The future of investment communities
Investing is coming to the masses. Call it democratization, bottom-up, or consumerizing the private market. It’s happening.
In web3, communities such as DuckDAO have been doing this for years. While web3 communities are streets ahead of traditional finance, community-driven funding is becoming common outside of the web3sphere.
A recent example is AngelList Venture raising a $100M round by Tiger & Accomplice — but also opening up for a community round for GPs who have invested in their platform in the last 12 months: https://www.angellist.com/blog/100m-fundraise
Let’s take a step back, and review the current state of the investment scene and how communities play a part.
Here’s what smart people are saying:
The United States is celebrated as a free-market economy, yet access to one of the largest and most important asset classes — private equity & venture capital — is reserved almost exclusively for institutions and high net worth individuals.
As written by Bessemer:
The informal nature of these peer-to-peer institutions, often composed of neighbors and friends, reveals the central role that trust plays in squad logic. Whether housemates or friends sharing a Discord group, squads allow social currency and financial capital to inter-convert, creating opportunities and group resiliency that would have been impossible to achieve alone.
Taken from: https://otherinter.net/research/squad-wealth/
It is not unlikely that cap tables five years from now will go from a couple of stakeholders to hundreds. But there are some roadblocks.
So what are the biggest challenges that lie ahead for community-driven funding? And more importantly, what does the future of fundraising look like if we can solve the challenges?
Let’s dive right into it.
While community-driven funding in web3 is blooming, there are still some reasons why it has yet to be mass adopted.
Before community-driven funding can reach the point of impacting traditional markets or even reach its full potential in web3, some clear roadblocks are preventing the growth of web3 fundraising communities.
Here are six vital challenges that need we need to fix
- Lack of niche. Most communities are generalists. Yet, going broad rarely works. There’s a gap in the specialists’ market that only focuses on finding investment opportunities for one area: layer 2s, protocols, NFTs, and identification.
- Simpler membership access. Some communities do NFTs, others do tokens, and some are invite-only. Standardizing and making it easier to join groups is crucial.
- Remove the boring stuff — the ability not to worry about much more than managing your community and curating good opportunities. While we’re working on fixing all of this at Presail — it does take time.
- Discoverability is still one of the more significant problems. Even in the world of web3, I’d argue less than 1% know communities like our clients exist.
- Professionalize. Community owners are often learning on the job. However, in terms of structure and outreach — there’s a lot to be gained by just copying the existing models of traditional VC funds.
- Regulation. While traditional venture capital funds and private equity firms are rigorously regulated, most community funds web3 aren’t. That is why we are working so hard at Presail to bridge the compliance gap and prepare these communities for future regulatory frameworks.
Now, if we imagine those problems are solved. The future looks quite exciting.
As consumers decide on one or several on-ramp platforms, they will discover, create, and apply to join investment communities in one place through an app.
You will find like-minded communities that share your interest and passion, whether gaming, makeup, layer 2s, or any other industry.
After discovering the right community for you, you must apply for a spot. Most likely, two essential factors will play a role:
- What can you bring to the table? Maybe you have a strong network, people who follow you, or experience in the space. The stronger the community members are, the more appealing that community is to investors.
- Entrance. Some will charge $ to join, and others might require social capital. Either way, it’s safe to assume most communities will be gated.
As a direct result of joining a community of your liking, you will access investment opportunities that align with your passions and knowledge.
With the possibility to pursue investment with a more significant upside at an early stage, you now have more options to invest in great opportunities. The days of putting your money in a savings account and losing to inflation will be over.
So who are creating these communities?
Anyone can create these types of investment communities. Nothing stops you, a neighbor, or an influencer from creating a community of their own.
Setting up a community will be effortless for people with an existing following. Some examples are:
- Snoop Dogg has a community fund focused on everything 420.
- Streamers on gaming and metaverse deals.
- Famous artists investing in NFTs.
- Outspoken developers investing in layer 2s.
- A local community fundraising to purchase a new swing for their park.
- Charities fundraising for relevant causes.
People with social capital will be able to attract projects. The value-add of raising from these communities will likely be better than raising from a traditional fund.
Before that’s possible, the paperwork and processes for managing cap table, distribution, set up, etc., need to be solved. The community members should spend time finding and driving opportunities, not dealing with admin work.
When it comes to making investments from a consumer perspective, there are three things that matter:
- Trust. Both in the platform and the communities they’ve joined.
- Simplicity. Ideally, a fiat-on-ramp and off-ramp are available and executed to the degree at which a non-web3 user doesn’t have to learn about everything DeFi.
- Tax. Even though people portray web3 as 1337 hackers that spend their bitcoins on cyber-crime, hating on society and tipping their fedora — the truth is most want to pay taxes. It’s just really, really difficult to do it correctly. It is essential that investments are compliant and that people get a green light come tax season.
The future of investment will be as easy as having an app with thriving communities that can organize and bring projects where the community members and projects share the same vision.
The exciting reality of the matter? It’ll be ready sooner than you think.