Thursday Thoughts #14

Annika Lewis - Vanedge Capital

Hello world, and welcome to the fourteenth issue of Thursday Thoughts.
Each week, founders and investors share their thoughts on fundraising trends and strategy.

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Annika Lewis is a venture capital investor focusing on analytics & data infrastructure at Vanedge Capital. She is spending an ever-increasing amount of time in crypto and publishes great essays on investing and DAOs.

Annika sat down with us and dropped a ton of knowledge about why she thinks that the future of VC is multiplayer.

In this brilliant post co-written David Phelps about "Collectivizing Finance", you mention a venture capital market where LPs become a strong community that offers tremendous support to founders - how fast could this evolution go?

This evolution has already started and it’s happening fast. Historically, in the institutional venture space, Limited Partners have provided generally passive capital -- but increasingly, as the LP persona broadens and includes more early-career operators as opposed to seasoned veterans seeking a more passive role, LPs are bringing GPs dealflow, sector expertise, and stepping in and helping with portfolio companies. A clear proof point of this trend is AngelList introducing its carry-sharing feature, which allows GPs to share carry with LPs to reward them for their non-financial contributions. I expect we’ll see more creative mechanisms like this in the future as the role of the LP evolves.

You also dig into alternative models to reward LPs adding value rather than capital which has become an accessible commodity for founders - why have syndicates and investment DAOs mostly failed so far?

I wouldn’t say that syndicates and investment DAOs have failed so far - but I would say that they haven’t reached their full potential just yet. Many angel syndicates today have an incentives problem, whereby the syndicate lead doesn’t need to have much skin-in-the-game and so might be incentivized to ‘spray-and-pray’ in hopes of finding a diamond in the rough. 

Investment DAOs, on the other hand, are theoretically positioned to have well-aligned incentives by virtue of more decentralized leadership and decision-making. That said, the Investment DAO world is incredibly early, and the mechanics of most of these DAOs haven’t been figured out just yet. For anyone looking to understand this nascent landscape, The LAO and Metacartel Ventures are two great examples of Investment DAOs that are operational today.

AngelList introduced a carry sharing feature - can you explain why tokenization is more relevant to unlock multiplayer investing and make the "Work-to-Play" model optimal?

Carry-sharing is a great start, but tokenization offers the ability to take things a step further. By earning tokens in a multiplayer investing environment (say, by bringing good companies to an Investment DAO you’re part of, for example), you may be entitled to a say in governance and/or ownership of the DAO itself, rather than just the one-time, deal-by-deal financial upside that carry would offer. Tokenization isn’t necessary, per se - it just opens up a world of possibilities.

You said that tokenization incentivizes investors to invest in wilder projects with the same risk profile as before. This can be done if the VC gives up power to extract concessions and become a team player - how far are we from this new paradigm?

I’m not sure it requires the VC to give up power, necessarily - it’s rather that tokenization offers a new construct in which to think about private markets investing entirely. To step back and give some context, the lines between public and private markets investing have been slowly blurring for years - just look at the SPAC trend on the public side, and the fact that Stripe is still a private company on the private side. Based on the glimmers of what we’re already seeing with tokenization in crypto, it’s conceivable that tokenization might play a role in the next evolution of this shift.

As we wrote in our piece, tokenizing equity can turn private markets into something akin to public markets - it brings more near-term liquidity to assets that otherwise might be illiquid for years, if not decades. As a result, if the investor has the ability to sell their position much more easily, it changes the risk profile of investing: liquidity risk decreases. We’re still a ways from this new paradigm taking shape in private equity markets at large - it’s incredibly early days - but it’s exciting to think about the possibilities these structures might offer.

Many thanks to Annika for sharing her thoughts and vision.

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See you on Tuesday for Dove Dispatch #20,

The Dove Team