Everything you wanted to know about Decentralized VCs
Everything you wanted to know about decentralized VCS
What Are Traditional VCs and Decentralized VCs?
A venture capitalist (VC) is a private equity investor who invests in high-growth companies in exchange for a share of the company’s ownership. Venture capitalists seek out companies that are ready to commercialize their ideas.
This might include sponsoring new projects or assisting small businesses that want to grow but don’t have access to the stock market.
What are VCs, how do they work, and why do decentralized VCs stand out? Keep on reading to learn more!
What Venture Capitalists(VCs) Are all About
Limited partnerships (LPs) are commonly formed by venture capitalists, in which the partners invest in the VC fund. A committee is usually responsible for making investment decisions for the fund. Following the identification of companies with promising growth, the pooled investor funds are used to support these companies in exchange for an equity interest.
A strong management team, a vast potential market, and a distinctive product or service with a strong competitive advantage are all things that VCs look for. They also look for possibilities in areas they are familiar with, as well as the possibility to own a big portion of a project, and so, have a say in how it is run.
Venture capitalists are ready to take a chance on such businesses since they tend to profit handsomely if they succeed.
25% to 30% of venture-backed businesses fail.
Why Is Traditional Venture Capital not Working Anymore?
Taking a look back at the history of money and investments, venture capital type of investment have been around as models of investing since the beginning of the 1900s.
It all began with a couple of wealthy families interested in growing their wealth while funding small local businesses. Until the 2000s Nasdaq crash, this type of investing used to be one of the most popular means of acquiring funds for developing an initial-stage business.
Up to now, venture capitalists are primarily endowments, family offices, pension funds, and ultra-high net worth individuals. Parallel to that, the three essential steps that every VC firm must do for their investors to succeed have been centralized in small partnerships, usually sitting on venture capital land, Sand Hill Road.
These are the steps:
- Acquiring capital from limited partners;
- Finding high-potential businesses to invest in;
- Choosing the finest ones.
At first glance, it might seem reasonable to centralize these processes. It may even appear simpler and faster for the investors and the projects. However, centralization means that this investment system is full of blurred information, mystery, and secrecy.
With centralization creating so many barriers to a successful investment flow, it is not surprising that soon a new system is finding its footing within the industry. And why the decentralized venture capital funds is beginning to take up more and more space in the investment realm.
Why VCs Are Becoming More Decentralized
VC platforms must excel at three things in order to thrive:
Raising funds from partners
Identifying projects and companies to invest in
Selecting the best projects.
Each of these three ventures has traditionally been highly centralized in a partnership sitting on Sand Hill Road.
However, this is changing as a result of new networks. One of the most recent, known as DAO, aims to decentralize all three at the same time.
VC platforms have experimented with decentralized sourcing over the last decade. Several online applications and bounty referral schemes – which include scouts and equity partners – represent a unique approach to identifying fresh investment opportunities on a large scale.
How Decision Making in Decentralized VCs Work
Making decisions at a VC business is a cloudy art. There is no uniform process for guiding a group of people to a point of agreement. Here are the struggles a Decentralized Venture Capitalist (VC) platform may go through:
- Some businesses offer the right to vote to a certain group of members.
- Others allow each member to make decisions.
- Others seek advice from the subset of the partnership that is most knowledgeable about the subject.
However, most of the time, the decision-making process is kept under wraps.
A common VC investment cliché is that you want to invest in modern companies and get to know more about their prospects. Non-consensus investment is investing in sectors where competitors have yet to participate, resulting in higher valuations due to a lack of capital availability.
Why You Should Consider Investing in a Decentralized VC
BullPerks – as most decentralized VC platforms – has a simple objective: to allow a group of people to pool funds in a secure and anonymous manner and invest it in initiatives that advance the mission of the platform.
Going back to DAO: members of MCVs are referred to as “Mages” and include liquidity suppliers, directors, deal sources, technical DD auditors, analysts, and anything in between. Mages bring investment opportunities to the DAO, conduct due diligence on projects, negotiate with teams, and then create an on-chain proposal for other members to vote on.
Their members can receive their pro-rata part of the DAO’s assets and investments at any time. Today, entrance to the DAO is allowed and member-curated, whereas existing members can receive their pro-rata portion of the DAO’s assets and investments at any time.
Members’ shares (and voting weight) are decided by their contributions to the DAO’s treasury, while non-monetary contributions can also earn those shares.
The Future of Venture Capital Investing
Although it is a somewhat new fundraising modality, it’s already clear that DVCs will most certainly overtake the role of traditional venture capital funds. If not entirely, at least on a substantial scale.
The vast market for emerging crypto-based products and services creates a high demand for resources and qualified developers, meaning funding for those initiatives is needed and there is a place for every type of investor to join.
With this new landscape on the horizon, the truth is that there isn’t enough traditional venture capital money to meet the rising demand. With VCs, only a small percentage of initiatives that make it to the pitch room have a chance to get the idea off the paper, while endless others don’t even get the opportunity to start.
DVCs, on the other hand, can help solve this demand dilemma by tapping into the seemingly endless capital available in the hands of the accumulating prosperous middle class.
Industries that are directly or indirectly involved in cryptocurrencies and blockchains are most likely to understand the benefits of DVC and pursue these investments earlier. For example, DVC will arguably be one of the essential tools to enable Metaverse and its related startups.
Some specific industries, such as gaming, are deeply involved with DVC. But there are shifting focuses on a more broad scale towards funds formed to support more passionate projects, such as promising alternative energy startups, minority-owned and female-owned companies, and some projects focused on local communities development.
Decentralized venture capital funds are the new wave within the investment landscape. For those seeking more flexible and democratic investing opportunities that are still secure and trustful, it may be one of the best modalities available to this date.
DVC platforms have the primary goal of reuniting and allowing a group of interested investors to fund any promising initiative that can contribute to society and the overall technology advances while still generating satisfactory returns to the collective of investors.
That is also in direct alignment with the BullPerks’ mission. Utilizing the BullStarter platform, the company offers a safe space for investors and entrepreneurs to match anonymously. Promoting an environment that is now easier than ever for startups to reach out for funding and develop their projects with all the necessary resources.