Decentralized Venture Capital Is Upsetting The Apple Cart

When Sotheby’s auctioned off the last remaining privately-owned copy of the U.S. constitution in the summer of 2021, it was the first time that the famous, 278-year old auction house had denominated assets in the cryptocurrency Ethereum. 

By allowing bids to be made in the popular cryptocurrency, it opened the doors to a very unexpected bid by a community of crypto enthusiasts, who came together to create Constitution DAO - a decentralized autonomous organization controlled by its community. 

Constitution DAO made major headlines when it raised just shy of $50 million in its ultimately failed bid to acquire the copy of the Constitution. It was by far and away the largest crypto crowdfunding project to date, with investors from far-flung places like Bangladesh and Hungary all chipping in with an average of $200 to finance the purchase of a document that gave birth to one of the world’s oldest democracies. The entire bid was managed over the web, using a trustless and permissionless decentralized application. 

Unfortunately, Constitution DAO was outbid by the billionaire financier Ken Griffin. It didn’t manage to buy the U.S. Constitution, but its effort to do so highlighted the uniquely galvanizing power of crypto, blockchain and dApps that work together to give the little guy more opportunities. Most importantly, Constitution DAO’s effort underscored the potential of alternative, decentralized funding that is now emerging as a rival to the traditional venture capital model in the startup space. 

 

A Rich Man’s Game

For years, most technology startups have been forced to raise funding through an outdated and inefficient venture capital industry that’s not only highly secretive, but also very exclusive. With traditional venture capital, the opportunity to access a proprietary deal flow is only available to “accredited investors”, who are primarily extremely wealthy private individuals, pension funds, endowments and family offices. 

Funding from venture capitalists helped pave the way for multi-billion dollar firms like Facebook, Twitter, Amazon and Airbnb to become global names, making their backers extremely rich in the process. But the average person - the likes of you and me - never had a chance to invest in these companies early on. Luckily, that’s changing and it’s all thanks to blockchain and crypto, which has enabled the rise of the decentralized venture capital model that shatters the limitations of traditional venture capital funding.

 

Democratizing Investment Opportunity

Decentralized venture capital is an entirely new investing model that makes it possible for everyone - not only accredited investors - to fund promising startups around the world. The main advantage of this model is that the entire investment process, including screening, due diligence and negotiation, is fully transparent, taking place in public before people commit their hard-earned money. 

In this way, the decentralized venture capital platform’s users are able to make informed decisions on which projects to invest in, and which ones they should avoid, by carefully scrutinizing their business plan, and their products and services. Not only is it advantageous for investors, but the startups themselves gain more than just a financial investment, as they’re also able to tap into their community of backers and early adopters, who can provide feedback on their business model and their products. 

What’s also key is that it enables smaller decentralized venture capital platforms to thrive, without needing to compete with much larger investors. In the traditional venture capital space, larger firms often prevent smaller firms from partici[pating in the lucrative deals involving the most promising startups. 

With platforms such as Hectagon, it’s possible for anyone in the world to become a venture capitalist and profit from the growth of the projects they believe in. Moreover, startups can choose to raise capital from an army of smaller, individual investors, rather than giving up equity and control of their businesses to large corporations. 

Hectagon is the industry’s first DAO-governed Web3 venture capital funding platform that anyone can join. To take part, all that’s required is to purchase $HECTA tokens which open the doors to a range of investment opportunities through the Hectagon launchpad. Investors can purchase just a few dollar’s worth of $HECTA tokens for the chance to participate in projects that may potentially provide an attractive return. 

By buying $HECTA and contributing to Hectagon’s treasury, investors will be entered into a lottery, with the winners given the opportunity to invest as much, or as little, as they like. For those who want to guarantee their participation, it’s possible to buy an Investment DAO membership for just $30,000, with Launchpad membership priced at just $4,000. 

For their investment, backers receive a tokenized security that provides another key advantage over traditional venture capital. With tokenization, it’s possible to enjoy full liquidity from the outset. The moment the project’s native token is available to trade on an exchange, investors can trade to realize their gains earlier, if they desire, without waiting for a liquidity event, as they have to do with traditional investments. 

That said, Hectagon also provides anti pump and dump security through smart contracts, which lock investor’s tokens away for a specified period of time. Through this mechanism, projects have the time they need to deliver on their promises. 

 

New Investment Models For All

While Hectagon is one of the pioneers of the decentralized venture capital model, Colony Lab is already pushing the space towards its next evolution. Colony is a community-powered ecosystem accelerator that’s focused specifically on the Avalanche blockchain. Its main goal is to provide early-stage funding to projects building on Avalanche, as well as liquidity to existing projects that need additional capital to grow. It also helps to secure networks by running blockchain nodes. 

Through its unique funding mechanism, Colony imbues traditional venture capital with a community spirit via its open governance structure, support and inclusion. 

The most unique aspect of Colony is that it’s also attempting to maintain an index that’s dedicated to projects building on Avalanche. Recently, Colony announced a partnership with the decentralized crypto index platform Phuture that resulted in the launch of the Colony Avalanche Index, the very first index token that provides exposure to projects building in the AVAX ecosystem. 

CAI is an investment tool that aims to accelerate Avalanche ecosystem growth via just one token, which represents a basket that includes the native AVAX token and various Avalanche project tokens, spread across industries such as DeFi, GameFi and more. One of the biggest attractions of CAI is that it’s also a native yield-bearing token thanks to its integration with Yield Yak, where assets within its basket are deployed to earn additional yield. This provides investors with a safe and reliable way to benefit from compound gains. 

With CAI, Colony Labs is taking decentralized venture capital to the next level by giving investors who are bullish on Avalanche’s ecosystem the chance to diversify and back it in a more calculated way, with lower volatility than what comes from backing individual projects. It’s a promising idea, because though Avalanche is only 22 months old, it has already grown to become the third-largest DeFi ecosystem in the crypto industry in terms of total value locked. 

As Colony Lab’s CEO Elie Le Rest explains, index investing gives investors a way to “cut out the noise and ride the trend” by gaining passive exposure to the entire Avalanche ecosystem. 

For years, the world of venture capital funding has always been a rich man’s game, open only to the wealthiest and most well-connected investors. Projects like Hectagon and Colony Labs are therefore leveling the playing field and allowing everyone else to participate and challenge the status quo. Decentralized venture capital promises to create a fairer and more equitable investing landscape that cuts out the middleman and democratizes access to investment opportunities. In that way, it’s a superior funding model for the majority of investors and startups alike. 

 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice