The Funding Cooperative DAO: unleashing the collective power of founders - Evan Powell

TL;DR - founders need to come together to balance power dynamics with sources of capital and to make real the world we all imagine. We can do that through some basic DeFi applied to DAO formation - instead of “just” creating a token to govern one DAO, what if we linked arms and built a token and a DAO amongst many of us? How could this pattern become a primitive used by many web3 communities to balance the forces, increase founder support and diversification, and fund the growth of a much larger and more inclusive web3? This is our mission at the Funding Cooperative DAO and our first group of DAOs is gathering, arm in arm -> join us now.

There has been a lot of talk about the power dynamic shifting towards founders during the heights of the recent macroeconomic cycle. Funding is up, company formation is up, and most importantly the number of engaged developers is up, and valuations were up. Data from a16z’s recent Crypto Report suggest the shift to web3 has been accelerating.

And now the cycle is turned. As the tide recedes we are going to learn a lot about how resilient the economy really is. And countless founders are going to find that to their investors, they are just one of many investments. The start-up that to a founder feels like a reflection of their deepest purpose - may become a victim of triage in a venture fund’s emergency ward, left in the hallway as nature takes its course.

web3 is supposed to be different. Built on the foundation of resilient, distributed, open-source, and autonomous systems such as Ethereum and communities that proudly disregard the status, privilege, and gatekeeping of the traditional economy - surely we will prosper even as the web2 economy undergoes another bout of ‘creative destruction.’

And yet what about our foundations? How solid are our foundations?

Specifically - founders. How can we collectively find and support more founders, the true basis of all innovation? How are we treating them in web3? The path of a web3 founder or technical builder isn’t as pretty as we might all think.

Builders want to build:

In the words of a prolific builder and Funding Cooperative DAO member who has launched a number of projects:

“I don’t want to answer questions like ‘wen token?’ At least not yet. I don’t want to spend one freaking second thinking about ‘token go up.’ I don’t want to hire a lawyer, do a funding deck, and see the power seeping from the developers to the investors. I want to build.”

These words echo what we have heard in many interviews over the last several months. And they resemble the experience of many of us in helping to found and foster open source projects back in our web2 days. Despite the ever-growing number of projects that help in DAO formation and management and the success of projects like GitCoin and SeedCamp, builders are not yet founding web3 projects at anything close to the pace we all would like to see.

Here are a few statistics about the relative scale of web3 - so far:

2021 was a year of crypto and web3 hype - and yet according to data from Crunchbase, only 5% of venture deals were in the web3 space.
Deep Dao as of May 2022, only lists 91 DAOs with over $1 million assets under management - and approximately 50% of the total AUM is concentrated in only three DAOs.
As pointed out by A16Z in their recent state of crypto report, the AUM of all of DeFi would rank as the 31st largest bank in the United States.
On average there were just over 15,000 businesses receiving an employer ID number just in the United States each day. These are employers that are likely to actually employ someone as opposed to S corps which are individual companies - there are many more of these. By comparison there are only 4,834 projects listed on DeepDao.

There are 3x more “normie companies” founded in the US in a day than there are DAOs in existence.

We have a long, long way to go for web3 to become the favored home of founders and especially of those that are technology-focused.

Here are some of the DAO founder pain points that we are building to solve:

Diversification:
- “My DAO contributors - and investors - have their fingers in many pies. I’m all-in over here at this DAO. What happens to me and my co-founders if it only does ok?”
- “We wanted to diversify our treasury but a) liquidity remains low so sales crush the price and b) the token holders are short-term focused, they want ‘token go up….So they shoot down our proposals and push us to hype more and HUDL HUDL HUDL.”
Loneliness:
- We all have imposter syndrome. And we all have experienced, some of us more than others, gaslighting by investors and others who would profit if only you saw the world their way and acquiesced to their strategies. While web3 vibes are generally positive and welcoming, founders told us that there are few safe places to talk about DAO growth and challenges with others that are at a similar stage in their founding journey.
Power law and the very few chances founders have to win:
- Those of us that think in terms of economics and finance are all too aware of the power-law nature of returns in traditional venture capital. It turns out that all of the returns to venture capital investors are contributed by the top several percent of companies. Returns to founders are even more skewed, meaning the vast majority of founders would have been better off if they had taken a reasonably well-paying job.
- If each start-up takes 4-5 years for a committed founder, they may only have 4-5 potential start-ups in their life. On the other side of the table, venture capitalists always already have dozens of companies in their portfolios. Given that - which side of the table is more likely to experience the transformative impact of a top 1% or .1% company? And how does that reinforce centralization?

Helping builders through a DAO of DAOs and a DAO of DAOs of DAOs?

Our approach is pretty simple. DAOs of DAOs. Nested DAOs. DAOs all the way down. And diversification.

Let’s gain diversification, community, support, and a higher likelihood of a massive outcome by using some web3 primitives to create a shared DAO amongst a portfolio of DAOs. And let’s form a DAO - we call it the Funding Cooperative DAO - to recruit, select, launch and support those portfolios.

Each DAO of DAOs consists of several DAOs that have passed through diligence. Through token swaps and other primitives, we seed for them a DAO that is jointly owned by them. We also call this the “cohort DAO” as a working title. Each cohort DAO represents a season of DAOs that have joined the Funding Cooperative.

The Funding Cooperative DAO is a DAO of DAOs of DAOs. “FC DAO” exists to improve the processes before, during, and after the creation of the cohort DAOs. Concretely this means we are building:

A better graph to recruit web2 and web3 builders to think about founding DAOs - emphasizing outreach to underrepresented groups and partnering with many others in the web3 ecosystem with a similar mission
Customized to purpose token swap primitives, building on existing token swaps
- While one to one token swaps are a solved problem, we are extending these to many to one and one to many swaps, all performed atomically
Customized to purpose token creation and launch processes
- Thank you to the Juicebox crew for being so responsive and creative
Partnerships with many existing communities that nurture DAOs, including MovementDAO and others, as places where members of cohort DAOs can thrive; we work together with partners on all phases of the cohort DAO life cycle from recruitment to formation and growth.

Ok DAO of DAOs of DAOs: “wen token?”

If you have read this far along, thank you! Here are a few ways you can participate immediately.

First, join the Funding Cooperative DAO. Drop-in to our Discord and say hi. Everyone who joins and helps out in a substantial way will receive an airdrop; also we have basic payment rails set up and will be adding more core contributors in the weeks to come. As an example, one of your first quests could be helping to execute an OP-inspired retroactive community airdrop: Merkle tree FTW! We have a number of software projects underway or kicking off and we are building out our own DAO structure as we increasingly decentralize. Engineers and DAO operators are especially in need.

Secondly, soon we will be talking about the participation of several amazing early stage DAOs and their founders. In contributing to one of us you are contributing to all of us. We will have a series of blogs and tweets about each of these DAOs in the weeks to come. Stay tuned and stay hyped.

Third, builders please apply and suggest other builders! Our process for review is increasingly automated - within a day or two, we will give you directional feedback. Basically, we are looking for technical depth and demonstrated trustworthiness, we are not trying to be gatekeepers as much as we are a mechanism for trustworthy technical DAO founders to link arms and bootstrap together the diversification, liquidity, and community we all need.

Apply now! https://tally.so/r/m68JLe

Our vision is of a world in which web3 helps address age-old challenges to innovation, including centralization of capital, gatekeeping of opportunity, and founder stress and insecurity. We think the Funding Cooperative DAO can play a small role - that grows over time with your help - in making web3 the center of innovation for decades to come. Let’s work together to build a DAO that helps invent the future we all want to see.