Welcome to Crypto Por Favor, where I explore the future of crypto-powered consumer applications. Catch me on Twitter to chat all things consumer crypto. All views in this blog are my own and do not necessarily represent the views of my employer, Foundation.
The traditional path to fundraising for your startup has been something along the lines of this:
Friends and family round —> Pre-seed —> Seed —> Series A, etc.
While this has worked well for many over the course of decades, it’s also shut out a lot of talented entrepreneurs due to the VC industry’s reliance on pedigree / shared network connections, among other reasons. This has created opportunities for VCs who have an eye for spotting talent in traditionally overlooked segments of the population, however, the capital markets still do not work well for most entrepreneurs. But this dynamic is rapidly changing due to Web3 innovation.
NFTs aren’t just artworks or social access tokens - they can act as fundraising mechanisms. Many DAOs are using NFTs to get off the ground and to bootstrap their community’s growth. To create the NFTs, DAOs will typically create the artwork or partner with an artist and split a portion of the proceeds with them. As a next step, a DAO can sell multiple editions of the NFT or create various types of editions, with the more expensive ones coming with increased access/benefits.
Two months ago, I came across BLVKHVND. They are a DAO that was looking to get initial funding in order to pursue their vision of becoming the first decentralized e-sports cooperative. I thought it was a cool concept, so I purchased one of their NFTs to prove I was an early supporter and I also received their native token, HVND, which provides governance rights.
Another example is NounsDAO, which has loaded its treasury with proceeds from the NFTs it sells on a daily basis. In order to fund the team and align incentives with NFT purchasers, the founding team receives every 10th NFT. In this way, they are incentivized to making sure that the NFTs retain value over time and to build an enduring community around the project.
What is interesting about these examples is that they have bypassed VC funding entirely. No creating a deck, scouring one’s network for intros, or cold emailing VCs. Just straight up funding from your engaged community - “direct-from-community” funding you could say.
Does this mean VCs are going to become completely shut out of Web3? Of course not. The best VCs provide immense value in various areas including recruiting, regulatory guidance, strategy, etc. A recent example of a DAO raising from VCs is Friends with Benefits, which had VCs pitch its community as to why the DAO should accept their funding in exchange for tokens. But it’s clear that alternate paths to funding are emerging.
The game is truly changing now that the VC funding route is becoming optional if you want to build a scalable project in Web3, and I think this is a great thing that will remove barriers for many founders globally. VCs won’t be going away, rather they will be forced to provide even more value if they want to participate in ownership in the early days of any project.
It’s important to note that this development doesn’t just benefit DAOs launching from scratch - non-profits that are seeking funding to further their mission can also benefit. Civics Unplugged empowers high schoolers nationwide to reach their potential through a 3-month fellowship. They are launching their SkywalkersZ collection in preparation for a new DAO they will be launching, which will help fellowship alumni learn about Web3 to make a difference in the world.
Overall, leveraging NFTs as funding mechanisms is a development that is massively positive for entrepreneurship and innovation and it’s just another reason I’m excited about Web3.