When VCs have to pitch in front of an entire online community

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For the past two weeks, VCs hoping to invest in the trendy SushiSwap cryptocurrency project haven’t been spending their time earning and dining entrepreneurs as usual. Instead, they were busy commenting on online forums and joining Discord audio discussions, as their ability to invest depends on the approval of SushiSwap token holders.

Why is this important: This isn’t the first time VCs have needed to conquer a large cryptocurrency community, and it sure won’t be the last.

Fund: SushiSwap, which debuted in August 2020 and currently has around 60,000 token holders, is a decentralized cryptocurrency exchange that allows participants to transact with each other without a centralized entity.

  • A proposal Sushi community leaders earlier this month offered to increase the project’s free cash reserves for technology development by selling about $ 60 million in tokens from its reserves to institutional investors.

Yes, but: The proposal, which token holders are expected to approve, was particularly controversial as VCs would get tokens at a discounted price.

Between the lines: The central question is “what does it mean to bring people to a round table?” Says Michael Dempsey, general partner at Compound. Dempsey personally owns Sushi Tokens but is not involved in the proposal.

  • Venture capital firms have a long history of receiving discounts and other forms of preferential treatment when backing companies that believe they “add value”.
  • But members of the Sushi community are saying aloud the quiet part: “Prove it”.

Inventory: Sushi members immediately questioned the commitment of potential investors to the future of the cryptocurrency protocol – and wondered what exactly investors would do to help its development.

  • Opponents of the proposal say incoming VCs have not received a discount.
  • The case largely came with a caveat that investors should be given a long lock-in period to prevent them from quickly flipping the tokens.

What they say : “Digital assets are rocking [the model of VC ownership] on its head – the majority of the assets go to stakeholders, customers or developers working on the asset, ”Arca chief investment officer Jeff Dorman, a staunch opponent of the original proposal, told Axios. “You are now on an equal footing with investors. ”

The big picture: This is not the first such case. MCDEX, Pool, the Cooperative Index and other Decentralized Autonomous Organizations (DAOs) have successfully raised millions of VCs in the past.

  • Cryptocurrency protocols that allow participants to execute various transactions directly with each other through networks instead of using middlemen have exploded in popularity.
  • And while many self-directed projects started with an organization leading its early development, some are now forming organically in a decentralized fashion as project developers attract like-minded participants.

The impact: Decentralized groups of token holders are likely to continue to raise funds from VCs – not only as a means of raising the equivalent of “growth finance” for a more mature protocol, but also at earlier stages for it. start-up capital.

And after: The SushiSwap community is currently analyzing a number of new proposals VCs and community members on how it should raise new funding.

The bottom line: If true supporters of decentralized finance (DeFi) are right, courting community members will soon be a more common part of crypto VC’s job.

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