BessemerDAO
Photo: BessemerDAO

How to turn your VC firm into a DAO

Protocol Pipeline

Hello and welcome to Pipeline. This week: Bessemer goes for the DAO, startupland in wartime and a little Tiger in your funds.

Decentralizing VC

Venture firms have been trying to reinvent themselves lately, in an era where founders have an edge with capital aplenty and, at least for now, still-high valuations. It’s no longer enough to be a good adviser, board member and cheerleader. VCs are pushing services like marketing, recruiting, design and data, and broadening their investing stages from seed to growth.

But with the clear arrival of Web3, is that enough? Bessemer is asking that question with a new initiative it’s calling BessemerDAO. The move is part of the firm’s allocation of $250 million of its $2.5 billion fund to Web3 sectors including consumer crypto, infrastructure and DeFI.

BessemerDAO is a statement about crypto. In a world where crypto-focused firms are raising billion-dollar funds, traditional firms need to show a little street cred.

  • Crypto is a different world, where decentralization of power is a key tenet of protocols and organizations. Starting its own DAO is a way for Bessemer to show it’s not stuck in the traditional Sand Hill Road mindset.
  • Bessemer has made some early and substantial bets in Web3 such as NYDIG, Sorare, MakersPlace and TRM Labs, but it’s still mostly known as a traditional firm investing in consumer, health care and cloud startups.
  • BessemerDAO is designed to provide additional VC portfolio services for its startups, but in a decentralized manner, crowdsourced from the community. Bessemer will still maintain its existing portfolio services, said partner Ethan Kurzweil.
  • The plan is to eventually make the DAO fully decentralized and run by the community. It’s an experiment to see what’s possible with the structure.

Can DAOs disrupt portfolio services? Andreessen Horowitz and GV popularized the idea of delivering structured services with dedicated teams, but that idea is now old enough to deserve some disruption of its own.

  • Many firms including Bessemer already have email lists, online forums and collaboration tools for startups to connect with other portfolio startups and advisers.
  • BessemerDAO will be different in that it will have members from Bessemer startups as well as tech executives and other non-Bessemer startups. The invite-only setup might raise eyebrows in the freewheeling crypto world, but DAOs already vary in their membership structures: Some are “permissionless” where anyone who buys a token is automatically a member, while others might require a vote of existing members to admit new ones.
  • The ambition for BessemerDAO is to have a community like those seen in the crypto world built to manage projects like protocols. It could also potentially have the financial earmarks of a DAO such as token incentives. No word yet on a token, but Bessemer’s Talia Goldberg and Kate Walker teased out the idea of democratizing the economics of venture capital in a January post.
  • DAO members could help each other out in areas such as talent and hiring, business development and investment theses. And the DAO could potentially do it faster and with more precision than a VC firm could. One recent example is the DAO identifying a designer to create an NFT design.

But the ultimate disruption would be a DAO making investments. BessemerDAO could potentially raise money and take stakes in startups, though the regulatory and legal issues would have to be hammered out, Kurzweil said.

  • As of now the DAO is not there for investing or to help Bessemer make investments, he said. But that could change.
  • There are a number of investment DAOs that have popped up to invest in Web3 startups, such as The LAO, MetaCartel and Global Coin Research, which have gotten into early-stage deals in substantial startups. And there are others targeting specific areas such as Komorebi Collective and NFT investor Flamingo DAO.
  • But DAOs still face some regulatory and legal questions as investment vehicles, Kurzweil notes, which Bessemer would work through if it were to go that direction.
  • DAOs wouldn’t necessarily have the same GP/LP fund VC structure. But they’d need to adhere to things like securities laws and accredited investor rules, at least to operate in the U.S. The LAO, for example, sits on top of a Delaware-registered LLC.

VC has historically been about small teams of investors working closely together. Decentralization is a big pill of change for the industry to swallow. But classically, VCs have recruited from the ranks of successful founders. As crypto startups enjoy success, a new generation of investors will arise who expect decentralization — and know how to capitalize on it.

Overheard

Haystack’s Semil Shah is hearing warning signs. “VC friend last night estimated U.S. endowments & foundations exposed to VC have likely lost ‘multiple hundred of billions’ in private book value so far in 2022, but it will take many months for the marks to hit. They suggested this will greatly impact those raising new funds,” he tweeted.

There’s definitely an “RIP Good Times 2.0” vibe floating around. Mainstreet’s Doug Ludlow wrote: “Founders — if you haven't already started on a path to break-even, start immediately.”

But OpenSea’s Alex Atallah was here to remind everyone of the opportunities in Web3: “There are now more NFTs on OpenSea than there were websites on the internet in 2010.”

A MESSAGE FROM HASHICORP

If you’re a CEO these days, odds are that your CIO understands something you may not: Your company’s cybersecurity strategy is fundamentally flawed, and has been ever since your organization began using cloud-based services.

Learn more

Inside track

With tech stocks down and war in Europe, Micah Rosenbloom says startups should prepare for the worst in case fundraising becomes harder. Shoring up oversight of financial reporting is a good place to start.

The Russian war in Ukraine could have significant impacts on the crypto market, from the decoupling of bitcoin from other risk assets to an increasing call for regulation, wrote Future Perfect’s Jalak Jobanputra.

Need to know

Tiger Global wants you to take its cash. The firm shook up the startup funding world. Now individual Tiger partners are getting into funding early-stage venture funds. To be fair, individual GPs at other firms have long used this strategy to keep in touch with early-stage deals.

Alex Iskold’s network is donating $1,000 each to Ukraine refugees. The co-founder of 2048 Ventures previously set up a network to donate for the pandemic.

A public market slide, lower startup valuations and layoffs are all early signs of perhaps a bigger downturn coming in the startup market.

In memoriam: Interlace Ventures announced the unexpected death of Managing Partner Joseph Sartre. Our deepest condolences.

From Protocol: “Buy now, pay later” company Sezzle laid off 40-50% of its global staff as it merges with larger rival Zip.

Also on Protocol: With the war in Ukraine escalating, enterprise AI companies are signing military contracts, despite the potential PR risks.

Your weekend reading: Ukraine planned to send six companies to this week’s South By Southwest conference. Then came the war.

A MESSAGE FROM HASHICORP

As a business leader, you need to understand that zero-trust is not just another buzzword. It’s a fundamentally different mindset that you will need to embrace — and the sooner you do so, the better.

Learn more

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