Investing In a DAO Is Not a Child's Play; It's a Perplexing Decision For Both Sides What is DAO? To put it in layman's terms, DAO is a system on a blockchain which allows decision-making to be fully autonomous and transparent, with no centralized governing body as the head. DAO consists of members who own tokens which gives them voting powers.
By Paromita Gupta •
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
Technology has evolved, as has our society and its multitude of fragments. But one thing which hasn't changed over centuries is the phenomenon of decision-making power laying with a small number of individuals. But the change is under work and is called the Decentralized Autonomous Organization.
What is DAO? To put it in layman's terms, DAO is a system on a blockchain which allows decision-making to be fully autonomous and transparent, with no centralized governing body as the head. DAO consists of members who own tokens which gives them voting powers. DAO is primarily used to make decisions and carry out transactions.
Talking on DAO and what investors and investees should look at, four industry members discussed the space on the 'DAO: Community and Collaboration in a Decentralized World' panel at the Tech And Innovation and Web3 Summit 2023 organized by Entrepreneur India in Bangalore.
So, is DAO for everyone? Sanchi Oswal believes not every fund is going to be compatible with every startup looking to get investment for DAO. The perspective of a Web3 fund putting money in a climate DAO makes little to no sense.
"Why do you need a DAO? Tell me exactly why, and then we'll talk. DAO is not a small thing; it includes a lot of responsibility, complexity and infrastructure. It's not just a couple of people coming together, voting and then working together. It's not going to be like that. Where are you on the decentralization spectrum? It's not a yes or no answer; it's a spectrum. Where are you on that (lower or higher end)?" shares Sanchi Oswal, Investment Professional, Blockchain Founders Fund.
The purpose of creating a DAO needs to be clear for a startup or project. "The philosophy and basic motive behind your company and what they are hoping to solve is very important to us," she adds.
Roshan Vadassery, Founder, Permissionless, believes that DAO fundraising is not for everyone. Recalling the time when Permissionless raised funds through DAO, he shares why it shouldn't be the ideal choice since he realized that nobody was interested in making decisions. Rather, they just buy the token and chill.
"It is a very good approach for an early-stage company. I think most of the companies in India can be started with $25,000. One does not need more than that in pre-seed. You'll have a runway of six months and three founders; you can build anything. In this type of DAO, raising funds through tokens is a very good approach, but not for more than $50,000," Vadassery adds.
While Vadassery thinks that DAO is suitable for early-stage ventures, Oswal thinks otherwise, "When the companies are really young, they need a lot of centralization. When VCs enter, there is absolutely no decentralization that's going to happen because there is a principal-agent interest now."
Talking about how DAO is a great way to create a platform and environment of collective and fair decision-making, Badrinath Mutkule, Founder & CEO, Kointrack shares, "We should not look at DAOs with an investment perspective, we should look at DAOs where a group of people, no matter big or small, come together and make decisions with DAOs. And that allows them to operate whatever business they are doing in a decentralized way with a fair chance of coming up with ideas."
"I think transitioning to DAO is not as easy as anyone thinks, especially if they've taken venture money," concludes Shashwat Eternel, Lead Narrator, NFT3, echoing Oswal's views.
