Decentralized Venture Capital, an interview with Jules Miller, VC3 DAO
This week, I interview Jules Miller - Partner at Mindset Ventures and the Founder of VC3 DAO. Similar to OrangeDAO (which I profiled last month here), VC3 is an investment DAO for the Kauffman Fellows network. The DAO brings together a vetted network of experienced VCs to collaborate on deals and uses token rewards to incentivize members to help portfolio companies with their challenges.
The following has been edited for clarity and length.
Tell me about your background, and what is VC3?
I’m a partner at Mindset Ventures, an early stage venture fund that invests in B2B software. I’ve been investing and participating in the Web3 space since 2015, and I’m part of a community called the Kauffman Fellows Network, which is an international group of VCs where I lead the blockchain special interest group. We have an active group of investors who are investing in Web3, interested in learning about Web3, and interested in co-investing together.
In March, we privately launched an investment DAO for the Kauffman Fellows community called VC3. The intention is to figure out what professional venture capital could look like in a decentralized way. We currently have 157 members representing 28 countries, who are all VCs in their day jobs. We’re unbundling the things that a VC does: sharing deal flow, contributing on due diligence, and portfolio support. How do we provide a better model for entrepreneurs, in terms of not just accessing two partners at a venture fund, but 150-plus partners in an investment DAO?
How far along is VC3 and what KPIs are important to its development?
We’re in season zero, in the DAO nomenclature for a unit of time. This season will end in September, and we’ll start season one in October. Right now we’re working on our processes, getting our tooling up and running, and closing our adjacent fund. We’re not fully on-chain — the DAO is a Cayman Foundation Company where all the activity and tokens happen, but for compliance reasons we have a separate fund that invests on behalf of the DAO.
We’ve already done four deals. Our health metrics or KPIs are something we’re developing and will have completed by the end of the season, but they will look something like engagement (are people participating in Discord?), deal flow (are we getting great deals?), and of course, eventually, the returns of our portfolio.
Every DAO is trying to figure out their line when it comes to centralized services and decision-making, versus decentralized operations. What’s your sense for where you’ll draw that line?
The more we get into this, the more I realize how early we are in the DAO world. Almost all DAOs are semi-organized chaos, and almost no DAOs are fully decentralized. What we’ve tried to focus on is: What are the things that are important to decentralize, and what are the things that are not important to decentralize?
We’re decentralizing the things that are venture capital functions: deal flow, due diligence, portfolio support. Operationally, we’re less decentralized. We have a committee structure, with four committees of three elected chairs per committee, and that’s where the work gets done. It’s like a business unit mechanism. They’re responsible for driving the work efforts and strategy for that particular part of the business.
How do you think about VC3 as an evolution of traditional venture investing?
The venture industry hasn’t really changed that much. To me, this is the biggest possible way to innovate the venture community. As someone who has raised venture capital twice as a founder, I will say that there are some problematic pieces of the industry that are still not solved, including diversity, the time it takes to fundraise, and access to information.
One of the things a DAO model changes is the ability to tap into things that you can’t with a typical fund. For example, we’re getting global deal flow because our membership is global. When you have a network of highly connected people located everywhere, the deal flow is much more diverse and interesting.
The second thing that we can only do in a Web3 world is incentivize people with tokens. VCs always say that they’ll help, and they don’t always help. We’re giving all of our founders an allocation of tokens when we invest in their company, and with those tokens, they can put a bounty up to the community and say, “Hey, I’m hiring, here’s the job description. If you recommend someone that we end up hiring, you’ll get 25,000 VC3 tokens.” That changes the dynamics and puts the power in the hands of the entrepreneurs.
Finally, we learn from each other in a way that you don’t with traditional VCs. VCs are generally small businesses with a small number of people. We’re pulling best practices from hundreds of VCs.
You’ve invested in Web3 and now you’re part of operating a DAO. What are the aspects of starting a DAO that you’re finding to be most difficult?
The first and most obvious thing is the tooling and the products we’re using. I will tell you, things like Discord are not the most user-friendly. But we thought it was important to get our VC community using Web3 tools — feeling the pain of what Web3 is and where we really are in the market — so that we could be better investors in the space.
Our DAO tooling partner is a company called Origami. It’s a spinout of Orange DAO, and we were their first customer. They’re very early, but we evaluated everything out there, and it was all very, very early. So we wanted to say: We’re going to use stuff when it’s early so that we can make good investments. We wound up investing in Origami because we liked working with them and thought they were ahead of the curve on a few things.
The second challenge is engagement. In the venture community, you often get little shiny object syndrome. People are very excited at the beginning, but you have to make sure you’re contributing value, otherwise you lose their attention. That’s the problem in almost all DAOs right now.
I think that’s also the benefit of having a small, trusted community at VC3. We all know each other and can ask each other what we want. It’s much harder when you have people all over the place who are pseudonymous and don’t know each other’s motivations.
You’re building this around the Kauffman Fellows community. Are there plans to expand beyond that, or is that primarily how you’ve thought about it?
It’s how we thought about it at first. The DAO and Web3 world is about communities, and this was an existing community that had a lot of trust and shared deal flow. The intention is to expand into professional venture capitalists more broadly, which will probably happen some time next year. But there will be a vetting process — it’s never going to be an open network. We want to know that you’re a sophisticated VC who can contribute value.
Currently it is Kauffman Fellows only, and the Kauffman Fellows have a NFT that allows them to use their tokens to vote. But we do have others in our community — our LPs, entrepreneurs, and partners — and we’ll continue to broaden it. The idea is: What is the best path for entrepreneurs? How can you create a model that is a better experience for them?
The markets haven’t been great, and who knows how far down they’ll go. What’s your general take on the industry, since you’ve been in the Web3 space for a while now?
I love investing in these markets, especially in the early stage. People who shouldn’t have been in the industry in the first place get scared and leave, and the ones who are very serious stay and build really, really good companies. That’s what we’re seeing. We’re also seeing an adjustment in valuation and being able to access things like due diligence.
Crypto and Web3 are not going away. There are too many smart people, there’s too much momentum, and the technology is too transformational for it to completely disappear. What it looks like will probably change, but that’s why the entrepreneurs building things right now are really important, because they’re going to shape the future.
We’re mostly doing equity investments in early stage companies. We’re doing some token investments, but we’re not trading public tokens. If you’re investing in crypto on the exchanges, I’d be a little more scared. But where we’re playing, it’s the perfect time to invest.
Hi, I’m Andrew Chang - I created the Web3 Roundup to share what I’m learning in this space. I’ve spent my career at the forefront of the technology industry in areas such as crypto/blockchain (Former COO @ Paxos, co-founding partner of Liberty City Ventures), video and adtech. I learn by meeting with founders, investors and other thought leaders and approach Web3 with the same enthusiasm – and skepticism – I had about crypto/blockchain technologies 10 years ago.