What if LinkedIn, Crunchbase, and Angellist had a baby?
As part of my application for an internship at a crypto venture studio in Canada, I had to pitch a new idea for a web3 business. This article is a summary of what I presented.
As I read it over almost six months later, it’s pretty clear why I wasn’t given an offer. While I might have been scratching at the surface of a new type of social network, my idea lacked a lot of depth. Overall, I didn’t have enough conviction about why crypto mattered and the problems it solves. That’s why I wanted to start HiveDAO.
One day soon, I’d like to revisit the idea and write a follow-up.
In my last post, I discussed a future of the internet where both social and financial networks converge – eventually making the two inseparable. In this way, every community, group chat, and club becomes financialized by its members. DAOs are one of the first examples of distributed communities with a shared treasury, but likely won’t be the last.
As everyone becomes their own micro VC and web3 begins to onboard the next billion owners, I want to explore the concept of a decentralized social / investing platform that helps smaller-scale investors source seed-stage deals and build strong networks – both domestically and abroad. On the other end, I want to help founders raise capital from individuals and communities who will back their missions at the grassroots level.
While social investing platforms such as Public.com or its web3 equivalent Prysm.xyz have yet to gain serious traction, I believe crypto-native communities are now primed for a new type of experience – one that emphasizes relationships and connects them to decentralized projects on a global scale.
From a fundraising perspective, decentralized protocols like Uniswap, LooksRare, and Braintrust tend to reserve a portion of their utility token supply for early backers and investors. For example, Braintrust has set aside 22% of their utility token’s overall supply to fund the platform’s development, and has recently exchanged an unspecified quantity with investors in a $100M funding round.
Quickly, many large VCs are coming around to the idea of investing in a protocol’s utility token - with household names like a16z, Delphi Digital, Coinbase Ventures, and others leading the pack. This represents an important paradigm shift in the way VCs invest in the next generation of internet platforms.
To participate in the long-term upside of a decentralized protocol, traditional equity investments aren’t always possible and instead, private utility token sales are often initiated between protocol founders and investors. Over time, It is likely that token investments will flip equity investments as a means to fund early-stage crypto projects. Once this happens, there will be many opportunities for web3 tooling projects that help make private token sales more of a seamless process - both for founders and investors.
As most VCs will say, startups, especially in their earliest stages, know exactly who owns them and who they want to be owned by, making the reputation and credentials of an early-stage investor important.
Right now, founders building the next stage of crypto protocols can approach VCs like a16z, Variant, Paradigm, and others while also applying to accelerator programs like SPC’s Web3 Fellowship Program. However, a case can be made that despite how much support these organizations provide to founders, too much deal flow passes through their doors. As a result, the protocols that were meant to be decentralized and community-owned end up being under significant influence of a select few.
To make seed-stage token investing more accessible to smaller-scale VCs and the broader web3 community, one solution involves a decentralized platform that connects founders with the broader community of web3 investors. If designed properly, such a platform would enable founders to build out their networks while finding projects that align with their investment thesis and skillset.
When investment DAOs and other community members (angels, emerging managers, etc.) support a startup in its earliest stages, founders gain support from the web3 community at the grassroots level. For example, by allocating tokens to an investment DAO in a private sale, each member of the DAO becomes an evangelist for the founder and their mission in ways that a16z and Coinbase Ventures cannot.
Think of AngelList with more social components and crypto-native tooling – built for the masses. The platform I am envisioning is a web3-native community investing hub that connects early-stage investors - including DAOs - to founders building the future of web3.
On the platform, founders can promote new startups, engage with potential investors, and secure funding in USDC in exchange for private allocations of their project’s utility token. Founders would determine the number of tokens they wish to exchange with seed investors at a specified price. Then, they would decide whether to make the token sale publicly available to the platform’s entire community, or only allow whitelisted members to participate in the deal - like private token offerings. A caveat is that once investors receive utility tokens, there is usually a lockup period preventing them from selling them to other parties.
At the same time, to prevent founders from raising capital only for their ambitions to never materialize, funds could be locked up via a smart contract and released based on investor’s evaluation of the founding team’s progress. In other words, founders would only receive fractions of the funds they raised once milestone are reached.
From a social perspective, the platform will be built to foster community and collaboration between investors and founders. It is likely that the networking tools embedded in the platform will benefit smaller-scale investors and new founders more than those who are already well-known.
For example, on the platform, investment DAOs and other VCs could leverage chat functions to interact with founders and fellow investors. Token-gated group chats could also become a reality, making it easier for founders to centralize communications with early-stage investors who purchased their project’s tokens.
To help connect founders to the right investors, the platform will include investor and founder profiles - enabling each party to highlight their professional background, prior investments, and more. Eventually, on-chain credential validation could become a feature, by connecting to platforms like Etherscan, POAP, and others.
To bootstrap networks once they’re launched, a popular strategy involves attracting users with “single-player” tools that incentivize usage before any network effects kick in. Over time, users are gradually encouraged to participate in the network as it develops, eventually leading the platform to critical mass.
On a platform like this, keeping the first few thousand users engaged - before any benefits of network effects kick in - is crucial. By providing on-chain portfolio management tooling such as token vesting to DAOs and other investors, the platform could incentivize usage from day one.
Many DAO founders have emphasized a need for better on-chain tooling to help treasury managers and community members track investments. Utilizing other features as simple as portfolio dashboards could help drive growth in the earlier stages of the platform’s development. As the user base scales, automated recommendations could point investors towards founders and other VCs that align with their current portfolios or professional backgrounds, helping them source the right deals.
How much volume could pass through a platform like this? Well, looking at the amount of VC funding that went into crypto last year may be a reasonable starting point.
To nobody’s surprise, 2021 was crypto’s biggest year ever. It turns out that more venture capital funds were invested in crypto startups in 2021 than every preceding year combined. According to Coinbase, across DeFi, CeFi, NFTs, the Metaverse, and other segments of the ecosystem, more than $30B in U.S. venture funding poured into the space.
Of that volume, how much could technically pass through the platform? Well, the platform will initially be dedicated to helping founders raise seed funds for their web3 projects, which means that funding for later-stage rounds should not be considered, at least initially. According to PitchBook, in 2021 angel and seed investments made up 37.1% of total VC deals. This means that of the $30B raised by crypto startups, just over $11B is likely attributable to angel and seed stage investments.
Currently, there is no decentralized platform that enables founders to connect with investors, build relationships, and engage in private token sales to finance the development of their projects. At the same time, investor’s interest in the crypto ecosystem cannot be downplayed. As large-scale VCs, emerging fund managers, investment DAOs, and even the little guy continue to show an increasing interest in the broader community, now is the time to consider developing a platform like this.
Back in December, the underlying message of Jack’s infamous tweetstorm was that despite web3’s promise to be community-owned, large VCs had significant influence over the whole ecosystem. By giving more investors the opportunity to connect with founders, build a brand for themselves, and invest in the community, such a platform effectively makes the ecosystem more decentralized - as it should be.
Speaking to a variety of stakeholders is probably a good place to start. Here are some relevant discussion points:
Web3 founders - is a platform like this actually useful? How useful?
Investment DAO operators - aside from portfolio dashboards, what kind of tooling would help drive traffic to the platform? What’s missing in the current DAO tooling stack?
Investors - how comfortable would you feel about publicly disclosing your holdings? What information would you not feel comfortable sharing? What information would you like to see on such a platform in order to help you make better investments?
Legal experts - have crowdselling regulations recently changed? Do any specific legal risks come to mind when thinking about a platform like this?
After speaking to the right community members and stakeholders, there’s a good chance that my vision for the platform will look much differently than it does now. One day, I plan to look back on this post and compare it against whatever the final product is.