RnDAO proposal for an Arbitrum Collab Tech Business Cluster
post updated May 23st 2024 (previous update May 1st 2024)
Table of Contents
Abstract
Motivation
Rationale
Specifications
Steps to implement
Timeline
Funding needs
Our team
Closing Thoughts
FAQ
As the Web3 ecosystem expands with the number of L1 and L2s, the chains with unique differentiators will have key advantages. Because network effects are king in this quest, the strongest differentiator is a vibrant group of builders who can output commercially viable projects, invent new use cases for the infrastructure, and attract others to collaborate and build on each other's work, creating network effects. As such, we propose creating and supporting an innovation cluster for the Arbitrum ecosystem.
RnDAO will provide a venture creation pipeline focused on outputting commercially viable projects, addressing the current gap. We'll achieve this through human-centred design, hands-on support, peer-to-peer collaboration, and a staged pipeline of capital and support builders.
Building on the learnings from our pilot funded by PluralityLabs in 2023 and years of research into venture building, the proposal leverages Swarms (Web3-style Business Clusters). Swarms enable Arbitrum to generate new use cases for its infrastructure (e.g. Orbit Chain), attract and retain projects through partnerships and integrations, and compound value from the long tail of projects (not just power law) through P2P collaboration, thus creating network effects for the Arbitrum ecosystem.
Business clusters and venture builders function best with specialisation, as such we’ve selected a vertical (CollabTech - essentially, the next generation of B2B SaaS, which might not be subscriptions based anymore) because it's both valuable for Arbitrum and serves as an ideal first step to validate the business clusters innovation approach (which can then be copied across verticals). Concretely, we’ve selected a vertical that has:
The bigger project to create this innovation cluster (the Swarm) is divided into 3 cycles:
a minimum viable pilot of the approach (Cycle 1, already completed)
rolling out at a functional scale to assess the real impact (Cycle 2, this proposal),
and finally reaping the benefits for Arbitrum of all the previous work (Cycle 3, subsequent proposal thanks to completion of AVI or related initiatives).
In sum, building this Swarm sets Arbitrum as the preferred ecosystem for a valuable vertical, creates network effects of talent, projects, and tools to fast-track Arbitrum's community growth and usage of its infrastructure, and develops a replicable methodology across verticals to further grow Arbitrum.
The number of L1s and L2s is multiplying, and with it, the relevance of Arbitrum is not guaranteed. A rapidly evolving landscape creates pressing demands. It's essential for ArbitrumDAO to both invest in organizational infrastructure and seed an ecosystem of sustainable ventures to transform its massive potential into massive impact. In this quest, network effects are king. But how to do so?
There was a time when you could know every major project in Ethereum. That time is long gone. The number of projects and innovations is expanding rapidly in verticals like DeFi, Gaming, DeSci, CollabTech, NFTs/creative, etc. Without specialisation, it's impossible to keep up and this situation will only intensify over the next few years as the number of projects and verticals increases.
Specialization enables the support system for ventures to keep up with new developments and add real value. The same person, no matter how well connected, can hardly help a Gaming project connect with all the key publishers, advise a DeFi project on liquidity, or make introductions to the key connectors in the Carbon Credits markets. Every vertical has a different technical palette, market configuration, and social network; with specialized support, we're in the best position to select which projects to back and help them navigate challenges.
Collab Tech has especially suffered from neglect in specialisation. Organisation design, leadership, group psychology, behavioural economics, and political science are not new disciplines. Yet the DAO movement has often reinvented the wheel and repeated mistakes while being slow to test ideas coming from self-management, cybernetics, and similar bodies of value-aligned theories and practices.
In Web2, we have seen how, in Collab Tech, older and more experienced entrepreneurs have higher chances of success (in contrast to consumer verticals). This is due in large part to Collab Tech being a B2B market where relationships carry a premium and a deep understanding of the complexities of organisations is key to developing commercially viable solutions. In Collab Tech, the experience and networks that specialisation enables are particularly valuable.
Full rationale here: https://forum.arbitrum.foundation/t/is-collabtech-valuable-for-arbitrum/24703
RnDAO has investigated and tested approaches to ecosystem development for the past two years, and our research leads us to conclude that Swarms (Web3-style Business Clusters) are an ideal approach to creating network effects around a specific vertical.
Swarms rely on facilitating access to capital, vertical-specific support, and incentive alignment leading to deep collaboration between projects. The swarm dynamic is essential in supporting frontier development in Collab Tech, where knowledge on what works when and how is yet to gel into experience and expertise.
Concerted progress in such fast-changing environments requires knowledge to flow more freely through conduits of people exploring the new space, rather than through first establishing knowledge in siloed disciplines, and have it disseminated centrally later on. Swarms, to the contrary, enable learning to take place almost synchronously with the creation of knowledge and experience between groups of vertically-focused builders.
This programme facilitates swarm dynamics by building relationships between buildes performing research and building at the frontier of the Collabtech space and a community of interest behind them. These relationships will be formed and maintained through regularly recurring interactions between those working at the frontier and the community of interest behind them. We thereby create grounds for both adoption and dissemination of knowledge through community and at the same time supply lines of capabilities and experience back towards the frontier. This way the cluser compounds network value from the get-go.
As a result, enmeshment between projects (modularity and composability leading to integrations, cross-selling, sharing of insights, etc) is increased, generating Arbitrum network effects and making it advantageous to stay in the same ecosystem instead of migrating.
As the number of successful projects increases, the ecosystem further attracts talent, capital, and new projects looking to build on top of existing protocols. A flywheel is created.
A thriving city is composed of a core set of foundational public goods (parks, libraries, roads) used by most people and an ecosystem of businesses that cover the full range of specific needs of a city's inhabitants. Along the same logic, this proposal focuses on developing an ecosystem of ventures for Arbitrum and is ideally complemented by public goods funding programs and some vertical-agnostic services.
We learned from Web1 and Web2's rich history of experiments in entrepreneurship that deploying capital alone is not the ideal method to facilitate the creation of successful, sustainable ventures.
Accelerators and Incubators evolved precisely because small, early-stage teams have critical gaps that mean they 'don't know what they don't know.' As a result, early-stage ventures can underinvest in critical skills or pursue dead alleys searching for the right methodology or approach. No wonder that 75% of Hackathon winners abandon their projects, and still, 9/10 accelerated startups tend to fail.
Moving further in the support continuum, Venture Builders (a.k.a. Venture Studios), are a rising trend.
Venture Studios obtain superior results thanks to going beyond mentorship and offering hands-on support. Imagine the difference between an expert giving you some feedback on why your pitch deck sucks, you going and trying to fix it on your own, then coming back to get a bit more feedback the week after, vs said expert sitting down with you for 4 hours until you have a great result. Hands-on support offers results faster and compounds expertise more effectively. As a result, the failure rate of ventures is lower than traditional acceleration models, the need for outlier talent is reduced, and ventures progress faster, thus generating better ROI.
https://inniches.com/startup-studios-research
Now, arriving at this programme’s Venture Building approach, we expand on the boost that Venture Studios have brought to startup success. This is done in 2 ways, by:
Instead of letting individual founders/teams absorb the risk of performing research or building without a clear foundation of insight, our Market & Research module as well as Entrepreneur in Residence, provide builders with more evolved, matured opportunities as their starting point as well as methodologies for fast and low cost validation of projects. This pre-venture building phase catches a lot of wheels spinning with founders who generally need to come to grips due to the vagaries of developing in the Web3 space. This way we aim to address “the commons” of venture-building risk in Collab Tech.
This form of ownership is minted when founders commit knowledge and capability that is provided by contributors to their venture. This provides an incentive for a broader community to add value to founders’ ventures. On the other hand, it incentivises stewardship behavior, where advice is not only given, but also supported further throughout its implementation. Thus turning mentors into contributors and leading to faster venture development and facilitating decentralisation.
Transition of swarm dynamics around Collab-Tech opportunity between these 2 phases happens seamlessly. Where the incentives for swarming in the “commons” phase of the opportunity are driven by curiosity and intellectual development, it naturally converts to the similar dynamics around commercial venture opportunity, but now supported by means of intellectual property rights that are attributable to contributors in the form of fractional ownership.
We're proposing to extend the existing two programs for a further 12 months, with
up to 25 Entrepreneurs in Residence (previously called fellows): funded for up to 6 months with a $2k/month stipend and dedicaed support program to research and validate a venture opportunity.
and 10 ventures: funded with 50k ARB and equivalent support to develop and market test an MVP.
Additionally, we're proposing to include two additional (public good) modules that ensure scalability and further improve venture outcomes and grow the Arbitrum community:
Market research module: funding a small, specialised team of market researchers and analyst to map opportunities in the Collab Tech space and help orient devs and entrepreneurs to promising and unaddressed areas.
Community Building module: commmunity attraction and community buildign activities to grow the talent pipeline into the Arbitrum ecosystem and position it as the go-to place for this vertical. Including a hackathon, quarterly unconferences, speed networking, and public events with thought leaders.
The Collab Tech builders' pipeline has been designed based on creating opportunity-space insights as a public good upfront. Rather than have each venture go through the burden of finding elementary insights each for themselves, we provide these as their starting point. Allowing them to hit the ground running.
We then follow by guiding builders through lean cycles to quickly and at a low cost validate the viability of a venture. We start working at the very early stages of idea formation to reduce waste and validate or invalidate opportunities at the lowest cost.
Additionally, the approach proposed relies on collaborative processes and cross-ownership to complement the specialized support, thus improving outcomes beyond what a generalist program can provide in what's largely a B2B (and B2DAO) market.
Compared to traditional grant programs, the incentives have been redesigned to align both those supporting the ventures (RnDAO team) and the builders toward creating sustainable ventures. This is achieved by rewarding the builders and those supporting the ventures below market rate and instead providing them with participation in the ventures (akin to dynamic equity models). As such, all participants only do well if the ventures thrive.
We also give successful ventures ownership in RnDAO itself (generating cross-ownership between the ventures and further incentive alignment). This enables us to have more narrowly focused cohorts (CollaborationTech only) while ensuring that the overlap between the ventures leads not to competition but to deep collaboration (sharing market insights, cross-selling, talent referrals, integrations, etc). The resulting dynamic facilitates collaboration and generates enmeshment, incentivizing ventures to stay in the Arbitrum ecosystem to continue benefiting from the Business Cluster's network effects. This is designed as an improvement upon negative incentives like a contractual lock on chain/ecosystem migrations, which would make for a worse deal and hence reduce the quality of builders attracted.
The Swarming approach has been designed specifically to encourage modularity and composability between the products built by the ventures. This aligns with the thesis of a future of work composed of networks of teams that demand autonomy to select tools/modules (Consumerization of B2B software) while also needing to collaborate effectively at scale.
Statistically, with traditional entrepreneurship programs, 1/10th of ventures provide outsized returns, ideally returning the whole fund, but about 40-50% exit and a few more continue as SMEs.
Contrary to traditional VCs (not attached to an ecosystem), in our case, the projects that don’t produce outlier returns (9/10) can still generate significant value to Arbitrum by using the chain and adding value to the composable ecosystem. And even projects that completely fail, still add value by bringing talent to Arbitrum (e.g. a designer recruited from Web2 can quickly move to another project in Arbitrum if the venture shuts down).
Our model is designed to maximize value generation from the long tail of projects, rather than only focusing on the outliers, thus offering more resilience, network effects, and compounding value for an ecosystem such as Arbitrum.
We'll deliver for 4 streams:
The pilot (Cycle 1) had a very limited marketing budget and a very aggressive timeline yet the calibre and volume of talent attracted surprised us. Despite this promising start, scaling a CollabTech cluster will require us to also scale talent attraction into Arbitrum. As such, we're planning a series of cluster-specific community building activities. Notably:
Semestrely Arbitrum CollabTech Hackathon (including inviting existing players to provide integration bounties with matched capital)
Quarterly CollabTech Unconference
Quarterly pitch days
Curation of a CollabTech Investors Database
Monthly talks with CollabTech leading researchers and (Web2 and Web3) thought leaders.
Monthly CollabTech speed networking events together with other communities (discussing with MetaGov, DeveloperDAO, etc.)
And inviting community members to join trainings that are part of the EiR and Venture programmes.
The Community Building modules works as a “permeable layer” facilitating the community to latch on to what's happening in the ventures, Market & Research module, EiR programmes, etc. and vice versa for the ventures in the Swarm and other projects in Arbitrum to connect with community knowledge and capability. It thus increases the stickiness of the Arbitrum ecosystem through social ties, as well as growing the support ecosystem with talent and expertise for projects.
We'll delay the onset of our other programs to gain a head start here. We made this difficult decision to address the information gap that many early-stage builders have, thus reducing groupthink and ensuring builders focus on meaningful problems.
We'll start with a 12-week intensive to identify granular market opportunities and turn them into Opportunity Validation RFPs (Requests for Proposals). After the intensive, the volume of activity here will be significantly reduced but continue as an ongoing stream, regularly producing new RFPs.
This activity will be carried out primarily in-house with specialised analysts and researchers. Our core team, external experts, and broader community members will also be included in regular workshops.
The programme will start with Mapping the Collab Tech Space as a whole. A blend of in-house and visiting researchers will craft a broad synthesis of what we know and have learned about the collaboration market. We will include:
the market - the customers, users, and their contexts
the existing players and their strategy
and the key concepts and data involved.
The output will be a prioritized list of problem spaces that have high potential to be solved and solved with Web3 technology.
This mapping will serve two purposes. One is to give our investment team the strategic insight needed to make high-leverage choices. The second is to provide our Entrepreneurs in Residence the market and competitive landscape they need for the next phase - to validate one of the opportunities.
This program will focus on recruiting aspiring entrepreneurs who respond to the Opportunity Validation RFPs (program participants can also propose their own opportunities to validate).
Participants are given a stipend and engaged for a maximum of 6 months during which they'll carry out a series of validation activities (user research, creating paper prototypes and market testing them, competition benchmarking, etc.). Participants graduate into the next program once they're able to provide a compelling pitch deck and enough evidence of validation/derisking to the RnDAO investment committee.
If an opportunity is invalidated, participants can pick another RFP and start working.
After 6 months, if a participant has been unable to graduate, their stipend is terminated but they can re-apply to the program. Participants can also be terminated sooner if there's no progress or enough quality in their work.
New participants are onboarded regularly, replacing those who graduated or otherwise exited the program. As such, this program becomes a constant stream (instead of fixed cohorts).
Additionally, EiRs can bring on board a potential co-founder to receive the stipend and complete the work with them, thus allowing them to test the relationship and reducing team risks at later stages. (cost is ultimately neutral as cofounder teams have a higher bar for delivery to recieve payments).
We onboard 5-6 EiRs every 2 months (6 months total program), so after 4 months we'll have about 10 consecutive EiRs validating opportunities and supporting each other.
Participants are selected on a rolling basis from graduating EiRs and external ventures that apply.
The program lasts roughly 6 months, during which ventures build an MVP and market test it. Upon completion, ventures are ready to join an accelerator program, raise VC funding, or bootstrap through revenue generation.
Upon acceptance ventures receive
50k ARB tokens.
$50k worth of hands-on support from our fractional co-founders team (product strategy, tech research, ops support, legal support, mentorship program, and more). Support is hands-on, vertically specialised, white-glove (responding to each venture's unique needs and timeline). As such, our support goes well beyond the generalist mentorship and workshops of accelerator programs.
Swarm membership (co-marketing, cross-selling, collaborative CRMs, talent referrals, integration subsidies, customer insight sharing, communities of practice, and more).
Ventures that graduate are encouraged to continue participating in the Swarm, support others and benefit from the compounding network effects and capabilities. Over time, the Swarm evolves into a modular and composable portfolio of CollabTech products, enabling the creation of a decentralized supperapp of human collaboration.
Cycle 2 includes funding for ARB injection and support for 10 ventures.
Rationale
This proposal is sufficiently complex and the funding amount is significant enough to justify careful governance for risk mitigation. The delegates can approve the framework, but all parties will likely benefit from high-context oversight that can provide ongoing recommendations and adjust the payments timeline in the best interest of Arbitrum. As such, an Oversight Committee will be contracted to operate on behalf of the DAO, providing oversight on progress, co-defining milestones, and greenlighting payments.
Responsibilities of Oversight Committee
Payment Schedule
The second payment is left flexible so that the Oversight Committee can adjust based on mutually agreed needs and successful delivery of programmes. For context, this proposal includes 4 complimentary but distinct programs, each with a different use of capital mechanics, as such, the exact payment schedule is left flexible to optimise for safety and positive impact for Arbitrum without being behold to payment assumptions that might change.
Oversight Committee Members
Committee Members compensation
2,000 ARB per month for the duration of the project.
16 months budgeted as per schedule. Run-overs will be deducted from the 10% allocated to the Final payment to RnDAO.
Payments to committee members to be scheduled and executed monthly by committee members.
Committee Members metagovernance
Implementation details
The initial pilot enabled funding for 6 seats in the Fellowships program and 1 seat in the Venture Program.
We're proposing for ArbitrumDAO to fund the next step on this Business Cluster development initiative, while also aligning on the medium-term roadmap as follows:
Bootstrapping phase (completed): for the last two years, RnDAO developed the concept and bootstrapped 4 CollabTech Ventures through ad-hoc processes - TogetherCrew (backed by TechStars, serving 50+ communities), MeetWithWallet (early stage but revenue generating), Pattern (recently pivoted), and School DAO (PoC stage).
Pilot program (December 2023 - April 2024): systematic program with 6 Fellows and 1 Venture, and minimum viable organizational setup.
Cycle two (this proposal. May/June 2024 - Q2 2025)
Cycle three and CollabTech Fund (future proposals for 2025-2030):
Continuation of programs.
Setting up an investment vehicle to back leading CollabTech projects (sourcing deals from those completing the Venture Program and outsiders), with the legal structures to provide ArbitrumDAO with participation in RnDAO (holding + fund) and deliver sustainable returns for Arbitrum. See work on AVI proposal for the medium-term work we're contributing to enable this.
We've designed this approach with the objective of first building the community and vertical expertise, then validating the structured methodology, followed by a focus on generating network effects for Arbitrum, and finally providing long-term sustainability for Arbitrum.
In so doing, we provide a path for Arbitrum to establish itself as the go-to place for those building the future of Collaboration Tech and lead the way in what's soon-to-be $1,000bn+ market.
December 2023 - April 2024 (Pilot. Now completed): The Pilot program for the Fellowship was completed in early April, with builders having spent 3 months validating a problem and looking to move to prototype a solution.
May 2024 - Q2 2025 (Cycle 2. Current proposal):
May - June: Proposal + Prepare Cycle 2
Mid June September: Launch Market Research module and continuation of Venture Building program (support to ventures from Cycle 1 and before)
October - April 2025:
Continuous operation of Market Research module,
Launch and then continuous operation of Entrepreneurs in Residence program (previously called CoLab Fellowship),
Continuous operation of Venture Building program.
Q2+ 2025 (Cycle 3 and Fund. Future proposal): we'll continue the programs and add the final step with a fund that can supercharge promising ventures (as they complete the Venture Builder programme or come from outside thanks to the cluster's growing reputation). The fund will enable ArbitrumDAO to participate as an LP and thus receive ROI from the pipeline that's been nourished with the earlier stage programs.
RnDAO funding needs
The cycles are divided in 3 stages of a minimum viable pilot of the approach (Cycle 1, already completed), rolling out at a functional scale to assess real impact (Cycle 2, this proposal), and finally reaping the benefits for Arbitrum of all the previous work (Cycle 3, subsequent proposal thanks to completion of AVI or related initiatives).
Cycle 1 (Pilot): already funded (156k ARB) and completed, (see results in FAQ section below).
Cycle Two (this proposal): 3.2mn ARB for program (accounting ARB at 0.85) + Foundation's grant for legal setup. Importantly, the funding is divided in milestones co-created with the Oversight Committee, so value delivery is reviewed step by step and the program only uses the whole funding if value has been delivered throughout.
Cycle Three and Fund (future proposal): 8m ARB: 3.5mn ARB for program and 5mn ARB as 25% LP commitment for Fund together with commitments from other LPs ($20mn fund, standard 2% management fee and 20% carry).
Context
Overview: the proposal consists of a community building module (hackathons, events, etc), a Market and Research module to identify market opportunities, and the EIR and Venture Builder programs where said opportunities are turned into ventures.
Importantly, the thesis is that allocating capital alone to startups that then need to figure out everything inhouse leads to subpar outcomes compared to a venture builder model (where a mix of capital and services are allocated using a “converyor belt” approach where the right expertise can be plugged into the ventures at the right time). As such, the support to projects uses 4 strategies:
Breakdown of the modules:
We have decades of experience in CollabTech, ecosystem development and venture building, and have gathered an expert community bridging insights from Web2, academia, and Web3; as well as expertise in both blockchain and AI.
10 years in Organisation Design. Ex Supervisory Council SingularityNET, Head of Governance at Aragon, consulted for Google, BCG, Daimler, etc. Visiting Lecturer at Oxford, HBR author, and TEDx speaker.
20 years in collaboration software & user research. Research lead at Aragon, Google Suite, Asana, and previously innovation catalyst at Intuit.
10 years in venture acceleration. Built and run 20 accelerator cohorts for Fortune 500 companies and coached 200+ startups. Country director for Founder Institute Colombia.
14 years ecosystem development via VC instruments and community development. £25m deployed followed on by £100m. 3x venture funded founder. First building on blockchain in 2014 and AI in 2016.
Co-Founder and Event Organizer at Regens Unite, ex Head of Comms at Giveth, partnership lead at The DAOist and 9 years in sales and marketing.
This initiative aims primarily to position Arbitrum as the go-to place for CollabTech builders, by nourishing a Collab Tech Business Cluster that can generate network effects and progressively attract more talent, capital, and ventures to the Arbitrum ecosystem, resulting in compounding sequencer fees, and smoother operations and governance for the ArbitrumDAO and Arbitrum-based projects.
Our unique contribution yields a large community building and knowledge generation effort, and an innovation pipeline with sustainable ventures, and after Cohort 2, also compounding ROI.
Thanks for all the feedback and questions thus far! We have created an FAQ to answer.
"Do you have more information on the current cohort? How are the teams doing, what have been the takeaways? [...] I would love to understand more of what the week to week looks like for the teams going through the initial research fellowship as well as how they have progressed so far. How does the current program enable successful problem/solution ideation and testing?"
Please see the full impact report here: https://forum.arbitrum.foundation/t/plurality-labs-arbitrum-dao-x-rndao-co-lab/20138/23
“What did you learn about running these programs during the Pilot? What are you changing?”
Through a pilot grant to RnDAO via Plurality Labs (now Thrive Coin), we ran a builders pipeline, consisting of two steps programs:
Research Fellowship: 3-month paid Fellowship for 6 aspiring builders to dive deep and validate a problem through user research, market research, and engaging with experts.
Venture Programme: 50k Arb and $100k worth of hands-on support for 1 venture to build a team, develop an MVP, and market-test their solution.
Through this pilot, we were able to validate our ability to
attract attention: over 100k impressions, with our venture recruitment post getting close to 300 retweets (legit retweets, not paid).
and talent: 100+ applications for 6 fellowship slots and 70+ applications for 1 venture program slot).
Although it takes many months or even years to assess the success or not of a venture, we have a promising pipeline and also had the opportunity to refine our thesis on the ideal support system and progression for Collab Tech project. A notable insight is that a significant number of applicants were rejected not because of a lack of talent (they boasted great track records) but because certain problems are oversubscribed and they lacked an edge (meanwhile many critical but less popular challenges remain unexplored).
Innovation theory as well as case studies like Entrepreneur First suggest that the development of market insights and IP through fundamental research can generate more targeted and meaningful opportunities for ventures. As such, moving forward we'll expand our programmes with an additional, initial module focused on identifying promising and underserved opportunities and orienting aspiring Collab Tech entrepreneurs to address them.
Moving forward, we're reworking slightly our Fellowship to accommodate this change, and rebranding it to the Entrepreneurs in Residence program (EiR program).
Additionally, we brainstormed ways to leverage and support the talent attracted that didn’t make it into the programmes. There’s a significant opportunity to share training materials, build community, and facilitate P2P interactions beyond our programme. We lacked the resources to sufficiently sustain this effort in the first cycle, as such we’re now adding a Community Building module that can support and sustain this broader community.
"Beyond the Gitcoin grant rounds, how else will talent be sourced? From our own experience running an accelerator, this likely makes or breaks the program. Attracting and retaining the best talent is crucial."
Compared to traditional accelerators that need to attract viable projects, we can both work with viable projects and build them from the ground up. Building projects takes time, but the rigorous validation process used and gating between stages reduces risks of capital allocation, thus improving impact for capital used.
RnDAO already runs a rich variety of industry events, develops channels and communities and, most importantly, the P2P learning aspects of the Swarming approach naturally open up the innovation process in a way that both invites the community to contribute and benefit. Thus creating powerful network effects for talent attraction and upskilling.
Despite this advantage, we agree that talent should remain a core concern for us. We saw very significant demand for both our fellowship and venture program, just from our organic reach. To sustain this position moving forward, part of our marketing budget will be used to promote the content (research) by previous cohorts of fellows, attracting those geeky about the topic and creating a community flywheel. Additionally, we’ve added a range of community attraction and community building activities to rapidly scale up the Arbitrum CollabTech cluster.
Over time, we rely on the success of the Business Cluster and traction from earlier cohorts to give us sustainable network effects and make Arbitrum and our programs the go-to-place for CollabTech builders (see question 9).
"I would love to understand how the program plans to collaborate with current CollabTech players within Arbitrum. These teams and products are likely the most fit for serving as mentors and advising teams on the underserved needs of the ecosystem. How should they be incentivized and how do you balance the competitive/anti-competitive nature of this partnership?"
Established CollabTech players can still benefit from the Swarm. We’re currently in conversation with two more mature ventures interested in the venture program. They see value in the network effects that collaborating with our business cluster could provide them. This is still a nascent area for us, but we see significant potential in developing partnerships beyond the ventures we incubate (token swaps with established players, co-marketing agreements, etc. have been discussed and we plan to explore them over time).
Additionally, a leading CollabTech project has approached us to deliver training for their team similar to our Fellowship, supporting their user-centricity. Over time, we plan to make more of our methodologies available to others. We made a proposal to the Ethereum Foundation to support this work (no clear answer yet), and we’ll continue exploring ways to champion user-centricity in the Arbitrum ecosystem.
A year ago, we also started a mentors and angels program, inviting senior leaders from mature DAOs and CollabTech projects. Our venture volume is still low, but we have already appointed someone (Yatan, who’s ran over 20 accelerator cohorts for Fortune 500 companies) to grow this program in the upcoming cycles.
Finally, our programs are designed to facilitate modularity and composability, and integrations with existing players are a key part of that (also critical for venture success!). A recent example of this is a partnership between TogetherCrew (our first venture, pre-Arbitrum partnership) and Snapshot, where thanks to a small grant from ArbitrumDAO, we’ll mint community engagement scores as Dynamic Reputation NFTs and use them to modulate rewards for participating in governance (related to Snapshot’s new governance rewards protocol - Boost). As our ventures mature, we envision many more such collaborations and will actively leverage our network to facilitate them.
In addition to the outlined above, we are happy to hear any ideas and recommendations for ways to collaborate with existing players.
"I’m not quite sure the feasibility of the VC arm you are suggesting. Maybe the Foundation can shed some light on this. However, if we were able to set up a DAO owned venture arm, I believe the scope should encompass all sectors, not just CollabTech."
During GovHack, we had 20+ conversations with delegates, contributors (e.g., immutablelawyer), and the foundation about this. We’re getting positive sentiment about the viability. This is a need for Arbitrum bigger than our project, and so we’ve started collaborating with others to figure out the ideal legal and governance structure that could oversee multiple investment allocators (other venture builders, VCs, accelerators, etc. etc.).
If you’d like to follow this discussion or engage, this is a good starting point:: What do we want for Arbitrum Venture Funds? 1 and you can see the proposal being discussed here.
Note that irrespective of the venture fund and AVI, we still see the development of a CollabTech business cluster as a critical opportunity for Arbitrum, and the network effects generated through our early-stage programs provide the foundation for it.
"While the growth of the CollabTech industry is evident, understanding a more relevant addressable market as it relates to crypto and web3 would paint a better picture of the opportunity in my opinion."
The Web3 CollabTech market is currently small and hard to calculate. In part, due to a chicken and egg problem: without better tooling (that also streamlines compliance), DAOs are very hard to operate, dissuading others from adopting them. If the challenge is addressed, the market could grow rapidly.
We aim to advance this goal BUT, importantly, we’re not excluding the Web2 market. We include the “IRL potential” among our evaluation criteria for selecting program participants and, in our curriculum, emphasize first-principles thinking over following (web3) trends. We’re also cultivating relationships with communities beyond Web3, as discovering how Web3 technology and patterns can serve society at large is essential for the success of our mission.
The Web3 market (projects in DeFi, GameFi, etc) serves as the speartip customers in many but not all cases (see e.g. the work of our fellow Humberto who’s bringing a Web2 company into Web3). As such, and given the above, we’d argue that an accurate sizing of the opportunity should include the Web2 market too.
Note that research calculates $8.8 Trillion lost annually in productivity because of poor organisational practices - about 9% of global GDP! And see question 9 for reference to the $1,000bn+ by 2030 market opportunity that CollabTech represents. So we’re confident there’s a lot to do here irrespective of the success of other Web3 verticals.
"What results do you want to achieve as a result? I mean, what specific parameter values?"
Develop a new defensible vertical Arbitrum around CollabTech ventures
Grow Arbitrum brand awareness and improve brand perception (go-to place for Collab Tech and for DAOs and Web3 orgs operators): hard to measure but not less important!
Metrics include participation in Community Building module events and new talent attraction.
Grow sequencer fees (lagging indicator)
Create enablers and defensibility for other verticals by enriching Arbitrum’s infrastructure offering
After the setup of the fund, also grow Arbitrum’s equities portfolio
A previous version of the proposal included 12 EiRs and 4 ventures, and then we received the feedback "According to statistics, 1/10 of projects make a profit? Why not more Ventures to increase the odds?", leading us to unpack this question, resulting in adapting the proposal to 10 ventures.
Rationale: We appreciate the need to mitigate risk and appreciate we are requesting a non-trivial amount of funds. The counterfactual to that is that the budget is for incubating 10+ ventures. At $2.4m USD ($600k out of the total $3mn equivalent are dedicated to public research and community building) this leaves less than $250k per venture from conception to market-tested MVP, which is not a huge amount. Going with a smaller portfolio makes the whole thing more risky and statistically insignificant.
Breaking up the programme into smaller chunks and phases is why we’ve included an oversight committee. Requiring multiple DAO votes in the middle of the program introduces for RnDAO and the delegates a lot of overhead, costs, and risks (e.g. reviewing additional impact report and proposals, only short-term contracting reducing talent we can attract, gaps in funding leading to having to discontinue and then rebuild the team also losing ventures, etc.). We’ve explored different solutions to this conundrum and designed an Oversight Committee that can act as a representative of the DAO to approve payments and act with high context and bandwidth to ensure funds are used properly.
Can Arbitrum afford this?
A standard for being financially retired is that one can use 4% of one’s total net worth every year for living expenses and never run out of money (by e.g. investing your net worth in a total stock market index fund, the 4% per year consumed in living expenses would not use up the principal). 4% of the current treasury at the time of writing is valued at $188 million; that’s the amount that could be dedicated to “living expenses”. So the current ask ($3mn equivalent) is equivalent to only 1.59% of “living expenses” that Arbitrum can reasonably afford.
If we draw a parallel between ‘living expenses’ and the operational costs of the DAO, the DAO is currently using less than $10mn for operational expenses (multisigs, delegate incentives, workgroups, etc.), so less than 1/20 of the available resources for operational costs. Another potential benchmark would be the 2% management fee often applied to funds, which would place the current level of expenses at less than 1/10 the available resources (thus allowing for a whopping 90% ARB price reduction and still being within limits).
Now, the RnDAO proposal is not for “living expenses” but for strategically deploying the funds towards developing commercially viable projects that grow the Arbitrum community (attracting developers, users, investors, etc.), create on-chain transactions generating sequencer fees, and improve the effectiveness of the ArbitrumDAO and Arbitrum based projects. In that sense the available resources should not be calculated from the living expenses but from the capital available for investment; the proposal’s ask represents a three orders of magnitude smaller percentage (only 0.08% of the ArbitrumDAO’s treasury).
In conclusion, even if we apply the unfair classification of a ‘living expense’, and even if we projected a 90% market crash, the ArbitrumDAO can afford this ask without significant risk nor cost of opportunity.
"Some VCs have concerns with venture studios taking too much equity and the founders of companies not being incentivised enough, so the VCs don't invest. Is this an issue here?"
Venture Studios vary widely. Some take over 50% of equity. We're quite different.
First, our model is akin to Entrepreneur First (initial fellowship to form the idea and then capital to prototype), which has allowed EF to generate a $10bn+ portfolio across some 500 companies they've supported.
Second, we leverage cross-ownership (so yes, we do take some equity, roughly a 250k SAFE/T but also give the companies that join RnDAO and succeed in governance in RnDAO). Cross ownership allows us to create win-win incentives in the Swarm.
Third, we're quite focused on commercial viability and generally prefer models that can become sustainable earlier, thus being less dependent on VC capital. This is achieved thanks to our model being able to output outlier companies (Unicorn-types) but thanks to the Swarm, also being capable of compounding value from the long-tail of projects (SME-like).
Note that this long tail of projects often constitutes the bulk of an economy (e.g. accounting worldwide for 90% of businesses and more than 50% of employment. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies, and significantly higher if informal SMEs were considered).
"How does Arbitrum benefit?"
The L2 market is crowded and getting more so; Arbitrum requires strong Business Clusters to sustain its relevance. With the bull market, ecosystems face an arms race, offering bigger and bigger incentives to mature projects in Gaming & DeFi. Meanwhile, opportunities to incubate original projects and expand other sectors are less competitive (see question 9). We offer a play to leverage these untapped opportunities, while also having multiple additional benefits:
Adding value to our Gaming and DeFi clusters and the ArbitrumDAO itself by researching and building solutions for solving governance, ops, and growth painpoints.
Attracting talent (devs, entrepreneurs, etc) to the ecosystem (and making Arbitrum THE PLACE for DAO people e.g. Klaus was referred to Arbitrum by RnDAO, leading to the GovHack).
Research (uncovering ops and gov best practices) and thesis formation (systematic analysis of market opportunities to derisk capital allocation through the Market Research module and Entrepreneur in Residence outputs).
An important additional benefit lies in expanding the funds deployment methods in Arbitrum, and addressing multiple limitations of Grants programs that manifest as:
Concerns about retention of grantees in the ecosystem
Concerns about the ROI of incentive programs
Concerns with the incentive alignment of service providers
Challenges with forecasting the sequencer fees that different programs could generate
Growing reporting structures and additional resources consumed in oversight
The Swarm model could complement grants by addressing these issues, and provide significant network effects and ROI to Arbitrum. We propose a staged roadmap to test and validate this approach and position Arbitrum as a market leader in an untapped key vertical, with spillover benefits to the whole ecosystem.
RnDAO proposal for an Arbitrum Collab Tech Business Cluster
post updated May 23st 2024 (previous update May 1st 2024)
Table of Contents
Abstract
Motivation
Rationale
Specifications
Steps to implement
Timeline
Funding needs
Our team
Closing Thoughts
FAQ
As the Web3 ecosystem expands with the number of L1 and L2s, the chains with unique differentiators will have key advantages. Because network effects are king in this quest, the strongest differentiator is a vibrant group of builders who can output commercially viable projects, invent new use cases for the infrastructure, and attract others to collaborate and build on each other's work, creating network effects. As such, we propose creating and supporting an innovation cluster for the Arbitrum ecosystem.
RnDAO will provide a venture creation pipeline focused on outputting commercially viable projects, addressing the current gap. We'll achieve this through human-centred design, hands-on support, peer-to-peer collaboration, and a staged pipeline of capital and support builders.
Building on the learnings from our pilot funded by PluralityLabs in 2023 and years of research into venture building, the proposal leverages Swarms (Web3-style Business Clusters). Swarms enable Arbitrum to generate new use cases for its infrastructure (e.g. Orbit Chain), attract and retain projects through partnerships and integrations, and compound value from the long tail of projects (not just power law) through P2P collaboration, thus creating network effects for the Arbitrum ecosystem.
Business clusters and venture builders function best with specialisation, as such we’ve selected a vertical (CollabTech - essentially, the next generation of B2B SaaS, which might not be subscriptions based anymore) because it's both valuable for Arbitrum and serves as an ideal first step to validate the business clusters innovation approach (which can then be copied across verticals). Concretely, we’ve selected a vertical that has:
The bigger project to create this innovation cluster (the Swarm) is divided into 3 cycles:
a minimum viable pilot of the approach (Cycle 1, already completed)
rolling out at a functional scale to assess the real impact (Cycle 2, this proposal),
and finally reaping the benefits for Arbitrum of all the previous work (Cycle 3, subsequent proposal thanks to completion of AVI or related initiatives).
In sum, building this Swarm sets Arbitrum as the preferred ecosystem for a valuable vertical, creates network effects of talent, projects, and tools to fast-track Arbitrum's community growth and usage of its infrastructure, and develops a replicable methodology across verticals to further grow Arbitrum.
The number of L1s and L2s is multiplying, and with it, the relevance of Arbitrum is not guaranteed. A rapidly evolving landscape creates pressing demands. It's essential for ArbitrumDAO to both invest in organizational infrastructure and seed an ecosystem of sustainable ventures to transform its massive potential into massive impact. In this quest, network effects are king. But how to do so?
There was a time when you could know every major project in Ethereum. That time is long gone. The number of projects and innovations is expanding rapidly in verticals like DeFi, Gaming, DeSci, CollabTech, NFTs/creative, etc. Without specialisation, it's impossible to keep up and this situation will only intensify over the next few years as the number of projects and verticals increases.
Specialization enables the support system for ventures to keep up with new developments and add real value. The same person, no matter how well connected, can hardly help a Gaming project connect with all the key publishers, advise a DeFi project on liquidity, or make introductions to the key connectors in the Carbon Credits markets. Every vertical has a different technical palette, market configuration, and social network; with specialized support, we're in the best position to select which projects to back and help them navigate challenges.
Collab Tech has especially suffered from neglect in specialisation. Organisation design, leadership, group psychology, behavioural economics, and political science are not new disciplines. Yet the DAO movement has often reinvented the wheel and repeated mistakes while being slow to test ideas coming from self-management, cybernetics, and similar bodies of value-aligned theories and practices.
In Web2, we have seen how, in Collab Tech, older and more experienced entrepreneurs have higher chances of success (in contrast to consumer verticals). This is due in large part to Collab Tech being a B2B market where relationships carry a premium and a deep understanding of the complexities of organisations is key to developing commercially viable solutions. In Collab Tech, the experience and networks that specialisation enables are particularly valuable.
Full rationale here: https://forum.arbitrum.foundation/t/is-collabtech-valuable-for-arbitrum/24703
RnDAO has investigated and tested approaches to ecosystem development for the past two years, and our research leads us to conclude that Swarms (Web3-style Business Clusters) are an ideal approach to creating network effects around a specific vertical.
Swarms rely on facilitating access to capital, vertical-specific support, and incentive alignment leading to deep collaboration between projects. The swarm dynamic is essential in supporting frontier development in Collab Tech, where knowledge on what works when and how is yet to gel into experience and expertise.
Concerted progress in such fast-changing environments requires knowledge to flow more freely through conduits of people exploring the new space, rather than through first establishing knowledge in siloed disciplines, and have it disseminated centrally later on. Swarms, to the contrary, enable learning to take place almost synchronously with the creation of knowledge and experience between groups of vertically-focused builders.
This programme facilitates swarm dynamics by building relationships between buildes performing research and building at the frontier of the Collabtech space and a community of interest behind them. These relationships will be formed and maintained through regularly recurring interactions between those working at the frontier and the community of interest behind them. We thereby create grounds for both adoption and dissemination of knowledge through community and at the same time supply lines of capabilities and experience back towards the frontier. This way the cluser compounds network value from the get-go.
As a result, enmeshment between projects (modularity and composability leading to integrations, cross-selling, sharing of insights, etc) is increased, generating Arbitrum network effects and making it advantageous to stay in the same ecosystem instead of migrating.
As the number of successful projects increases, the ecosystem further attracts talent, capital, and new projects looking to build on top of existing protocols. A flywheel is created.
A thriving city is composed of a core set of foundational public goods (parks, libraries, roads) used by most people and an ecosystem of businesses that cover the full range of specific needs of a city's inhabitants. Along the same logic, this proposal focuses on developing an ecosystem of ventures for Arbitrum and is ideally complemented by public goods funding programs and some vertical-agnostic services.
We learned from Web1 and Web2's rich history of experiments in entrepreneurship that deploying capital alone is not the ideal method to facilitate the creation of successful, sustainable ventures.
Accelerators and Incubators evolved precisely because small, early-stage teams have critical gaps that mean they 'don't know what they don't know.' As a result, early-stage ventures can underinvest in critical skills or pursue dead alleys searching for the right methodology or approach. No wonder that 75% of Hackathon winners abandon their projects, and still, 9/10 accelerated startups tend to fail.
Moving further in the support continuum, Venture Builders (a.k.a. Venture Studios), are a rising trend.
Venture Studios obtain superior results thanks to going beyond mentorship and offering hands-on support. Imagine the difference between an expert giving you some feedback on why your pitch deck sucks, you going and trying to fix it on your own, then coming back to get a bit more feedback the week after, vs said expert sitting down with you for 4 hours until you have a great result. Hands-on support offers results faster and compounds expertise more effectively. As a result, the failure rate of ventures is lower than traditional acceleration models, the need for outlier talent is reduced, and ventures progress faster, thus generating better ROI.
https://inniches.com/startup-studios-research
Now, arriving at this programme’s Venture Building approach, we expand on the boost that Venture Studios have brought to startup success. This is done in 2 ways, by:
Instead of letting individual founders/teams absorb the risk of performing research or building without a clear foundation of insight, our Market & Research module as well as Entrepreneur in Residence, provide builders with more evolved, matured opportunities as their starting point as well as methodologies for fast and low cost validation of projects. This pre-venture building phase catches a lot of wheels spinning with founders who generally need to come to grips due to the vagaries of developing in the Web3 space. This way we aim to address “the commons” of venture-building risk in Collab Tech.
This form of ownership is minted when founders commit knowledge and capability that is provided by contributors to their venture. This provides an incentive for a broader community to add value to founders’ ventures. On the other hand, it incentivises stewardship behavior, where advice is not only given, but also supported further throughout its implementation. Thus turning mentors into contributors and leading to faster venture development and facilitating decentralisation.
Transition of swarm dynamics around Collab-Tech opportunity between these 2 phases happens seamlessly. Where the incentives for swarming in the “commons” phase of the opportunity are driven by curiosity and intellectual development, it naturally converts to the similar dynamics around commercial venture opportunity, but now supported by means of intellectual property rights that are attributable to contributors in the form of fractional ownership.
We're proposing to extend the existing two programs for a further 12 months, with
up to 25 Entrepreneurs in Residence (previously called fellows): funded for up to 6 months with a $2k/month stipend and dedicaed support program to research and validate a venture opportunity.
and 10 ventures: funded with 50k ARB and equivalent support to develop and market test an MVP.
Additionally, we're proposing to include two additional (public good) modules that ensure scalability and further improve venture outcomes and grow the Arbitrum community:
Market research module: funding a small, specialised team of market researchers and analyst to map opportunities in the Collab Tech space and help orient devs and entrepreneurs to promising and unaddressed areas.
Community Building module: commmunity attraction and community buildign activities to grow the talent pipeline into the Arbitrum ecosystem and position it as the go-to place for this vertical. Including a hackathon, quarterly unconferences, speed networking, and public events with thought leaders.
The Collab Tech builders' pipeline has been designed based on creating opportunity-space insights as a public good upfront. Rather than have each venture go through the burden of finding elementary insights each for themselves, we provide these as their starting point. Allowing them to hit the ground running.
We then follow by guiding builders through lean cycles to quickly and at a low cost validate the viability of a venture. We start working at the very early stages of idea formation to reduce waste and validate or invalidate opportunities at the lowest cost.
Additionally, the approach proposed relies on collaborative processes and cross-ownership to complement the specialized support, thus improving outcomes beyond what a generalist program can provide in what's largely a B2B (and B2DAO) market.
Compared to traditional grant programs, the incentives have been redesigned to align both those supporting the ventures (RnDAO team) and the builders toward creating sustainable ventures. This is achieved by rewarding the builders and those supporting the ventures below market rate and instead providing them with participation in the ventures (akin to dynamic equity models). As such, all participants only do well if the ventures thrive.
We also give successful ventures ownership in RnDAO itself (generating cross-ownership between the ventures and further incentive alignment). This enables us to have more narrowly focused cohorts (CollaborationTech only) while ensuring that the overlap between the ventures leads not to competition but to deep collaboration (sharing market insights, cross-selling, talent referrals, integrations, etc). The resulting dynamic facilitates collaboration and generates enmeshment, incentivizing ventures to stay in the Arbitrum ecosystem to continue benefiting from the Business Cluster's network effects. This is designed as an improvement upon negative incentives like a contractual lock on chain/ecosystem migrations, which would make for a worse deal and hence reduce the quality of builders attracted.
The Swarming approach has been designed specifically to encourage modularity and composability between the products built by the ventures. This aligns with the thesis of a future of work composed of networks of teams that demand autonomy to select tools/modules (Consumerization of B2B software) while also needing to collaborate effectively at scale.
Statistically, with traditional entrepreneurship programs, 1/10th of ventures provide outsized returns, ideally returning the whole fund, but about 40-50% exit and a few more continue as SMEs.
Contrary to traditional VCs (not attached to an ecosystem), in our case, the projects that don’t produce outlier returns (9/10) can still generate significant value to Arbitrum by using the chain and adding value to the composable ecosystem. And even projects that completely fail, still add value by bringing talent to Arbitrum (e.g. a designer recruited from Web2 can quickly move to another project in Arbitrum if the venture shuts down).
Our model is designed to maximize value generation from the long tail of projects, rather than only focusing on the outliers, thus offering more resilience, network effects, and compounding value for an ecosystem such as Arbitrum.
We'll deliver for 4 streams:
The pilot (Cycle 1) had a very limited marketing budget and a very aggressive timeline yet the calibre and volume of talent attracted surprised us. Despite this promising start, scaling a CollabTech cluster will require us to also scale talent attraction into Arbitrum. As such, we're planning a series of cluster-specific community building activities. Notably:
Semestrely Arbitrum CollabTech Hackathon (including inviting existing players to provide integration bounties with matched capital)
Quarterly CollabTech Unconference
Quarterly pitch days
Curation of a CollabTech Investors Database
Monthly talks with CollabTech leading researchers and (Web2 and Web3) thought leaders.
Monthly CollabTech speed networking events together with other communities (discussing with MetaGov, DeveloperDAO, etc.)
And inviting community members to join trainings that are part of the EiR and Venture programmes.
The Community Building modules works as a “permeable layer” facilitating the community to latch on to what's happening in the ventures, Market & Research module, EiR programmes, etc. and vice versa for the ventures in the Swarm and other projects in Arbitrum to connect with community knowledge and capability. It thus increases the stickiness of the Arbitrum ecosystem through social ties, as well as growing the support ecosystem with talent and expertise for projects.
We'll delay the onset of our other programs to gain a head start here. We made this difficult decision to address the information gap that many early-stage builders have, thus reducing groupthink and ensuring builders focus on meaningful problems.
We'll start with a 12-week intensive to identify granular market opportunities and turn them into Opportunity Validation RFPs (Requests for Proposals). After the intensive, the volume of activity here will be significantly reduced but continue as an ongoing stream, regularly producing new RFPs.
This activity will be carried out primarily in-house with specialised analysts and researchers. Our core team, external experts, and broader community members will also be included in regular workshops.
The programme will start with Mapping the Collab Tech Space as a whole. A blend of in-house and visiting researchers will craft a broad synthesis of what we know and have learned about the collaboration market. We will include:
the market - the customers, users, and their contexts
the existing players and their strategy
and the key concepts and data involved.
The output will be a prioritized list of problem spaces that have high potential to be solved and solved with Web3 technology.
This mapping will serve two purposes. One is to give our investment team the strategic insight needed to make high-leverage choices. The second is to provide our Entrepreneurs in Residence the market and competitive landscape they need for the next phase - to validate one of the opportunities.
This program will focus on recruiting aspiring entrepreneurs who respond to the Opportunity Validation RFPs (program participants can also propose their own opportunities to validate).
Participants are given a stipend and engaged for a maximum of 6 months during which they'll carry out a series of validation activities (user research, creating paper prototypes and market testing them, competition benchmarking, etc.). Participants graduate into the next program once they're able to provide a compelling pitch deck and enough evidence of validation/derisking to the RnDAO investment committee.
If an opportunity is invalidated, participants can pick another RFP and start working.
After 6 months, if a participant has been unable to graduate, their stipend is terminated but they can re-apply to the program. Participants can also be terminated sooner if there's no progress or enough quality in their work.
New participants are onboarded regularly, replacing those who graduated or otherwise exited the program. As such, this program becomes a constant stream (instead of fixed cohorts).
Additionally, EiRs can bring on board a potential co-founder to receive the stipend and complete the work with them, thus allowing them to test the relationship and reducing team risks at later stages. (cost is ultimately neutral as cofounder teams have a higher bar for delivery to recieve payments).
We onboard 5-6 EiRs every 2 months (6 months total program), so after 4 months we'll have about 10 consecutive EiRs validating opportunities and supporting each other.
Participants are selected on a rolling basis from graduating EiRs and external ventures that apply.
The program lasts roughly 6 months, during which ventures build an MVP and market test it. Upon completion, ventures are ready to join an accelerator program, raise VC funding, or bootstrap through revenue generation.
Upon acceptance ventures receive
50k ARB tokens.
$50k worth of hands-on support from our fractional co-founders team (product strategy, tech research, ops support, legal support, mentorship program, and more). Support is hands-on, vertically specialised, white-glove (responding to each venture's unique needs and timeline). As such, our support goes well beyond the generalist mentorship and workshops of accelerator programs.
Swarm membership (co-marketing, cross-selling, collaborative CRMs, talent referrals, integration subsidies, customer insight sharing, communities of practice, and more).
Ventures that graduate are encouraged to continue participating in the Swarm, support others and benefit from the compounding network effects and capabilities. Over time, the Swarm evolves into a modular and composable portfolio of CollabTech products, enabling the creation of a decentralized supperapp of human collaboration.
Cycle 2 includes funding for ARB injection and support for 10 ventures.
Rationale
This proposal is sufficiently complex and the funding amount is significant enough to justify careful governance for risk mitigation. The delegates can approve the framework, but all parties will likely benefit from high-context oversight that can provide ongoing recommendations and adjust the payments timeline in the best interest of Arbitrum. As such, an Oversight Committee will be contracted to operate on behalf of the DAO, providing oversight on progress, co-defining milestones, and greenlighting payments.
Responsibilities of Oversight Committee
Payment Schedule
The second payment is left flexible so that the Oversight Committee can adjust based on mutually agreed needs and successful delivery of programmes. For context, this proposal includes 4 complimentary but distinct programs, each with a different use of capital mechanics, as such, the exact payment schedule is left flexible to optimise for safety and positive impact for Arbitrum without being behold to payment assumptions that might change.
Oversight Committee Members
Committee Members compensation
2,000 ARB per month for the duration of the project.
16 months budgeted as per schedule. Run-overs will be deducted from the 10% allocated to the Final payment to RnDAO.
Payments to committee members to be scheduled and executed monthly by committee members.
Committee Members metagovernance
Implementation details
The initial pilot enabled funding for 6 seats in the Fellowships program and 1 seat in the Venture Program.
We're proposing for ArbitrumDAO to fund the next step on this Business Cluster development initiative, while also aligning on the medium-term roadmap as follows:
Bootstrapping phase (completed): for the last two years, RnDAO developed the concept and bootstrapped 4 CollabTech Ventures through ad-hoc processes - TogetherCrew (backed by TechStars, serving 50+ communities), MeetWithWallet (early stage but revenue generating), Pattern (recently pivoted), and School DAO (PoC stage).
Pilot program (December 2023 - April 2024): systematic program with 6 Fellows and 1 Venture, and minimum viable organizational setup.
Cycle two (this proposal. May/June 2024 - Q2 2025)
Cycle three and CollabTech Fund (future proposals for 2025-2030):
Continuation of programs.
Setting up an investment vehicle to back leading CollabTech projects (sourcing deals from those completing the Venture Program and outsiders), with the legal structures to provide ArbitrumDAO with participation in RnDAO (holding + fund) and deliver sustainable returns for Arbitrum. See work on AVI proposal for the medium-term work we're contributing to enable this.
We've designed this approach with the objective of first building the community and vertical expertise, then validating the structured methodology, followed by a focus on generating network effects for Arbitrum, and finally providing long-term sustainability for Arbitrum.
In so doing, we provide a path for Arbitrum to establish itself as the go-to place for those building the future of Collaboration Tech and lead the way in what's soon-to-be $1,000bn+ market.
December 2023 - April 2024 (Pilot. Now completed): The Pilot program for the Fellowship was completed in early April, with builders having spent 3 months validating a problem and looking to move to prototype a solution.
May 2024 - Q2 2025 (Cycle 2. Current proposal):
May - June: Proposal + Prepare Cycle 2
Mid June September: Launch Market Research module and continuation of Venture Building program (support to ventures from Cycle 1 and before)
October - April 2025:
Continuous operation of Market Research module,
Launch and then continuous operation of Entrepreneurs in Residence program (previously called CoLab Fellowship),
Continuous operation of Venture Building program.
Q2+ 2025 (Cycle 3 and Fund. Future proposal): we'll continue the programs and add the final step with a fund that can supercharge promising ventures (as they complete the Venture Builder programme or come from outside thanks to the cluster's growing reputation). The fund will enable ArbitrumDAO to participate as an LP and thus receive ROI from the pipeline that's been nourished with the earlier stage programs.
RnDAO funding needs
The cycles are divided in 3 stages of a minimum viable pilot of the approach (Cycle 1, already completed), rolling out at a functional scale to assess real impact (Cycle 2, this proposal), and finally reaping the benefits for Arbitrum of all the previous work (Cycle 3, subsequent proposal thanks to completion of AVI or related initiatives).
Cycle 1 (Pilot): already funded (156k ARB) and completed, (see results in FAQ section below).
Cycle Two (this proposal): 3.2mn ARB for program (accounting ARB at 0.85) + Foundation's grant for legal setup. Importantly, the funding is divided in milestones co-created with the Oversight Committee, so value delivery is reviewed step by step and the program only uses the whole funding if value has been delivered throughout.
Cycle Three and Fund (future proposal): 8m ARB: 3.5mn ARB for program and 5mn ARB as 25% LP commitment for Fund together with commitments from other LPs ($20mn fund, standard 2% management fee and 20% carry).
Context
Overview: the proposal consists of a community building module (hackathons, events, etc), a Market and Research module to identify market opportunities, and the EIR and Venture Builder programs where said opportunities are turned into ventures.
Importantly, the thesis is that allocating capital alone to startups that then need to figure out everything inhouse leads to subpar outcomes compared to a venture builder model (where a mix of capital and services are allocated using a “converyor belt” approach where the right expertise can be plugged into the ventures at the right time). As such, the support to projects uses 4 strategies:
Breakdown of the modules:
We have decades of experience in CollabTech, ecosystem development and venture building, and have gathered an expert community bridging insights from Web2, academia, and Web3; as well as expertise in both blockchain and AI.
10 years in Organisation Design. Ex Supervisory Council SingularityNET, Head of Governance at Aragon, consulted for Google, BCG, Daimler, etc. Visiting Lecturer at Oxford, HBR author, and TEDx speaker.
20 years in collaboration software & user research. Research lead at Aragon, Google Suite, Asana, and previously innovation catalyst at Intuit.
10 years in venture acceleration. Built and run 20 accelerator cohorts for Fortune 500 companies and coached 200+ startups. Country director for Founder Institute Colombia.
14 years ecosystem development via VC instruments and community development. £25m deployed followed on by £100m. 3x venture funded founder. First building on blockchain in 2014 and AI in 2016.
Co-Founder and Event Organizer at Regens Unite, ex Head of Comms at Giveth, partnership lead at The DAOist and 9 years in sales and marketing.
This initiative aims primarily to position Arbitrum as the go-to place for CollabTech builders, by nourishing a Collab Tech Business Cluster that can generate network effects and progressively attract more talent, capital, and ventures to the Arbitrum ecosystem, resulting in compounding sequencer fees, and smoother operations and governance for the ArbitrumDAO and Arbitrum-based projects.
Our unique contribution yields a large community building and knowledge generation effort, and an innovation pipeline with sustainable ventures, and after Cohort 2, also compounding ROI.
Thanks for all the feedback and questions thus far! We have created an FAQ to answer.
"Do you have more information on the current cohort? How are the teams doing, what have been the takeaways? [...] I would love to understand more of what the week to week looks like for the teams going through the initial research fellowship as well as how they have progressed so far. How does the current program enable successful problem/solution ideation and testing?"
Please see the full impact report here: https://forum.arbitrum.foundation/t/plurality-labs-arbitrum-dao-x-rndao-co-lab/20138/23
“What did you learn about running these programs during the Pilot? What are you changing?”
Through a pilot grant to RnDAO via Plurality Labs (now Thrive Coin), we ran a builders pipeline, consisting of two steps programs:
Research Fellowship: 3-month paid Fellowship for 6 aspiring builders to dive deep and validate a problem through user research, market research, and engaging with experts.
Venture Programme: 50k Arb and $100k worth of hands-on support for 1 venture to build a team, develop an MVP, and market-test their solution.
Through this pilot, we were able to validate our ability to
attract attention: over 100k impressions, with our venture recruitment post getting close to 300 retweets (legit retweets, not paid).
and talent: 100+ applications for 6 fellowship slots and 70+ applications for 1 venture program slot).
Although it takes many months or even years to assess the success or not of a venture, we have a promising pipeline and also had the opportunity to refine our thesis on the ideal support system and progression for Collab Tech project. A notable insight is that a significant number of applicants were rejected not because of a lack of talent (they boasted great track records) but because certain problems are oversubscribed and they lacked an edge (meanwhile many critical but less popular challenges remain unexplored).
Innovation theory as well as case studies like Entrepreneur First suggest that the development of market insights and IP through fundamental research can generate more targeted and meaningful opportunities for ventures. As such, moving forward we'll expand our programmes with an additional, initial module focused on identifying promising and underserved opportunities and orienting aspiring Collab Tech entrepreneurs to address them.
Moving forward, we're reworking slightly our Fellowship to accommodate this change, and rebranding it to the Entrepreneurs in Residence program (EiR program).
Additionally, we brainstormed ways to leverage and support the talent attracted that didn’t make it into the programmes. There’s a significant opportunity to share training materials, build community, and facilitate P2P interactions beyond our programme. We lacked the resources to sufficiently sustain this effort in the first cycle, as such we’re now adding a Community Building module that can support and sustain this broader community.
"Beyond the Gitcoin grant rounds, how else will talent be sourced? From our own experience running an accelerator, this likely makes or breaks the program. Attracting and retaining the best talent is crucial."
Compared to traditional accelerators that need to attract viable projects, we can both work with viable projects and build them from the ground up. Building projects takes time, but the rigorous validation process used and gating between stages reduces risks of capital allocation, thus improving impact for capital used.
RnDAO already runs a rich variety of industry events, develops channels and communities and, most importantly, the P2P learning aspects of the Swarming approach naturally open up the innovation process in a way that both invites the community to contribute and benefit. Thus creating powerful network effects for talent attraction and upskilling.
Despite this advantage, we agree that talent should remain a core concern for us. We saw very significant demand for both our fellowship and venture program, just from our organic reach. To sustain this position moving forward, part of our marketing budget will be used to promote the content (research) by previous cohorts of fellows, attracting those geeky about the topic and creating a community flywheel. Additionally, we’ve added a range of community attraction and community building activities to rapidly scale up the Arbitrum CollabTech cluster.
Over time, we rely on the success of the Business Cluster and traction from earlier cohorts to give us sustainable network effects and make Arbitrum and our programs the go-to-place for CollabTech builders (see question 9).
"I would love to understand how the program plans to collaborate with current CollabTech players within Arbitrum. These teams and products are likely the most fit for serving as mentors and advising teams on the underserved needs of the ecosystem. How should they be incentivized and how do you balance the competitive/anti-competitive nature of this partnership?"
Established CollabTech players can still benefit from the Swarm. We’re currently in conversation with two more mature ventures interested in the venture program. They see value in the network effects that collaborating with our business cluster could provide them. This is still a nascent area for us, but we see significant potential in developing partnerships beyond the ventures we incubate (token swaps with established players, co-marketing agreements, etc. have been discussed and we plan to explore them over time).
Additionally, a leading CollabTech project has approached us to deliver training for their team similar to our Fellowship, supporting their user-centricity. Over time, we plan to make more of our methodologies available to others. We made a proposal to the Ethereum Foundation to support this work (no clear answer yet), and we’ll continue exploring ways to champion user-centricity in the Arbitrum ecosystem.
A year ago, we also started a mentors and angels program, inviting senior leaders from mature DAOs and CollabTech projects. Our venture volume is still low, but we have already appointed someone (Yatan, who’s ran over 20 accelerator cohorts for Fortune 500 companies) to grow this program in the upcoming cycles.
Finally, our programs are designed to facilitate modularity and composability, and integrations with existing players are a key part of that (also critical for venture success!). A recent example of this is a partnership between TogetherCrew (our first venture, pre-Arbitrum partnership) and Snapshot, where thanks to a small grant from ArbitrumDAO, we’ll mint community engagement scores as Dynamic Reputation NFTs and use them to modulate rewards for participating in governance (related to Snapshot’s new governance rewards protocol - Boost). As our ventures mature, we envision many more such collaborations and will actively leverage our network to facilitate them.
In addition to the outlined above, we are happy to hear any ideas and recommendations for ways to collaborate with existing players.
"I’m not quite sure the feasibility of the VC arm you are suggesting. Maybe the Foundation can shed some light on this. However, if we were able to set up a DAO owned venture arm, I believe the scope should encompass all sectors, not just CollabTech."
During GovHack, we had 20+ conversations with delegates, contributors (e.g., immutablelawyer), and the foundation about this. We’re getting positive sentiment about the viability. This is a need for Arbitrum bigger than our project, and so we’ve started collaborating with others to figure out the ideal legal and governance structure that could oversee multiple investment allocators (other venture builders, VCs, accelerators, etc. etc.).
If you’d like to follow this discussion or engage, this is a good starting point:: What do we want for Arbitrum Venture Funds? 1 and you can see the proposal being discussed here.
Note that irrespective of the venture fund and AVI, we still see the development of a CollabTech business cluster as a critical opportunity for Arbitrum, and the network effects generated through our early-stage programs provide the foundation for it.
"While the growth of the CollabTech industry is evident, understanding a more relevant addressable market as it relates to crypto and web3 would paint a better picture of the opportunity in my opinion."
The Web3 CollabTech market is currently small and hard to calculate. In part, due to a chicken and egg problem: without better tooling (that also streamlines compliance), DAOs are very hard to operate, dissuading others from adopting them. If the challenge is addressed, the market could grow rapidly.
We aim to advance this goal BUT, importantly, we’re not excluding the Web2 market. We include the “IRL potential” among our evaluation criteria for selecting program participants and, in our curriculum, emphasize first-principles thinking over following (web3) trends. We’re also cultivating relationships with communities beyond Web3, as discovering how Web3 technology and patterns can serve society at large is essential for the success of our mission.
The Web3 market (projects in DeFi, GameFi, etc) serves as the speartip customers in many but not all cases (see e.g. the work of our fellow Humberto who’s bringing a Web2 company into Web3). As such, and given the above, we’d argue that an accurate sizing of the opportunity should include the Web2 market too.
Note that research calculates $8.8 Trillion lost annually in productivity because of poor organisational practices - about 9% of global GDP! And see question 9 for reference to the $1,000bn+ by 2030 market opportunity that CollabTech represents. So we’re confident there’s a lot to do here irrespective of the success of other Web3 verticals.
"What results do you want to achieve as a result? I mean, what specific parameter values?"
Develop a new defensible vertical Arbitrum around CollabTech ventures
Grow Arbitrum brand awareness and improve brand perception (go-to place for Collab Tech and for DAOs and Web3 orgs operators): hard to measure but not less important!
Metrics include participation in Community Building module events and new talent attraction.
Grow sequencer fees (lagging indicator)
Create enablers and defensibility for other verticals by enriching Arbitrum’s infrastructure offering
After the setup of the fund, also grow Arbitrum’s equities portfolio
A previous version of the proposal included 12 EiRs and 4 ventures, and then we received the feedback "According to statistics, 1/10 of projects make a profit? Why not more Ventures to increase the odds?", leading us to unpack this question, resulting in adapting the proposal to 10 ventures.
Rationale: We appreciate the need to mitigate risk and appreciate we are requesting a non-trivial amount of funds. The counterfactual to that is that the budget is for incubating 10+ ventures. At $2.4m USD ($600k out of the total $3mn equivalent are dedicated to public research and community building) this leaves less than $250k per venture from conception to market-tested MVP, which is not a huge amount. Going with a smaller portfolio makes the whole thing more risky and statistically insignificant.
Breaking up the programme into smaller chunks and phases is why we’ve included an oversight committee. Requiring multiple DAO votes in the middle of the program introduces for RnDAO and the delegates a lot of overhead, costs, and risks (e.g. reviewing additional impact report and proposals, only short-term contracting reducing talent we can attract, gaps in funding leading to having to discontinue and then rebuild the team also losing ventures, etc.). We’ve explored different solutions to this conundrum and designed an Oversight Committee that can act as a representative of the DAO to approve payments and act with high context and bandwidth to ensure funds are used properly.
Can Arbitrum afford this?
A standard for being financially retired is that one can use 4% of one’s total net worth every year for living expenses and never run out of money (by e.g. investing your net worth in a total stock market index fund, the 4% per year consumed in living expenses would not use up the principal). 4% of the current treasury at the time of writing is valued at $188 million; that’s the amount that could be dedicated to “living expenses”. So the current ask ($3mn equivalent) is equivalent to only 1.59% of “living expenses” that Arbitrum can reasonably afford.
If we draw a parallel between ‘living expenses’ and the operational costs of the DAO, the DAO is currently using less than $10mn for operational expenses (multisigs, delegate incentives, workgroups, etc.), so less than 1/20 of the available resources for operational costs. Another potential benchmark would be the 2% management fee often applied to funds, which would place the current level of expenses at less than 1/10 the available resources (thus allowing for a whopping 90% ARB price reduction and still being within limits).
Now, the RnDAO proposal is not for “living expenses” but for strategically deploying the funds towards developing commercially viable projects that grow the Arbitrum community (attracting developers, users, investors, etc.), create on-chain transactions generating sequencer fees, and improve the effectiveness of the ArbitrumDAO and Arbitrum based projects. In that sense the available resources should not be calculated from the living expenses but from the capital available for investment; the proposal’s ask represents a three orders of magnitude smaller percentage (only 0.08% of the ArbitrumDAO’s treasury).
In conclusion, even if we apply the unfair classification of a ‘living expense’, and even if we projected a 90% market crash, the ArbitrumDAO can afford this ask without significant risk nor cost of opportunity.
"Some VCs have concerns with venture studios taking too much equity and the founders of companies not being incentivised enough, so the VCs don't invest. Is this an issue here?"
Venture Studios vary widely. Some take over 50% of equity. We're quite different.
First, our model is akin to Entrepreneur First (initial fellowship to form the idea and then capital to prototype), which has allowed EF to generate a $10bn+ portfolio across some 500 companies they've supported.
Second, we leverage cross-ownership (so yes, we do take some equity, roughly a 250k SAFE/T but also give the companies that join RnDAO and succeed in governance in RnDAO). Cross ownership allows us to create win-win incentives in the Swarm.
Third, we're quite focused on commercial viability and generally prefer models that can become sustainable earlier, thus being less dependent on VC capital. This is achieved thanks to our model being able to output outlier companies (Unicorn-types) but thanks to the Swarm, also being capable of compounding value from the long-tail of projects (SME-like).
Note that this long tail of projects often constitutes the bulk of an economy (e.g. accounting worldwide for 90% of businesses and more than 50% of employment. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies, and significantly higher if informal SMEs were considered).
"How does Arbitrum benefit?"
The L2 market is crowded and getting more so; Arbitrum requires strong Business Clusters to sustain its relevance. With the bull market, ecosystems face an arms race, offering bigger and bigger incentives to mature projects in Gaming & DeFi. Meanwhile, opportunities to incubate original projects and expand other sectors are less competitive (see question 9). We offer a play to leverage these untapped opportunities, while also having multiple additional benefits:
Adding value to our Gaming and DeFi clusters and the ArbitrumDAO itself by researching and building solutions for solving governance, ops, and growth painpoints.
Attracting talent (devs, entrepreneurs, etc) to the ecosystem (and making Arbitrum THE PLACE for DAO people e.g. Klaus was referred to Arbitrum by RnDAO, leading to the GovHack).
Research (uncovering ops and gov best practices) and thesis formation (systematic analysis of market opportunities to derisk capital allocation through the Market Research module and Entrepreneur in Residence outputs).
An important additional benefit lies in expanding the funds deployment methods in Arbitrum, and addressing multiple limitations of Grants programs that manifest as:
Concerns about retention of grantees in the ecosystem
Concerns about the ROI of incentive programs
Concerns with the incentive alignment of service providers
Challenges with forecasting the sequencer fees that different programs could generate
Growing reporting structures and additional resources consumed in oversight
The Swarm model could complement grants by addressing these issues, and provide significant network effects and ROI to Arbitrum. We propose a staged roadmap to test and validate this approach and position Arbitrum as a market leader in an untapped key vertical, with spillover benefits to the whole ecosystem.
Note: these are my personal thoughts and do not represent the thoughts of 404 DAO
Thanks for your work on this @danielo. The idea of business clusters is intriguing especially if we mirror blockchains as cities/countries and look at how we position Arbitrum to succeed as an industry leader in certain sectors. I do have a couple questions and thoughts:
Note: these are my personal thoughts and do not represent the thoughts of 404 DAO
Thanks for your work on this @danielo. The idea of business clusters is intriguing especially if we mirror blockchains as cities/countries and look at how we position Arbitrum to succeed as an industry leader in certain sectors. I do have a couple questions and thoughts:
Do you have more information on the current cohort? How are the teams doing, what have been the takeaways? I know the program is unfinished and full analysis is unavailable but I would love to understand more of what the week to week looks like for the teams going through the initial research fellowship as well as how they have progressed so far. How does the current program enable successful problem/solution ideation and testing?
Recruiting: Beyond the Gitcoin grant rounds, how else will talent be sourced? From our own experience running an accelerator, this likely makes or breaks the program. Attracting and retaining the best talent is crucial.
Ecosystem Collaboration: I would love to understand how the program plans to collaborate with current CollabTech players within Arbitrum. These teams and products are likely the most fit for serving as mentors and advising teams on the underserved needs of the ecosystem. How should they be incentivized and how do you balance the competitive/anti-competitive nature of this partnership?
DAO scale and scope: If the DAO feels this strategy would be useful for developing new ventures and protocol ideas, then the DAO should target ventures that:
a) Bring in new sectors that reduce the fragility of Arbitrum. These may be more difficult to support as our ecosystem may lack talent density in these sectors, but this is where the idea of clusters could create a synergistic environment.
b) Enhance the stickiness and complements of our already strong networks. Given our strengths within DeFi and Gaming, we should double down on these sectors as we have the talent and support to effectively guide newer ventures.
c) Identify potential moonshot sectors that lack a clear first mover.
4 Cont. DAO Alignment: This is a little bit of a rant and more based off what I have seen across the ecosystem that I believe is limiting the success and progress of Arbitrum. Currently, most proposals are structured so that the main value creation is driven to the company overseeing the program with potential value creation driven to the DAO if the “experiment” is successful. Continually funding experiments that are limited by the abilities and scalability of the oversight company will ultimately hinder the growth of Arbitrum. This proposal reads very similarly where most value seems to be driven to RnDAO (through co-ownership of associated ventures, funding from the DAO, and potential VC/DAO investment into the co-owned ventures). I don’t believe this is intentional, but potentially it is just the natural way these programs tend to be designed. However, I do think we need to answer the question - How can we design better programs that put Arbitrum at the center of the value creation rather than the company running the program?
Some other thoughts/issues that I see with the current setup:
Legal: I’m not quite sure the feasibility of the VC arm you are suggesting. Maybe the Foundation can shed some light on this. However, if we were able to set up a DAO owned venture arm, I believe the scope should encompass all sectors, not just CollabTech.
Addressable Market: While the growth of the CollabTech industry is evident, understanding a more relevant addressable market as it relates to crypto and web3 would paint a better picture of the opportunity in my opinion.
I’d like to reiterate, I support the idea of clusters as a DAO growth strategy but I think we need more details on the proposed implementation and execution. Thanks again to the RnDAO team for their work.
needs to be modified to capture more quantifiable and relevant deliverables to prove out (1) and (2). (It also needs to include links to the source so the DAO can review your work).
Firstly declaration of interest, I do occasionally browse the RnDAO discord but I have no current financial nor organisational relation to the team. However, given my background as certified legal engineer from LexDAO, I'll make some comments on your point 5 (your markdown seems to skip).
a. disparity of value capture (heads I win, tails you lose). My hypothesis is that to some extent this is inherited from the AIP which probably derived from EIP/ERC & now RIP which came from BIP. The structure to allow consistent comparison between projects doesn't allow for space to ponder externalities... there is a current post on Magicians on whether standards should be amended to include security corrigenda rather than set in stone. Similarly if this is a serious pain point, then we can put in place some tokenomics ... for example a earnest bond (time-locked ARB tokens) which if the R&D fails, it goes back to the DAO otherwise everyone sings kum-ba-ya on the new protocol. There are several approaches I can think of but the devil is in the details.
Note: these are my personal thoughts and do not represent the thoughts of 404 DAO
Thanks for your work on this @danielo. The idea of business clusters is intriguing especially if we mirror blockchains as cities/countries and look at how we position Arbitrum to succeed as an industry leader in certain sectors. I do have a couple questions and thoughts:
Note: these are my personal thoughts and do not represent the thoughts of 404 DAO
Thanks for your work on this @danielo. The idea of business clusters is intriguing especially if we mirror blockchains as cities/countries and look at how we position Arbitrum to succeed as an industry leader in certain sectors. I do have a couple questions and thoughts:
Do you have more information on the current cohort? How are the teams doing, what have been the takeaways? I know the program is unfinished and full analysis is unavailable but I would love to understand more of what the week to week looks like for the teams going through the initial research fellowship as well as how they have progressed so far. How does the current program enable successful problem/solution ideation and testing?
Recruiting: Beyond the Gitcoin grant rounds, how else will talent be sourced? From our own experience running an accelerator, this likely makes or breaks the program. Attracting and retaining the best talent is crucial.
Ecosystem Collaboration: I would love to understand how the program plans to collaborate with current CollabTech players within Arbitrum. These teams and products are likely the most fit for serving as mentors and advising teams on the underserved needs of the ecosystem. How should they be incentivized and how do you balance the competitive/anti-competitive nature of this partnership?
DAO scale and scope: If the DAO feels this strategy would be useful for developing new ventures and protocol ideas, then the DAO should target ventures that:
a) Bring in new sectors that reduce the fragility of Arbitrum. These may be more difficult to support as our ecosystem may lack talent density in these sectors, but this is where the idea of clusters could create a synergistic environment.
b) Enhance the stickiness and complements of our already strong networks. Given our strengths within DeFi and Gaming, we should double down on these sectors as we have the talent and support to effectively guide newer ventures.
c) Identify potential moonshot sectors that lack a clear first mover.
4 Cont. DAO Alignment: This is a little bit of a rant and more based off what I have seen across the ecosystem that I believe is limiting the success and progress of Arbitrum. Currently, most proposals are structured so that the main value creation is driven to the company overseeing the program with potential value creation driven to the DAO if the “experiment” is successful. Continually funding experiments that are limited by the abilities and scalability of the oversight company will ultimately hinder the growth of Arbitrum. This proposal reads very similarly where most value seems to be driven to RnDAO (through co-ownership of associated ventures, funding from the DAO, and potential VC/DAO investment into the co-owned ventures). I don’t believe this is intentional, but potentially it is just the natural way these programs tend to be designed. However, I do think we need to answer the question - How can we design better programs that put Arbitrum at the center of the value creation rather than the company running the program?
Some other thoughts/issues that I see with the current setup:
Legal: I’m not quite sure the feasibility of the VC arm you are suggesting. Maybe the Foundation can shed some light on this. However, if we were able to set up a DAO owned venture arm, I believe the scope should encompass all sectors, not just CollabTech.
Addressable Market: While the growth of the CollabTech industry is evident, understanding a more relevant addressable market as it relates to crypto and web3 would paint a better picture of the opportunity in my opinion.
I’d like to reiterate, I support the idea of clusters as a DAO growth strategy but I think we need more details on the proposed implementation and execution. Thanks again to the RnDAO team for their work.
needs to be modified to capture more quantifiable and relevant deliverables to prove out (1) and (2). (It also needs to include links to the source so the DAO can review your work).
Firstly declaration of interest, I do occasionally browse the RnDAO discord but I have no current financial nor organisational relation to the team. However, given my background as certified legal engineer from LexDAO, I'll make some comments on your point 5 (your markdown seems to skip).
a. disparity of value capture (heads I win, tails you lose). My hypothesis is that to some extent this is inherited from the AIP which probably derived from EIP/ERC & now RIP which came from BIP. The structure to allow consistent comparison between projects doesn't allow for space to ponder externalities... there is a current post on Magicians on whether standards should be amended to include security corrigenda rather than set in stone. Similarly if this is a serious pain point, then we can put in place some tokenomics ... for example a earnest bond (time-locked ARB tokens) which if the R&D fails, it goes back to the DAO otherwise everyone sings kum-ba-ya on the new protocol. There are several approaches I can think of but the devil is in the details.
needs to be modified to capture more quantifiable and relevant deliverables to prove out (1) and (2). (It also needs to include links to the source so the DAO can review your work).
Over at LexDAO we've been struggling with the same issue, only for figuring out how retro-PGF can support a squabble of legal engineers. Fundamentally legal advice (or any high level consultancy) is a credence good. You cannot tell the value what what you "buy" before the transaction ... and in litigation, not even the quality of the service afterwards (is paying millions in fines better than a stint in jail?). Instead you need to think of legal mojo as a contingency fund (aka retainer) in being able to tap expertise when the bovine excrement hits the rotary accelerator. I give you the example of BanklessDAO when the HQ grab-yanked their brand back, they had to suspend operations across the board due to their token tanking resulting in the internal legal guild disbanded due to no funding. Then when the demands to either follow new rules or be pushed out of the DAO, there was nobody around to point out that just because they got a registration in news/entertainment, doesn't mean they get to boss around consulting, education, etc which are technically of a different trademark class.
Studies have shown that agile dev techniques are not any superior to traditional waterfall in product development. But what it does give is organisational nimbleness being able to react at short time to any unexpected market "surprises". This comes in handy when you are exposed to the chaotic influences of DeFi (xref Cynfine region).
more quantifiable and relevant deliverables
I really don't know how to measure a probability ... if I could answer your question, I'd be leading a global corps of legal engineers because we'd be able to price-beat any legal quote from traditional bulge-bracket law firms. Perhaps another way to look at it is (from legalities) is what would be the cost if (hypothetically) you didn't fund a legal counsel ...
Then replace with whatever complex consultancy advice that comes along ... eg security research. At the end of the day, DAOs are like CentFi firms, concerned about effective (if not necessarily efficient) allocation of resources ... only with the additional headache of not identify the decision maker.
So perhaps could reverse the question and ask oneself ... what does a coordinated ArbDAO look like (eg centralised OpsCo vs contestable pools vs something else), and if not centralised how much is worth getting those competing parties play nicely with each other instead of sabotaging to get a bigger slice of the pie. xref MS org
Firstly declaration of interest, I do occasionally browse the RnDAO discord but I have no current financial nor organisational relation to the team. However, given my background as certified legal engineer from LexDAO, I'll make some comments on your point 5 (your markdown seems to skip).
a. disparity of value capture (heads I win, tails you lose). My hypothesis is that to some extent this is inherited from the AIP which probably derived from EIP/ERC & now RIP which came from BIP. The structure to allow consistent comparison between projects doesn't allow for space to ponder externalities... there is a current post on Magicians on whether standards should be amended to include security corrigenda rather than set in stone. Similarly if this is a serious pain point, then we can put in place some tokenomics ... for example a earnest bond (time-locked ARB tokens) which if the R&D fails, it goes back to the DAO otherwise everyone sings kum-ba-ya on the new protocol. There are several approaches I can think of but the devil is in the details.
I or someone competent in co-opetition behavioural economics would need to study this to suggest how to break this cycle but the problem is known, even if the solution is not-obvious (falls into the complicated segment of Cynefin needing to go from emerging to tolerably net goodish practices). I lump this into common-law approach ... caselaw, accepted market practices etc.
Value creation is not always obvious ... you can measure the $$$ going out, but unless you've got A/B testing (eg Arbitrum vs Avalanche) it's hard to measure the output. Again I can't speak as to the Venture Studio as I'm not part of that conversation, but I've enough grey hairs to have gone through the 90s dot-con boom-bust, the browser wars, Asia-crisis the 2017 ICOn-U and I'm also been mentor to JFDI, Singapore's premier accelerator and blogged on their FinTech.
put Abitrum at the centre of the value creation rather than the company running the program
All I can say is that I've seen 3 major models, the Y-combinator, the Chile X-fertilisation and Venture Studios (Dutch zig-zag IdeaLabs) so if concern about lack of ArbitrumDAO bang for buck is the stumbling block, I can describe how Chile went from zilch to a vibrant entrepreneurial cluster and comparable milestones that could be mutually negotiated.
needs to be modified to capture more quantifiable and relevant deliverables to prove out (1) and (2). (It also needs to include links to the source so the DAO can review your work).
Over at LexDAO we've been struggling with the same issue, only for figuring out how retro-PGF can support a squabble of legal engineers. Fundamentally legal advice (or any high level consultancy) is a credence good. You cannot tell the value what what you "buy" before the transaction ... and in litigation, not even the quality of the service afterwards (is paying millions in fines better than a stint in jail?). Instead you need to think of legal mojo as a contingency fund (aka retainer) in being able to tap expertise when the bovine excrement hits the rotary accelerator. I give you the example of BanklessDAO when the HQ grab-yanked their brand back, they had to suspend operations across the board due to their token tanking resulting in the internal legal guild disbanded due to no funding. Then when the demands to either follow new rules or be pushed out of the DAO, there was nobody around to point out that just because they got a registration in news/entertainment, doesn't mean they get to boss around consulting, education, etc which are technically of a different trademark class.
Studies have shown that agile dev techniques are not any superior to traditional waterfall in product development. But what it does give is organisational nimbleness being able to react at short time to any unexpected market "surprises". This comes in handy when you are exposed to the chaotic influences of DeFi (xref Cynfine region).
more quantifiable and relevant deliverables
I really don't know how to measure a probability ... if I could answer your question, I'd be leading a global corps of legal engineers because we'd be able to price-beat any legal quote from traditional bulge-bracket law firms. Perhaps another way to look at it is (from legalities) is what would be the cost if (hypothetically) you didn't fund a legal counsel ...
Then replace with whatever complex consultancy advice that comes along ... eg security research. At the end of the day, DAOs are like CentFi firms, concerned about effective (if not necessarily efficient) allocation of resources ... only with the additional headache of not identify the decision maker.
So perhaps could reverse the question and ask oneself ... what does a coordinated ArbDAO look like (eg centralised OpsCo vs contestable pools vs something else), and if not centralised how much is worth getting those competing parties play nicely with each other instead of sabotaging to get a bigger slice of the pie. xref MS org
Firstly declaration of interest, I do occasionally browse the RnDAO discord but I have no current financial nor organisational relation to the team. However, given my background as certified legal engineer from LexDAO, I'll make some comments on your point 5 (your markdown seems to skip).
a. disparity of value capture (heads I win, tails you lose). My hypothesis is that to some extent this is inherited from the AIP which probably derived from EIP/ERC & now RIP which came from BIP. The structure to allow consistent comparison between projects doesn't allow for space to ponder externalities... there is a current post on Magicians on whether standards should be amended to include security corrigenda rather than set in stone. Similarly if this is a serious pain point, then we can put in place some tokenomics ... for example a earnest bond (time-locked ARB tokens) which if the R&D fails, it goes back to the DAO otherwise everyone sings kum-ba-ya on the new protocol. There are several approaches I can think of but the devil is in the details.
I or someone competent in co-opetition behavioural economics would need to study this to suggest how to break this cycle but the problem is known, even if the solution is not-obvious (falls into the complicated segment of Cynefin needing to go from emerging to tolerably net goodish practices). I lump this into common-law approach ... caselaw, accepted market practices etc.
Value creation is not always obvious ... you can measure the $$$ going out, but unless you've got A/B testing (eg Arbitrum vs Avalanche) it's hard to measure the output. Again I can't speak as to the Venture Studio as I'm not part of that conversation, but I've enough grey hairs to have gone through the 90s dot-con boom-bust, the browser wars, Asia-crisis the 2017 ICOn-U and I'm also been mentor to JFDI, Singapore's premier accelerator and blogged on their FinTech.
put Abitrum at the centre of the value creation rather than the company running the program
All I can say is that I've seen 3 major models, the Y-combinator, the Chile X-fertilisation and Venture Studios (Dutch zig-zag IdeaLabs) so if concern about lack of ArbitrumDAO bang for buck is the stumbling block, I can describe how Chile went from zilch to a vibrant entrepreneurial cluster and comparable milestones that could be mutually negotiated.
gm guys,
I'm glad the work on this is moving forward. Having had a conversation with @danielo and the team makes me feel more confident in the program's success. Here's why:
If we manage to bring to Arbitrum the next generation of builders we can retain a competitive advantage over other ecosystems. In order to attract them we need to:
gm guys,
I'm glad the work on this is moving forward. Having had a conversation with @danielo and the team makes me feel more confident in the program's success. Here's why:
If we manage to bring to Arbitrum the next generation of builders we can retain a competitive advantage over other ecosystems. In order to attract them we need to:
Inspire and nurture new ideas. These can go beyond areas like DeFi and Gaming, and and the spot identified by rnDAO could have potential. The Entrepreneur In Resident Program fits this purpose.
Kickstart those ideas that have been partially validated. This is what the $50k grant provides - Very in line with seed funding from other incubators.
Provide frameworks and networks so those ventures can succeed. The Arbitrum ecosystem is full of smart people, useful contacts, access to infrastructure technology and all other necessities for startups to succeed.
Overall, I am supporting of the program and will be voting in favor when it goes to snapshot. I believe the ask is the right amount between giving the program enough breath so the number of funded people/entities is statistically relevant, and yet clearly defined so we can decide to stop it at any moment.
WIth the upcoming bull market, we are going to see a new inflow of entrepreneurs into the system. We must onboard the Arbitrum and its ecosystem, and this is one of the initiatives that could make it possibile.
CollabTech includes tooling with applications such as CRMs, governance, operations (inventory management, ERPs, accounting etc.), reputation, identity, growth, community, social, analytics and contributor tools.
PS: I am still not sold on the CollabTech naming. I would rather see something more widely known such as Enterprise Software or Business Solutions and attach it an "onchain" term.
Thanks for all the feedback and questions thus far! We have created an FAQ to answer.
Thanks for all the feedback and questions thus far! We have created an FAQ to answer.
Explanation and then examples:
The Fellowship program is currently in month 2 (out of 3), while the venture program is undergoing recruitment (70 applications registered for 1 spot so far).
The Fellowship has three phases: 1) understanding customers so the fellow can craft a problem statement they trust, 2) mapping the space so they understand who else is involved and some of the root causes of the problem, and 3) defining what success could look like and how the problem can be solved.
Each week consists of
The priority is to help them get very solid research on which pre-venture decisions and recommendations can be made. All of the Fellows have talked about how much they have changed their perspective on their topic and that they feel much more grounded already.
Preliminary outputs you can check to understand their experience and see work in progress (final research reports are due in a month):
Dominik Tillman (TrustLevel)
Milena Monova (Exploring compensation needs for early stage teams)
Humberto Besso-Oberto Huerta (Sourcing IRL credit scores that digital actors can trust)
Compared to traditional accelerators that need to attract viable projects, we are focusing on interesting problems and solid research as a proxy for pre-venture building foundation. The fellowship program is designed for builders, irrespective of them already having an idea or not. Throughout the fellowship they fall in love with a problem and grow into a viable project (or rule out a specific idea and can apply again to explore the next one). As such, the Fellowship serves as a talent pipeline.
Additionally, RnDAO already runs a rich variety of industry events, develops channels and communities and, most importantly, the P2P learning aspects of the Swarming approach naturally open up the innovation process in a way that both invites the community to contribute and benefit. Thus creating powerful network effects, ability to research and evaluate ideas and talent gradually, before formal investment decisions are made. A dedicated article on that to follow.
Despite this advantage, we agree that talent should remain a core concern for us. Currently, we’re seeing very significant demand for both our fellowship and venture programs, just from our organic reach. To sustain this position moving forward, part of our marketing budget will be used to promote the content (research) by previous cohorts of fellows, attracting those geeky about the topic and creating a community flywheel. Additionally, we’ll be scaling our Speed Networking format with other communities (currently discussing with MetaGov, DeveloperDAO, etc. And exploring the possibility of expanding later to Web2 communities). And the aforementioned Gitcoin rounds (or better alternative to be discovered).
Ultimately, we rely on the success of the Business Cluster and traction from earlier cohorts to give us sustainable network effects and make Arbitrum and our programs the go-to-place for CollabTech builders (see question 9).
Established CollabTech players can still benefit from the Swarm. We’re currently in conversation with two more mature ventures interested in the venture program. They see value in the network effects that collaborating with our business cluster could provide them. This is still a nascent area for us, but we see significant potential in developing partnerships beyond the ventures we incubate (token swaps with established players, co-marketing agreements, etc. have been discussed and we plan to explore them over time).
Additionally, a leading CollabTech project has approached us to deliver training for their team similar to our Fellowship, supporting their user-centricity. Over time, we plan to make more of our methodologies available to others. We made a proposal to the Ethereum Foundation to support this work (no clear answer yet), and we’ll continue exploring ways to champion user-centricity in the Arbitrum ecosystem.
A year ago, we also started a mentors and angels program, inviting senior leaders from mature DAOs and CollabTech projects. Our venture volume is still low, but we have already appointed someone (Yatan, who’s ran over 20 accelerator cohorts for Fortune 500 companies) to grow this program in the upcoming cycles.
Finally, our programs are designed to facilitate modularity and composability, and integrations with existing players are a key part of that (also critical for venture success!). A recent example of this is a partnership between TogetherCrew (our first venture, pre-Arbitrum partnership) and Snapshot, where thanks to a small grant from ArbitrumDAO, we’ll mint community engagement scores as Dynamic Reputation NFTs and use them to modulate rewards for participating in governance (related to Snapshot’s new governance rewards protocol - Boost). As our ventures mature, we envision many more such collaborations and will actively leverage our network to facilitate them.
In addition to the outlined above, we are happy to hear any ideas and recommendations for ways to collaborate with existing players.
During GovHack, we had 20+ conversations with delegates, contributors (e.g., immutablelawyer), and the foundation about this. We’re getting positive sentiment about the viability. This is a need for Arbitrum bigger than our project, and so we’ve started collaborating with others to figure out the ideal legal and governance structure that could oversee multiple investment allocators (other venture builders, VCs, accelerators, etc. etc.).
If you’d like to follow this discussion or engage, this is a good starting point:: https://forum.arbitrum.foundation/t/what-do-we-want-for-arbitrum-venture-funds/22213
The Web3 CollabTech market is currently small and hard to calculate. In part, due to a chicken and egg problem: without better tooling (that also streamlines compliance), DAOs are very hard to operate, dissuading others from adopting them. If the challenge is addressed, the market could grow rapidly.
We aim to advance this goal BUT, importantly, we’re not excluding the Web2 market. We include the “IRL potential” among our evaluation criteria for selecting program participants and, in our curriculum, emphasize first-principles thinking over following (web3) trends. We’re also cultivating relationships with communities beyond Web3, as discovering how Web3 technology and patterns can serve society at large is essential for the success of our mission.
The Web3 market (projects in DeFi, GameFi, etc) serves as the speartip in many but not all cases (see e.g. the work of our fellow Humberto who’s bringing a Web2 company into Web3). As such, and given the above, we’d argue that an accurate sizing of the opportunity should include the Web2 market too.
Note that research calculates $8.8 Trillion lost annually in productivity because of poor organisational practices - about 9% of global GDP! And see question 9 for reference to the $800bn+ by 2030 market opportunity that CollabTech represents. So we're confident there's a lot to do here irrespective of the success of other Web3 verticals.
For Cycle two, we have budgeted:
As we scale the program, the % on program management & admin will decrease, and we’ll increase the allocation to venture support.
Contrary to accelerators that offer little support to ventures (only a bit of mentoring), we work a lot more with the ventures and fellows (hands-on support). To make sure we get this right we’re proposing gradual scaling. That being said, we’re updating the proposal to include cycles 2 and 3 of the fellowship and venture programs (organized as separate milestones around which we will report and get further funding approvals). Where in cycle 3 we will fund 6 ventures for a total of 10 ventures funded through this proposal (after update). Ultimately we’re happy to go faster if ArbitrumDAO is keen to deploy more funds faster.
An additional, important consideration for our model is that statistically, 1/10th of projects have outsized returns, ideally returning the whole fund, but about 40-50% exit and a few more continue as SMEs. The projects that don’t produce outlier returns (9/10) can still generate significant value to Arbitrum by using the chain and adding value to the composable ecosystem. And those that completely fail, still add value by bringing and retaining talent in the ecosystem if we execute this correctly. Compared to traditional VC, our model is designed to maximize value generation from the bulk of projects, rather than only focusing on the outliers, thus offering more resilience, network effects, and compounding value for an ecosystem such as Arbitrum.
In a competitive market (i.e. L2s), and all else equal, specialized programs outperform generalist programs thanks to a more targeted value proposition to attract talent and support ventures. Since Arbitrum counts with the resources to fund multiple programs, the question is then which markets to select.
CollabTech is a big and growing market ($800bn+ by 2030), it lacks a market leader amongst L1s/L2s, and it provides a foundational capability for the success of the Arbitrum DAO and ecosystem. Additionally, a CollabTech project (Quest Protocol) is the #1 sequencer fees generator for Arbtirum. As such, we see CollabTech as a valuable “blue ocean strategy” (opportunity with low competition and great ROI medium to long term). For this reason, we believe CollabTach is a great choice together with DeFi (good traction and provides liquidity) and Gaming (also good traction and provides high transaction volume) as key verticals.
CollabTech is also an ideal speartip to test the Swarm model. Swarming could offer superior ROI and network effects, however, it relies on facilitating collaboration between projects and traditional tools and methods are quite limiting. Our focus on CollabTech can thus serve to streamline the operation of Swarms, unlocking adoption of the model for other verticals.
The L2 market is crowded and getting more so; Arbitrum requires strong Business Clusters to sustain its relevance. With the bull market, ecosystems face an arms race, offering bigger and bigger incentives to mature projects in Gaming & DeFi. Meanwhile, opportunities to incubate original projects and expand other sectors are less competitive (see question 9). We offer a play to leverage these untapped opportunities, while also having multiple additional benefits:
An important additional benefit lies in expanding the funds deployment methods in Arbitrum, and addressing multiple limitations of Grants programs that manifest as:
The Swarm model could complement grants by addressing these issues, and provides significant network effects and ROI to Arbitrum. We propose a staged roadmap to test and validate this approach and position Arbitrum as a market leader in an untapped key vertical, with spillover benefits to the whole ecosystem.
I share the same sentiments.
The thesis is worthy pursuing and believe that we could see some really interesting results to help equip both the ecosystem initiatives in the future and incubate vertical products described.
Hello, @danielo After reading your detailed commentary on community issues, I was inspired by your program for creating a business cluster. Perhaps after this stage and review of their results, it will be possible to scale up the program to achieve greater coverage.
Operating Costs We're at 20.7% in line with the regular 20% overhead for time bound contracts without continuity (i.e. projects).
However,
We have updated the proposal (top post) and are preparing for a temperature check (snapshot vote).
Please let us know of any further questions or comments and thanks all for the engagement so far
Hey @danielo! Great initiative, I do agree that Venture Studios can provide better results (through more guidance and continuous support) than hackathons. Definitely an area worth investing in.
I am not convinced instead that the area of initial focus should be the Collab Tech - tooling for governance, operations, community, and contributors
Hey @danielo! Great initiative, I do agree that Venture Studios can provide better results (through more guidance and continuous support) than hackathons. Definitely an area worth investing in.
I am not convinced instead that the area of initial focus should be the Collab Tech - tooling for governance, operations, community, and contributors
It sounds to me this is going to spin out another set of B2B tools that we expect other projects to use. But what are these projects? Who is going to build them? That's what we should focus on in my opinion. Bootstrapping the next generation of games, social apps, defi projects, etc that will drive adoption during the next cycles.
We should invest resources into creating an onchain economy - not a meta economy: If everyone is building showels then we end up with the typical self-recursive experience of crypto where everything is infrastructure and there is no use case.
Just my 2c - I want to reiterate this is a great initiative, you guys have clearly put a lot of thoughts around it. Also, as the pilot program is coming to an end soon, would love to see what results it has produced.
Thank you @maxlomu @cp0x and @Cole_404 for taking the time to look at our proposal and provide solid questions. Much appreciated! We asked a few more folks to comment. I'll give them some time to check the proposal and then address your questions in block so we can be comprehensive and hopefully not make this an unnecessarily long thread with piecemeal answers :slight_smile:
Hello, @danielo I really like this proposal of using DAO funds as venture capital. I wanted to know some more details:
Hi Daniel, thank you for work on this. In the interest of transparency I would like to share on the forum the same feedback that I already provided to you and to a smaller group.
I believe that before you take this proposal to a Snapshot vote, you should consider scaling it down. Your ask of 3.5M is very large and there are still overarching questions around (1) whether Arbitrum should be investing in Collab tech; (2) a clear line of sight to how Arbitrum will accrue value from the initiative.
gm guys,
I'm glad the work on this is moving forward. Having had a conversation with @danielo and the team makes me feel more confident in the program's success. Here's why:
If we manage to bring to Arbitrum the next generation of builders we can retain a competitive advantage over other ecosystems. In order to attract them we need to:
gm guys,
I'm glad the work on this is moving forward. Having had a conversation with @danielo and the team makes me feel more confident in the program's success. Here's why:
If we manage to bring to Arbitrum the next generation of builders we can retain a competitive advantage over other ecosystems. In order to attract them we need to:
Inspire and nurture new ideas. These can go beyond areas like DeFi and Gaming, and and the spot identified by rnDAO could have potential. The Entrepreneur In Resident Program fits this purpose.
Kickstart those ideas that have been partially validated. This is what the $50k grant provides - Very in line with seed funding from other incubators.
Provide frameworks and networks so those ventures can succeed. The Arbitrum ecosystem is full of smart people, useful contacts, access to infrastructure technology and all other necessities for startups to succeed.
Overall, I am supporting of the program and will be voting in favor when it goes to snapshot. I believe the ask is the right amount between giving the program enough breath so the number of funded people/entities is statistically relevant, and yet clearly defined so we can decide to stop it at any moment.
WIth the upcoming bull market, we are going to see a new inflow of entrepreneurs into the system. We must onboard the Arbitrum and its ecosystem, and this is one of the initiatives that could make it possibile.
CollabTech includes tooling with applications such as CRMs, governance, operations (inventory management, ERPs, accounting etc.), reputation, identity, growth, community, social, analytics and contributor tools.
PS: I am still not sold on the CollabTech naming. I would rather see something more widely known such as Enterprise Software or Business Solutions and attach it an "onchain" term.
Thanks for all the feedback and questions thus far! We have created an FAQ to answer.
Thanks for all the feedback and questions thus far! We have created an FAQ to answer.
Explanation and then examples:
The Fellowship program is currently in month 2 (out of 3), while the venture program is undergoing recruitment (70 applications registered for 1 spot so far).
The Fellowship has three phases: 1) understanding customers so the fellow can craft a problem statement they trust, 2) mapping the space so they understand who else is involved and some of the root causes of the problem, and 3) defining what success could look like and how the problem can be solved.
Each week consists of
The priority is to help them get very solid research on which pre-venture decisions and recommendations can be made. All of the Fellows have talked about how much they have changed their perspective on their topic and that they feel much more grounded already.
Preliminary outputs you can check to understand their experience and see work in progress (final research reports are due in a month):
Dominik Tillman (TrustLevel)
Milena Monova (Exploring compensation needs for early stage teams)
Humberto Besso-Oberto Huerta (Sourcing IRL credit scores that digital actors can trust)
Compared to traditional accelerators that need to attract viable projects, we are focusing on interesting problems and solid research as a proxy for pre-venture building foundation. The fellowship program is designed for builders, irrespective of them already having an idea or not. Throughout the fellowship they fall in love with a problem and grow into a viable project (or rule out a specific idea and can apply again to explore the next one). As such, the Fellowship serves as a talent pipeline.
Additionally, RnDAO already runs a rich variety of industry events, develops channels and communities and, most importantly, the P2P learning aspects of the Swarming approach naturally open up the innovation process in a way that both invites the community to contribute and benefit. Thus creating powerful network effects, ability to research and evaluate ideas and talent gradually, before formal investment decisions are made. A dedicated article on that to follow.
Despite this advantage, we agree that talent should remain a core concern for us. Currently, we’re seeing very significant demand for both our fellowship and venture programs, just from our organic reach. To sustain this position moving forward, part of our marketing budget will be used to promote the content (research) by previous cohorts of fellows, attracting those geeky about the topic and creating a community flywheel. Additionally, we’ll be scaling our Speed Networking format with other communities (currently discussing with MetaGov, DeveloperDAO, etc. And exploring the possibility of expanding later to Web2 communities). And the aforementioned Gitcoin rounds (or better alternative to be discovered).
Ultimately, we rely on the success of the Business Cluster and traction from earlier cohorts to give us sustainable network effects and make Arbitrum and our programs the go-to-place for CollabTech builders (see question 9).
Established CollabTech players can still benefit from the Swarm. We’re currently in conversation with two more mature ventures interested in the venture program. They see value in the network effects that collaborating with our business cluster could provide them. This is still a nascent area for us, but we see significant potential in developing partnerships beyond the ventures we incubate (token swaps with established players, co-marketing agreements, etc. have been discussed and we plan to explore them over time).
Additionally, a leading CollabTech project has approached us to deliver training for their team similar to our Fellowship, supporting their user-centricity. Over time, we plan to make more of our methodologies available to others. We made a proposal to the Ethereum Foundation to support this work (no clear answer yet), and we’ll continue exploring ways to champion user-centricity in the Arbitrum ecosystem.
A year ago, we also started a mentors and angels program, inviting senior leaders from mature DAOs and CollabTech projects. Our venture volume is still low, but we have already appointed someone (Yatan, who’s ran over 20 accelerator cohorts for Fortune 500 companies) to grow this program in the upcoming cycles.
Finally, our programs are designed to facilitate modularity and composability, and integrations with existing players are a key part of that (also critical for venture success!). A recent example of this is a partnership between TogetherCrew (our first venture, pre-Arbitrum partnership) and Snapshot, where thanks to a small grant from ArbitrumDAO, we’ll mint community engagement scores as Dynamic Reputation NFTs and use them to modulate rewards for participating in governance (related to Snapshot’s new governance rewards protocol - Boost). As our ventures mature, we envision many more such collaborations and will actively leverage our network to facilitate them.
In addition to the outlined above, we are happy to hear any ideas and recommendations for ways to collaborate with existing players.
During GovHack, we had 20+ conversations with delegates, contributors (e.g., immutablelawyer), and the foundation about this. We’re getting positive sentiment about the viability. This is a need for Arbitrum bigger than our project, and so we’ve started collaborating with others to figure out the ideal legal and governance structure that could oversee multiple investment allocators (other venture builders, VCs, accelerators, etc. etc.).
If you’d like to follow this discussion or engage, this is a good starting point:: https://forum.arbitrum.foundation/t/what-do-we-want-for-arbitrum-venture-funds/22213
The Web3 CollabTech market is currently small and hard to calculate. In part, due to a chicken and egg problem: without better tooling (that also streamlines compliance), DAOs are very hard to operate, dissuading others from adopting them. If the challenge is addressed, the market could grow rapidly.
We aim to advance this goal BUT, importantly, we’re not excluding the Web2 market. We include the “IRL potential” among our evaluation criteria for selecting program participants and, in our curriculum, emphasize first-principles thinking over following (web3) trends. We’re also cultivating relationships with communities beyond Web3, as discovering how Web3 technology and patterns can serve society at large is essential for the success of our mission.
The Web3 market (projects in DeFi, GameFi, etc) serves as the speartip in many but not all cases (see e.g. the work of our fellow Humberto who’s bringing a Web2 company into Web3). As such, and given the above, we’d argue that an accurate sizing of the opportunity should include the Web2 market too.
Note that research calculates $8.8 Trillion lost annually in productivity because of poor organisational practices - about 9% of global GDP! And see question 9 for reference to the $800bn+ by 2030 market opportunity that CollabTech represents. So we're confident there's a lot to do here irrespective of the success of other Web3 verticals.
For Cycle two, we have budgeted:
As we scale the program, the % on program management & admin will decrease, and we’ll increase the allocation to venture support.
Contrary to accelerators that offer little support to ventures (only a bit of mentoring), we work a lot more with the ventures and fellows (hands-on support). To make sure we get this right we’re proposing gradual scaling. That being said, we’re updating the proposal to include cycles 2 and 3 of the fellowship and venture programs (organized as separate milestones around which we will report and get further funding approvals). Where in cycle 3 we will fund 6 ventures for a total of 10 ventures funded through this proposal (after update). Ultimately we’re happy to go faster if ArbitrumDAO is keen to deploy more funds faster.
An additional, important consideration for our model is that statistically, 1/10th of projects have outsized returns, ideally returning the whole fund, but about 40-50% exit and a few more continue as SMEs. The projects that don’t produce outlier returns (9/10) can still generate significant value to Arbitrum by using the chain and adding value to the composable ecosystem. And those that completely fail, still add value by bringing and retaining talent in the ecosystem if we execute this correctly. Compared to traditional VC, our model is designed to maximize value generation from the bulk of projects, rather than only focusing on the outliers, thus offering more resilience, network effects, and compounding value for an ecosystem such as Arbitrum.
In a competitive market (i.e. L2s), and all else equal, specialized programs outperform generalist programs thanks to a more targeted value proposition to attract talent and support ventures. Since Arbitrum counts with the resources to fund multiple programs, the question is then which markets to select.
CollabTech is a big and growing market ($800bn+ by 2030), it lacks a market leader amongst L1s/L2s, and it provides a foundational capability for the success of the Arbitrum DAO and ecosystem. Additionally, a CollabTech project (Quest Protocol) is the #1 sequencer fees generator for Arbtirum. As such, we see CollabTech as a valuable “blue ocean strategy” (opportunity with low competition and great ROI medium to long term). For this reason, we believe CollabTach is a great choice together with DeFi (good traction and provides liquidity) and Gaming (also good traction and provides high transaction volume) as key verticals.
CollabTech is also an ideal speartip to test the Swarm model. Swarming could offer superior ROI and network effects, however, it relies on facilitating collaboration between projects and traditional tools and methods are quite limiting. Our focus on CollabTech can thus serve to streamline the operation of Swarms, unlocking adoption of the model for other verticals.
The L2 market is crowded and getting more so; Arbitrum requires strong Business Clusters to sustain its relevance. With the bull market, ecosystems face an arms race, offering bigger and bigger incentives to mature projects in Gaming & DeFi. Meanwhile, opportunities to incubate original projects and expand other sectors are less competitive (see question 9). We offer a play to leverage these untapped opportunities, while also having multiple additional benefits:
An important additional benefit lies in expanding the funds deployment methods in Arbitrum, and addressing multiple limitations of Grants programs that manifest as:
The Swarm model could complement grants by addressing these issues, and provides significant network effects and ROI to Arbitrum. We propose a staged roadmap to test and validate this approach and position Arbitrum as a market leader in an untapped key vertical, with spillover benefits to the whole ecosystem.
I share the same sentiments.
The thesis is worthy pursuing and believe that we could see some really interesting results to help equip both the ecosystem initiatives in the future and incubate vertical products described.
Hello, @danielo After reading your detailed commentary on community issues, I was inspired by your program for creating a business cluster. Perhaps after this stage and review of their results, it will be possible to scale up the program to achieve greater coverage.
Operating Costs We're at 20.7% in line with the regular 20% overhead for time bound contracts without continuity (i.e. projects).
However,
We have updated the proposal (top post) and are preparing for a temperature check (snapshot vote).
Please let us know of any further questions or comments and thanks all for the engagement so far
Hey @danielo! Great initiative, I do agree that Venture Studios can provide better results (through more guidance and continuous support) than hackathons. Definitely an area worth investing in.
I am not convinced instead that the area of initial focus should be the Collab Tech - tooling for governance, operations, community, and contributors
Hey @danielo! Great initiative, I do agree that Venture Studios can provide better results (through more guidance and continuous support) than hackathons. Definitely an area worth investing in.
I am not convinced instead that the area of initial focus should be the Collab Tech - tooling for governance, operations, community, and contributors
It sounds to me this is going to spin out another set of B2B tools that we expect other projects to use. But what are these projects? Who is going to build them? That's what we should focus on in my opinion. Bootstrapping the next generation of games, social apps, defi projects, etc that will drive adoption during the next cycles.
We should invest resources into creating an onchain economy - not a meta economy: If everyone is building showels then we end up with the typical self-recursive experience of crypto where everything is infrastructure and there is no use case.
Just my 2c - I want to reiterate this is a great initiative, you guys have clearly put a lot of thoughts around it. Also, as the pilot program is coming to an end soon, would love to see what results it has produced.
Thank you @maxlomu @cp0x and @Cole_404 for taking the time to look at our proposal and provide solid questions. Much appreciated! We asked a few more folks to comment. I'll give them some time to check the proposal and then address your questions in block so we can be comprehensive and hopefully not make this an unnecessarily long thread with piecemeal answers :slight_smile:
Hello, @danielo I really like this proposal of using DAO funds as venture capital. I wanted to know some more details:
Hi Daniel, thank you for work on this. In the interest of transparency I would like to share on the forum the same feedback that I already provided to you and to a smaller group.
I believe that before you take this proposal to a Snapshot vote, you should consider scaling it down. Your ask of 3.5M is very large and there are still overarching questions around (1) whether Arbitrum should be investing in Collab tech; (2) a clear line of sight to how Arbitrum will accrue value from the initiative.
Operating Costs We're at 20.7% in line with the regular 20% overhead for time bound contracts without continuity (i.e. projects).
However,
If we take the Marketing and Program Dev costs and re-classify them, we’re at 10% Operating Costs, well below benchmarks.
Venture Builders 101: capital deployment as a mix of cash and labour We allocate the capital half in cash and half in labour (hire staff to work with the founders, including doing sales and marketing, product strategy, design, co-creating pitchdecks and other important content, tech research, setting up processes for compensation and accounting, legal support, etc etc. Essentially, we'll use the budget to do what adds the most value to the ventures and refine this continuously). The allocation of labour means we compound learnings from one venture to the next, and also generate more value through economies of scale and specialisation (i.e. small teams need to be a jack of all trades, we can afford to hire more specialist and divide their time across teams). Because we need to manage more staff, we have a higher overhead than a VC fund or grants program that is just allocating cash, that is, we're taking Opex costs out of the ventures and centralising them. This approach leads to large advantages:
https://inniches.com/startup-studios-research
Incentive alignment Importantly, the staff we hire is paid below market price but they get tokens in RnDAO. This means that they can only justify the opportunity cost if the portfolio of ventures performs well. As such, our incentive is not to maximise the amount of capital we deploy but to maximise the success of the portfolio of ventures (finding the optimal amount of capital to deploy and optimal mix between labour and cahs), thus resulting in long-term alignment with the founders and funder (Arbiturm).
4 different parts We have two programs where capital (in cash+labour) is deployed into ventures and two programs that are just generally about building the business cluster through public goods (community attraction and market insights). The public good modules provide value to Arbitrum in general, and we leverage a part of that into the other programs but a significant portion of the value we generate also goes on to feed other Arbitrum initiatives (e.g. attracting contributors, applicants for other programs, derisking capital allocation, informing DAO practices, general marketing of Arbitrum, etc etc.). The reason we have combined these 4 programmes is that they provide the critical components that need to be tightly aligned to seed a CollabTech business cluster in Arbitrum - more on business clusters as a thesis on this link and more on why CollabTech on this link.
Hi Daniel, thank you for work on this. In the interest of transparency I would like to share on the forum the same feedback that I already provided to you and to a smaller group.
I believe that before you take this proposal to a Snapshot vote, you should consider scaling it down. Your ask of 3.5M is very large and there are still overarching questions around (1) whether Arbitrum should be investing in Collab tech; (2) a clear line of sight to how Arbitrum will accrue value from the initiative.
I don't think you need to provide more explanatory reasons (size of the market, future predictions, etc.) but rather you may want to consider starting smaller, proving your success to the DAO, and then possibly growing the initiative. With that said, I believe the Impact Report (https://forum.arbitrum.foundation/t/plurality-labs-arbitrum-dao-x-rndao-co-lab/20138/23) needs to be modified to capture more quantifiable and relevant deliverables to prove out (1) and (2). (It also needs to include links to the source so the DAO can review your work).
Operating Costs We're at 20.7% in line with the regular 20% overhead for time bound contracts without continuity (i.e. projects).
However,
If we take the Marketing and Program Dev costs and re-classify them, we’re at 10% Operating Costs, well below benchmarks.
Venture Builders 101: capital deployment as a mix of cash and labour We allocate the capital half in cash and half in labour (hire staff to work with the founders, including doing sales and marketing, product strategy, design, co-creating pitchdecks and other important content, tech research, setting up processes for compensation and accounting, legal support, etc etc. Essentially, we'll use the budget to do what adds the most value to the ventures and refine this continuously). The allocation of labour means we compound learnings from one venture to the next, and also generate more value through economies of scale and specialisation (i.e. small teams need to be a jack of all trades, we can afford to hire more specialist and divide their time across teams). Because we need to manage more staff, we have a higher overhead than a VC fund or grants program that is just allocating cash, that is, we're taking Opex costs out of the ventures and centralising them. This approach leads to large advantages:
https://inniches.com/startup-studios-research
Incentive alignment Importantly, the staff we hire is paid below market price but they get tokens in RnDAO. This means that they can only justify the opportunity cost if the portfolio of ventures performs well. As such, our incentive is not to maximise the amount of capital we deploy but to maximise the success of the portfolio of ventures (finding the optimal amount of capital to deploy and optimal mix between labour and cahs), thus resulting in long-term alignment with the founders and funder (Arbiturm).
4 different parts We have two programs where capital (in cash+labour) is deployed into ventures and two programs that are just generally about building the business cluster through public goods (community attraction and market insights). The public good modules provide value to Arbitrum in general, and we leverage a part of that into the other programs but a significant portion of the value we generate also goes on to feed other Arbitrum initiatives (e.g. attracting contributors, applicants for other programs, derisking capital allocation, informing DAO practices, general marketing of Arbitrum, etc etc.). The reason we have combined these 4 programmes is that they provide the critical components that need to be tightly aligned to seed a CollabTech business cluster in Arbitrum - more on business clusters as a thesis on this link and more on why CollabTech on this link.
Hi Daniel, thank you for work on this. In the interest of transparency I would like to share on the forum the same feedback that I already provided to you and to a smaller group.
I believe that before you take this proposal to a Snapshot vote, you should consider scaling it down. Your ask of 3.5M is very large and there are still overarching questions around (1) whether Arbitrum should be investing in Collab tech; (2) a clear line of sight to how Arbitrum will accrue value from the initiative.
I don't think you need to provide more explanatory reasons (size of the market, future predictions, etc.) but rather you may want to consider starting smaller, proving your success to the DAO, and then possibly growing the initiative. With that said, I believe the Impact Report (https://forum.arbitrum.foundation/t/plurality-labs-arbitrum-dao-x-rndao-co-lab/20138/23) needs to be modified to capture more quantifiable and relevant deliverables to prove out (1) and (2). (It also needs to include links to the source so the DAO can review your work).
