In the year 2017, more than $6 billion were raised via an innovative fundraising approach — initial coin offering (ICO). During the first months of 2018 ICO funding has passed 2017’s total. The success and skyrocketing growth of this trend is due to the fact that ICOs are the most convenient way of investing and raising funds nowadays.
However, there are a lot of issues related to this funding method along with crowdfunding and the sphere of investments at large. For instance, on the one hand, one can raise funds easily via an ICO, on the other hand this method leads to high investor’s risks, scams, frequent failures and other problems. Equity-based investing is not that risky but at the same time not widely accessible.
But can we make a solution that will be as safe as if you were a VC, widely accessible for everyone as an ICO, and easy-to-use for backers as it is on major crowdfunding platforms, like Kickstarter? The answer is yes. For that purpose we have implemented all the best practices of VCs, crowdfunding, and ICOs in a blockchain-based entity. And we call it a Fundraising DAO.
Fundraising DAOs (Decentralized Autonomous Organization) play the role of advanced intermediaries between startups and its investors. They are like real world companies but instead of a legal body they have smart-contracts, instead of bank accounts they use cryptocurrencies, instead of shares there are tokens, and instead of the jurisdiction — a borderless blockchain network.
For example, one of the main principles is that all the collected funds are stored in a DAO instead of being at the disposal of a single individual (or group of individuals). The funds are released based on withdrawal proposals submitted by the startup team. If investors (DAO token-holders) of the startup are satisfied with the way the project unfolds, they approve such requests.
This functionality alone solves some of the major problems of ICOs and crowdfunding, namely scams and decrease of the teams’ motivation. If the majority of investors do not see the startup stick to its declared roadmap and obligations, they can simply vote for the refund.
So not only we can get rid of scams because it’s simply becoming unprofitable, but we also increase the success ratio due to the fact that the startups’ team is highly motivated. With this, we can conclude that Fundraising DAOs achieve the level of safety and success probability as VCs have, preserving all the benefits of the ICO approach.
Each Fundraising DAO is modular. This means that its governance structure and functionality might be adjusted to the specific needs of each project. For example, authors could set up the vesting period, or automatically share raised funds with service providers (e.g. marketing or legal services). Imagine building a DAO of blocks representing different governance features and functionality.
Besides all that, Fundraising DAOs have many other benefits for both investors and startups such as transparency in business relations, lowering the risks, easy communications, decentralized decision making, complete independence, and of course engagement into the ecosystem which provide tools and services for investors and startups.
So, Fundraising DAOs combine all the benefits and best practices of crowdfunding, ICO, VC, and blockchain technology, making this kind of entities the smartest fundraising tool nowadays.