How Will DAOs Impact the Future of Startups?

I've worked at various startups for seven years, and some of them have made it to unicorn status. Therefore, I am familiar with the evolution and lifecycle of startups. DAO (Decentralized Autonomous Organization) has been on my radar this year. I would like to share how DAOs will impact the future of startups from my perspective.

Understanding startups

Startups are new companies founded to develop a unique product or service, bring it to market and prove that it has a product-market fit to attract customers and earn revenue. Most startup companies are innovative and tech-driven. Their existence is to solve one or multiple problems and become disruptors in their respective industries.

How does a startup work?

A startup company needs to launch a Minimum Viable Product (MVP), prove product-market fit, and attract customers at the angel or seed stage to get future funding for Series A. Typically, the seed or angel stage funding is from friends & family or small investors who believe in the product and the company's mission.

After companies raise series A, they aim for speed and growth to prove to the venture capital investors that they can scale efficiently and quickly. The company wants "hockey stick growth" because, if they reach that level of sustainable growth, they'll be able to attract more funding for future series to generate even more rapid growth until they become public or are acquired.

Facebook, Amazon, Apple, Netflix, and Google are the most famous startups that have succeeded.

The structure, governance, and management of a startup

The structure of a startup typically starts as a flat structure when the company is still young and small. As the company grows, the structure becomes hierarchical. CEO and C-level executives are the core decision-makers and managers. Core shareholders control the governance of the company. The funding source is primarily from venture capital.

Understanding DAOs

According to Samuel Falkon's medium post, "One of the most incredible concepts to be successfully implemented through blockchain technology is the DAO, a decentralized autonomous organization. Decentralized autonomous organizations are entities that operate through smart contracts. Its financial transactions and rules are encoded on a blockchain, effectively removing the need for a central governing authority — hence the descriptors - decentralized and autonomous." The Decentralized Autonomous Organization (known as The DAO) was meant to operate as a venture capital fund for the crypto and decentralized space."

How does a DAO work?

The core members of the community establish the rules and principles of a DAO. They can often be found in the whitepapers of DAOs. Each DAO is usually created for a particular mission. A DAO's funding source is from community members interested in being part of the DAO.

They can participate by purchasing the token issued by the DAO. Members of the DAO can propose projects tied to the mission, and members who own the voting right can vote for or against the projects. For example, Compound DAO is created for Decentralized Finance (DeFi) and it’s known for offering crypto lending solutions.

The structure, governance, and management of a DAO

The structure of a DAO is flat. There are no executives. All the members hold power based on their membership status. It levels the playing field in that all members can participate. Tasks are discussed, created, and executed by the community. Decisions about projects are made by the community. The funding source is provided by the community.

This table might help explain and provide a clear comparison of the differences between startups and DAOs:

I can confidently predict that in the future, many startups will start as projects within DAOs as DAOs seem to be able to pass and fund projects quicker than the regular startup process. You can imagine that it's Kickstarter on the blockchain.

Once the projects become products, mature, and prove product-market fit, the project owners can create corporations or LLCs and take the companies to VC and get more substantial funding to grow the company efficiently at scale.

Unlike traditional startups which are usually limited by their geolocation at the start, DAOs are accessible to the global community. Ultimately, DAOs will be the evolution of early-stage startups.