Legal Structure
The SG-DAO will have two overarching legal entities.
The first is an LLC that is structured as a typical venture capital fund. The second, a Colorado-based Limited Cooperative Association.
The LLC legal entity is what allows Startup Grind to raise the capital required to be able to invest in the startups within our community. 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 investments.
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.
Diagram Breakdown
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.
Startups <> LLC Fund
The fund invests in startups on a post-money SAFE. We usually invest between 25-75K USD in our portfolio companies. This is done through a simple agreement for future equity (SAFE). In exchange for this capital, the fund receives shares of the startup.
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.
LLC Fund -> The DAO
The DAO will invest through the General Partner or manager of the fund. This entitles the DAO to invest the collected membership fees and recommend startups to the fund.
The DAO <> Startup Grind Directors
Just like typical members of the DAO, Startup Grind Chapter Directors will also choose a membership tier 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).
The DAO -> Startup Grind Inc.
As mentioned before, Startup Grind Inc. will receive 5% carry from the profit of the fund.
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 capital the DAO contributes to the fund. 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 potential return on their buy-in amount, and second the opportunity to earn patronage rewards. These patronage rewards entitle them to an increased return compared to just their invested capital alone. These patronage rewards are given 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.
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