of the fundraising period, the new fund will officially be established and enter the investment phase.

Vintage DAO can freely set the relevant mechanisms and timeframes for all stages of a fund (fundraising period, investment period, redemption period, refund period) and operate automatically. Currently, a Vintage DAO can only have one active fund at a time. After one fund ends, the DAO can quickly initiate the next fund, whether the same or different.

The investors and share ratios for investment projects are locked at the beginning of each investment period. Only when the DAO's fund amount is sufficient to complete the investment execution can investment proposals be submitted (contract restrictions).

Suitable Audience

Vintage DAO provides an operational framework close to traditional private equity funds. Suitable audiences include but are not limited to:

• Traditional private equity funds transitioning or practicing in the Web3 space.
• Individual investors with professional investment capabilities establishing their own Venture DAO to leverage their investment expertise.
• Investment organizations with certain project reserves but lacking funds.
• Investors with corresponding risk tolerance and idle funds who wish to entrust professionals to invest on their behalf.

Collective DAO

Design Concept

The Collective mode of Venture DAO, abbreviated as Collective DAO, is designed with reference to investment clubs in the UK and the US. This means multiple individuals pool their money into a fund, and all members have investment decision-making and governance rights, with no one acting as an investment advisor or any principal-agent relationship.

Roles

In Collective DAO, all members have the same rights and obligations; all Members are both Governors and Investors. All Members have the right to participate in the operation and maintenance of the DAO as well as specific investment decisions.

DAO members manage the DAO and specific investments through proposal submissions and voting. Everyone has voting rights. Since there are no trustees, each person is responsible for their own decisions; therefore, Collective DAO does not set management fees or carry but can share expenses incurred during DAO operations and project investments through Expense proposals. For investment project proposers, the DAO can set rewards such as investment amounts or (and) Payback Tokens.

Operational Process

Although Collective DAO is also a blind pool fund, it does not have a fixed fund cycle.

When a Collective DAO is successfully deployed, there will be changes in Fund capital such as fundraising, investment, and redemption, as well as member additions and exits. However, the DAO does not need to set fixed periods for various activities in advance but can flexibly adjust funds and personnel at any time through proposals.

Although each DAO member has voting rights, individuals must ultimately comply with collective decisions (voting). To give each member more autonomy, the DAO can set a Grace Period before executing investment proposals, allowing dissatisfied members to exit and redeem their funds.

The investors and share ratios for investment projects are locked at the time of proposal submission. Only when the DAO's fund amount is sufficient to complete the investment execution can investment proposals be submitted (contract restrictions).

Suitable Audience

Collective DAO is suitable for groups of investors who wish to invest and make decisions together. Suitable audiences include but are not limited to:

• Traditional (off-chain) Investment Clubs transitioning or practicing in the Web3 space.
• A group of like-minded investors wishing to make investment decisions together through on-chain investment DAOs. DAO members mutually recognize each other's investment philosophies and capabilities and are willing to comply with collective judgments.

Flex DAO

Design Concept

The Flex mode of Venture DAO, abbreviated as Flex DAO, is a very flexible Venture DAO model that allows fundraising and investment to be initiated at any time based on specific investment projects, designed with reference to the Deal by Deal Syndicate in traditional private equity.

Flex DAO is named Flex to emphasize the flexibility of individual will. Investors do not need to place funds into a pool in advance to invest in multiple unknown targets in the future; instead, they can decide whether to participate in a specific investment project after seeing the concrete investment proposal. If the fundraising for a project reaches the minimum investment target, the investment proposal will be executed.

Roles

Flex DAO also has Governor and Investor roles, but their scopes of work differ from those in Vintage and Collective. In Flex DAO, the Governor role is not responsible for specific investment work but serves as the organizer of the DAO, maintaining the DAO contract, such as modifying mechanisms, upgrading contracts, and managing Governor members. The Investor in Flex DAO is specific to each investment project, and the investors for each project often differ.

Although the Governor does not make investment decisions, as the organizer, they can set management fees and carry as operational compensation. For each investment project proposer, the DAO can set rewards such as investment amounts or (and) Payback Tokens.

Operational Process

Flex DAO will raise funds and invest based on a specific project, so the DAO will not establish a Fund on-chain. Proposers qualified to propose submit investment proposals, and potential investors who meet Investor Eligibility can make deposits based on their judgment. If there are many investment proposals that need preliminary screening, the DAO can choose to set a Poll voting process for investment proposals, and only after the vote passes will the proposal be activated and enter the fundraising phase. When the deposit amount reaches the minimum requirement for the project investment, the investment will be executed.

Once a Flex DAO is successfully deployed, it can initiate project investment proposals at any time, and multiple investment proposals can proceed simultaneously. The final investors and the distribution ratios of investment shares for each investment proposal may differ and may fail and refund if the fundraising does not reach the minimum investment target.

Suitable Audience

The Flex mode of Venture DAO provides a more flexible and lightweight private investment model, suitable for audiences including but not limited to:

• Investment community organizations currently engaging in similar investment activities off-chain transitioning to on-chain.
• Investors who do not wish to place any funds initially and want the autonomy to choose projects.
• Institutions or individuals with financial strength but lacking investment opportunities.
• Institutions or individuals with investment opportunities but lacking funds.

Which Mode Of Venture DAO Is Best For You?

You can quickly understand the characteristics and advantages of the three Venture DAO modes through the table below.

| | Vintage DAO | Collective DAO | Flex DAO | |-------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------| | Mode Description | Investors deposit money into DAO to delegate Governors to manage. Governors are responsible for identifying investment opportunities and making investment decisions. | A group of people pool their money to invest together. All Members generally study different investments and then make investment decisions together. | Members research and select investments together, but they invest individually deal by deal instead of pooling their money. | | Similar Structure in Traditional Finance | VC Fund with GP +LP structure | Investment Club | Syndicate | | Roles | Governor, Investor | Member | Governor, Investor | | Decision Maker for Investment | Governors | All members | Investors | | Decision Maker for DAO maintenance | Governors | All members | Governors | | Fund Type | Blind Pool | Blind Pool | Deal by Deal | | Fund Term | Long (Fixed) | Medium (Flexible) | Short (No Term) | | Investor Decision making willingness \& Ability | Low | Medium | High |