How to incorporate a DAO and issue tokens to be ready to raise money from VCs

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What is a DAO?

A DAO, or Decentralized Autonomous Organization, is an online-based organization that exists and operates with a single leader or governing body. DAOs are run by code written on a blockchain such as Ethereum (ETH) and are owned and operated by the people who use them.

There are many different types of DAOs, but they all have one thing in common: they are decentralized, meaning that decisions about the future of the organization are made by a collective group, not by an individual.

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It is this decentralization that makes The DAO promising, as it theoretically removes the possibility of corruption or manipulation by a single entity. Smart contracts (and not people) execute the terms and conditions of the organization, making them incredibly efficient and resilient to change.

How does DAO work?

The DAO is a collection of smart contracts residing on the Ethereum blockchain. These contracts interact with each other to form the organization. They are written in such a way that anyone in the world can use them.

The code for the DAO is public, and anyone can see how it works. This transparency is one of the key features of The DAO. Compared to traditional organizations, DAOs are more efficient as no middlemen or central authorities are required.

Another key feature of the DAO is that it is autonomous, which means it can operate without human intervention. This is made possible by using smart contracts, which can automatically execute tasks according to programmed rules.

DAOs are self-governing and self-contained, meaning they can exist and operate even if the original creators are no longer involved. This is another advantage of using smart contracts. They ensure that the DAO continues to adhere to its core rules even as the people running it change.

Some of the most famous DAO tokens and platforms are Uniswap (UNI), Ave (AAVE), Compound (COMP), Maker (MKR) and Curve DAO.

Steps to raise funds from VCs after induction of DAO

write a white paper

After incorporating your DAO, you need to write a white paper. A white paper is an essential document that explains what your DAO is, what it does and how it works. It should be clear, concise and easy to understand.

Your white paper will be used to persuade potential investors to support your DAO, so it is important to make sure it is well written and persuasive. To help you get started writing your DAO white paper, check out our detailed guide here.

build a pitch deck

In addition to white paper, you will also need to build a pitch deck. A pitch deck is a short presentation that gives an overview of your DAO and its purpose.

Your pitch deck should be clear, visually appealing and easy to follow. It should also include information about your team, your progress to date, and your plans for the future.

create a website

The next step in raising funds for your DAO is to create a website. Your website should be professional and informative. This should include your white paper as well as any other relevant information about your DAO.

It should also have a way for potential investors to contact you. This can be through contact forms, email addresses or social media accounts.

contact VC

Once you’ve created a white paper, pitch deck, and website, you can start reaching out to venture capitalists, or VCs. When contacting a VC, it is important to be clear about your objectives and what you are looking for.

Some VCs may be interested in investing in your DAO if they believe in its mission. Others may be more interested in the financial returns they will get from investing in your DAO.

related: Venture Capital Financing: A Beginner’s Guide to VC Funding in the Crypto Space

It’s also important to remember that VCs are busy people. They get hundreds of pitches every week, so you need to make sure your pitch looks different.

Negotiation Terms

Once you find a VC interested in investing in your DAO, you need to negotiate the terms of the investment. This includes the amount to be invested by the VC and the equity stake they will receive in return.

It is important to remember that you are in a strong position when interacting with VCs. After all, they are the ones who are interested in investing in your DAO. As such, you should aim for terms that are favorable to you and your team. This includes a large equity stake and a high valuation for your DAO.

make a deal

Closing the deal is an important step in raising funds for your DAO. Once you have negotiated the terms of the investment, you need to close the deal. This involves signing a contract with the VC, as well as receiving the agreed amount. It’s a good idea to have a lawyer review the contract before you sign the contract.

use money

Once you close the deal and get the investment, you will need to use the money wisely. This means spending it in a way that will help your DAO achieve its objectives. You can use the money to hire employees, market your DAO, and develop new features.

It is also important to remember that you must report back to the VC how you are using the money. For this reason, make sure your spending and progress are all properly tracked.

pay back VCs

Eventually, you have to pay back the VCs. This can be through the sale of your company, an initial public offering (IPO) or any other exit strategy. Returning VCs is an important step in the life cycle of a DAO. It’s also a great way to show them that you’re committed to your business and that you have confidence in its future.

related: What is an IPO? A Beginner’s Guide to How Crypto Firms Can Go Public

Can DAOs Replace Vice Chancellors?

Are DAOs a Viable Replacement for Venture Capitalists? The answer is that it depends. VCs typically invest in early-stage companies and help them grow through the provision of capital, mentorship and connections.

DAOs may provide some of these similar services, but they are not suitable for investing in early-stage companies. This is because DAOs are decentralized and cannot make quick and decisive decisions.

VCs, on the other hand, are centralized and can make quick decisions that help early-stage companies grow. Therefore, while DAOs may provide some of the same services as VCs, they are not a complete replacement. If you are looking for an organization to invest in early stage companies then VC is probably a better option.

A hybrid future of DAO and traditional VC

DAO is a new and innovative way of organizing people and resources. While they may not exactly replace traditional VCs, they can potentially disrupt the industry.

We will see a future where DAOs and traditional VCs work together to support the growth of early-stage companies. For example, a DAO may provide capital and resources while a VC provides mentorship and connections.

Such a hybrid model would allow early-stage companies to get the best of both worlds: the capital and resources they need to grow, and the mentorship and connections they need to be successful.

VC DAOs already exist, proving that such a model is possible. An example is LAO, a venture capital DAO. It focuses on early stage blockchain projects based on Ethereum (ETH) and has funded over 30 projects so far. How it works is that governance remains the function of the blockchain while an external service provider takes care of administrative and legal processes.

Another good example is Metacartel Ventures, a private VC DAO and Ethereum ecosystem grant fund, a spin-off of Metacartel. The VC DAO branch is managed by a board of “madges”, which conducts functions such as submission of investment proposals, due diligence and voting on proposals. They mainly fund early-stage decentralized applications and protocols at the moment.