Legal Structure
The SG-DAO will have two overarching legal entities.
The first is an LLC that houses the investing portion of the DAO and is structured as a typical venture capital fund. The second, a Colorado-based Limited Cooperative Association.
The LLC legal entity is what allows the SG DAO to raise the capital required to be able to invest in the startups within our accelerator. This entity will allow us to take investments from accredited investors (who will become Limited Partners or 'LPs'), and raise a fund substantial enough to support several years of future cohorts.
The SG DAO cooperative entity is what allows us to track membership, eliminate member liability, and offer financial upside for members and their efforts. This cooperative will be the backbone of the SG DAO and is what allows us to operate in a legal and compliant manner within the United States. The cooperative will be designated as the manager of the venture fund.
Diagram Breakdown
  1. 1.
    LPs <> LLC Fund
    • The LPs invest directly into the fund through a limited partnership agreement (LPA). In exchange for this investment, they are entitled to any future returns to the DAO proportional to the amount invested. They don’t deposit all of their funds into the DAO at once but make smaller deposits upon our request called capital calls. Depending on investment quantity, this usually happens quarterly. There are important considerations here, such as, if then fund is $20M, then minimum check size should be at least $200k or we would have to restructure the fund to allow more LPs.
  2. 2.
    Startups <> LLC Fund
    • The fund invests in startups at $100k @ 5% on a post-money SAFE. This gives the startups a $2M post-money valuation for our investment. This is done through a simple agreement for future equity (SAFE). In exchange for this capital, the fund receives shares of the startup.
  3. 3.
    The DAO -> LLC Fund
    • Through membership fees, the DAO pools capital together to invest in the fund. The membership buy-in for potential members ranges from $100 to $100k. This entitles the member to participate in the DAO and entitles them to a future return on their contribution so long as they actively participate in the DAO.
  4. 4.
    LLC Fund -> The DAO
    • The DAO will be set as the General Partner or manager of the fund. This entitles the DAO to four things.
      • Control of investment decisions
      • A 2% yearly management fee
      • 20% carry from the profit of the fund
      • A return on invested capital
      • Through this structure, the DAO members receive a return on their investment, the DAO receives a cash flow to operate, and key full-time employees, Startup Grind Chapter Directors, and Startup Grind Inc. will each receive a portion of the carry (more on this later )
  5. 5.
    The DAO <> Startup Grind Directors
    • Just like typical members of the DAO, Startup Grind Chapter Directors will also choose a buy-in price and contribute money to the DAO in exchange for membership. Unlike the rest of the membership, however, actively engaged Chapter Directors will also receive a portion of the carry from the profit of the fund (5% split). This is done through a simple service agreement.
  6. 6.
    The DAO -> Startup Grind Inc.
    • As mentioned before, Startup Grind Inc. will receive 5% carry from the profit of the fund. This will also be done through a simple service agreement.
  7. 7.
    The DAO <> Regular membership
    • The overall membership of the DAO has its first interaction by paying their membership fee to the DAO. This is what is ultimately pooled together to form the investments the DAO makes. This membership, alongside their time and effort in bringing in companies and performing due diligence, is what the membership gives to the DAO. In exchange, they receive two things. First, a return on their buy-in amount, and second the opportunity to earn patronage tokens. These patronage tokens entitle them to an increased return compared to just their invested capital alone. These patronage tokens are rewarded for doing tasks that go above and beyond the expectations of the DAO such as making investor introductions, helping a startup with an acute problem, or helping a startup to hire talent, to name just a few.
Copy link