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

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Date: 2022-05-21 14:28:05

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What is a DAO?

A DAO, or Decentralized Autonomous Organization, is an online organization that exists and operates without a single leader or governing body. DAOs are run by code written on a blockchain like 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, which means that decisions about the future of the organization are made by the collective group and not by a single individual.

This decentralization is what makes DAOs promising, as it theoretically removes the possibility of corruption or manipulation by a single entity. Smart contracts (not people) enforce the terms and conditions of the organization, which makes them incredibly efficient and resistant to change.

How does a DAO work?

A DAO is a collection of smart contracts that live 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 a DAO is public and anyone can see it to see how it works. This transparency is one of the main characteristics of a DAO. Compared to traditional organizations, DAOs are much more efficient because there is no need for a middleman or central authority.

Another key feature of a DAO is that it is self-contained, which means it can operate without human intervention. This is made possible through the use of smart contracts, which can automatically execute tasks according to programmed rules.

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

Some of the most well-known DAO tokens and platforms are Uniswap (UNI), Aave (AAVE), Compound (COMP), Maker (MKR), and Curve DAO.

Steps to fundraise from VCs after incorporating a DAO

Write a white paper

After incorporating your DAO, you will 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.

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Your whitepaper will be used to convince potential investors to support your DAO, so it’s important to make sure it’s well written and compelling. To help you get started on writing your DAO white paper, check out our step-by-step guide here.

Create a pitch deck

In addition to a white paper, you will also need to create a pitch deck. A pitch deck is a short presentation that outlines 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 so far, and your plans for the future.

Create a website

The next step in fundraising for your DAO is to create a website. Your website should be professional and informative. It should include your whitepaper as well as any other relevant information about your DAO.

It should also have a way for potential investors to get in touch with you. This can be done through a contact form, email address or social media account.

Contact the VCs

Once you’ve created a whitepaper, pitch deck, and website, you can start reaching out to venture capitalists or VCs. When contacting VCs, it’s important to be clear about your goals and what you’re 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 return they would get from investing in your DAO.

Related: Venture Capital Funding: A Beginner’s Guide to Venture Capital Funding in the Crypto Space

It’s also important to remember that VCs are busy people. They get hundreds of placements every week, so you need to make sure your placement stands out.

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Negotiate the terms

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

It is important to remember that you are in a position of strength when negotiating with VCs. After all, they are the ones interested in investing in your DAO. As such, you should aim for favorable terms for you and your team. This includes obtaining significant ownership and a high valuation of your DAO.

Close the deal

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

Use funds

Once you have completed the transaction and received the investment, you will need to use the money wisely. This means spending it in a way that will help your DAO achieve its goals. Some of the things you could use the money for include hiring employees, marketing your DAO, and developing new features.

It’s also important to remember that you will need to report to the VCs on how you are using the money. For this reason, make sure your spending and progress are all tracked properly.

Refund CVs

Eventually, you will need to repay the VCs. This can be done through the sale of your business, an initial public offering (IPO), or some other exit strategy. Reimbursing CVs is an important step in the lifecycle of a DAO. It’s also a good way to show them that you’re committed to your business and have confidence in its future.

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

Can DAOs replace VCs?

Are DAOs a viable replacement for venture capitalists? The answer is that it depends. VCs typically invest in start-up companies and help them grow through the provision of capital, mentorship, and connections.

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DAOs can provide some of these same services, but they are not well suited for investing in start-up 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 start-ups grow. So while DAOs can provide some of the same services as VCs, they are not a perfect replacement. A VC is probably a better choice if you are looking for an organization to invest in start-up companies.

A hybrid future of DAO and traditional VC

DAOs are a new and innovative way to organize people and resources. While they can’t exactly replace traditional VCs, they have the potential to disrupt the industry.

We will likely see a future where DAOs and traditional VCs work together to support the growth of start-ups. For example, a DAO might provide capital and resources while a VC would provide mentorship and relationships.

Such a hybrid model would allow start-ups to get the best of both worlds: the capital and resources they need to grow, and the mentorship and connections they need to succeed.

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

Another good example is MetaCartel Ventures, a private VC DAO and spin-off from the Ethereum ecosystem grant fund, MetaCartel. The VC DAO branch is managed by a board of “mages”, who carry out functions such as presenting investment proposals, due diligence and voting on proposals. They primarily fund early-stage decentralized applications and protocols.