Proposal: [Non-Constitutional] RnDAO proposal for an Arbitrum Collab Tech Business Cluster

RnDAO proposal for an Arbitrum Collab Tech Business Cluster

Abstract

We propose a collaborative approach to venture building with a vertical focus on CollabTech (Business Cluster approach), thus advancing the sustainability, relevance, and network effects of the ArbitrumDAO.

Table of Contents

  • Summary
  • Motivation
  • Rationale
  • Specifications
  • Steps to implement
  • Timeline
  • Funding needs
  • Our team
  • Closing Thoughts

Summary

The Web3 ecosystem is rapidly expanding, and moving forward, being able to provide specialized support to the builders of each vertical will be a key advantage over generalists. As such, RnDAO proposes the creation of a Collab Tech-focused Business Cluster within the Arbitrum ecosystem. Thanks to Arbiturm’s treasury size, this initiative is both an attractive opportunity in its own right and complements and adds value to initiatives focused on other verticals, such as gaming.

Collab Tech (governance, ops, growth, community, and contributor tooling) has been identified as a pivotal vertical due to 1) being a key enabler for the ArbitrumDAO and Arbitrum-based projects, 2) being projected to reach USD 1088.15 Billion by 2030 (B2B SaaS subsegment), and 3) being already the #1 sequencer fee generator for Arbitrum (via Quest Protocol).

The proposal puts forward a venture creation approach focused on outputting viable ventures, through human-centered design, hands-on support and peer-to-peer collaboration, and a staged pipeline for builders. Moreover, this initiative leverages Swarms, Web3-style Business Clusters, to create network effects, and position Arbitrum as the preferred ecosystem for Collab Tech innovation.

Non-constitutional

Motivation

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. But how to do so?

Rationale

Vertical specialization is critical

There was a time when I used to know every major project in Ethereum. That time is long gone. I can just about keep up with developments in CollabTech, while new innovations in verticals like DeFi, Gaming, DeSci, etc. are way beyond my ability to track them. And this situation will only intensify over the next few years.

As our ecosystem grows, specialization is not only unavoidable, it is desirable. 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 best position to select which projects to back and help them navigate challenges.

Why Collab Tech in Arbitrum

Collab Tech - tooling for governance, operations, community, and contributors - is a key business vertical. Using data only from B2B SaaS, the market is valued at USD 327.74 Billion (2023) and is projected to reach USD 1088.15 Billion by 2030, growing at a CAGR of 18.7%.

CollabTech is also a key enabler for other projects. Early examples show how the existence of a quality multi-sig solution was key for increasing TVL in L1s and L2s as well as enabling projects to operate effectively. More recently, we cite the importance of protocols for decision-making, role attribution, grant tracking, creating quests, etc., as key for enabling ArbitrumDAO and Arbitrum-based projects to move fast, build strong communities, and achieve results.

Thanks to Web3 innovations, CollabTech could address the $8.8 trillion lost per year in employee disengagement, the incredibly low Trust in Institutions, and the chronic opportunity cost attributable to poor coordination.

Currently, the CollabTech vertical lacks a clear leader amongst L2s/L1s. Polygon has set a dedicated initiative to target Web2 customers with Web3 tools, Optimism is attracting some key projects, and Q blockchain is making some progress, but none has yet managed to become the go-to place for Collab Tech builders.

CollabTech is already the #1 sequencer fees generator in Arbitrum thanks to Quest Protocol (RabbitHole), and with the right strategy, the success of Quest Protocol could be emulated by a host of projects and position Arbitrum as the leading ecosystem for innovators in this soon to be $1,000bn+ market.

How to create network effects in a vertical

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. As a result, enmeshment between projects (modularity and composability leading to integrations, cross-selling, sharing of insights, etc) is increased, generating network effects and making it unadvantageous for projects to migrate to other ecosystems.

As the number of successful projects increases, the ecosystem further attracts talent and expertise, capital, and new projects looking to build on top of existing protocols. A flywheel is created.

Sustainable venture creation

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.

For context, most VC activity happens at later stages of development (Series A+ with a few at Seed and very few at Pre-Seed) than Venture Studio activity (starting at the idea stage). Part of the value generation of Venture Studios relies on their ability to generate and validate their own ideas instead of waiting for good deals to come to them.

Specifications

The RnDAO approach: Swarm Building

Through a pilot grant to RnDAO via Plurality Labs, we’re running a builders pipeline program, consisting of two steps:

  1. Research Fellowship: 3-month paid Fellowship for aspiring builders to dive deep and validate a problem through user research, market research, and engaging with experts.
  2. Venture Programme: 4-6 month program with 50k Arb and $100k worth of hands-on support for builders to build a team, develop an MVP, and market-test their solution.

The builders’ pipeline has been designed based on lean cycles to quickly and at a low cost validate the viability of a venture. Additionally, the approach relies on collaborative processes and cross-ownership to complement the specialized support, thus improving outcomes beyond what a generalist program can provide.

Compared to traditional VC-oriented programs, we aim to validate market viability early and benefit from “Swarm effects”: as opposed to only power law (9/10 ventures yielding no benefit for traditional VCs / accelerators with only about 1/10 generating outlier benefits and needing to cover for the others), the RnDAO approach can generate more significant value from the long tail of ventures (without eliminating the benefit of outliers) through:

  • sequencer fees (ventures don’t need to exit to benefit Arbitrum).
  • the value of the offering in improving governance/operations.
  • and value add to future ventures (modularity and composability plus collaboration).

Compared to traditional grant programs, the incentives have been redesigned to align those supporting the ventures (RnDAO team) and the builders toward 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.

Equally, successful ventures are given ownership in RnDAO itself (generating cross-ownership between the ventures). 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 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 lock on 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.

Steps to Implement: The RnDAO roadmap

The initial pilot enabled funding for 6 seats in the Fellowships program and 1 seat in the Venture Programme. And is set to finish at the end of Q1.

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:

  1. 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).
  2. Pilot program (in progress): systematic program with 6 Fellows and 1 Venture, and minimum viable organizational setup.
  3. Cohort two (this proposal): with seats for 12 Fellows and 4 Ventures + development of a vertical-specialized investment Syndicate. And additional grant from the Arbitrum Foundation to develop our legal and governance structure as a fully-fledged program and decentralized control of the legal wrapper(s).
  4. Cohort three and CollabTech Fund (future proposals for Q4 2024 and 2025): running an additional cohort and 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 participation in RnDAO (holding + fund) and deliver sustainable returns for ArbitrumDAO.

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 (a $300bn+ market).

Timeline

December 2023 - April 2024 (Pilot): The Pilot program for the Fellowship is set to be completed in early April, yielding 6 builders having spent 3 months validating a problem and looking to move to prototype a solution.

May 2024 - September 2024 (Cohort 2): we’ll be ready to recruit a new cohort of Fellows to start researching a problem, and also provide continuity to selected builders from Cohort 1 to move to the Venture Building program and apply their research.

October 2024 - Feb 2024 (Cohort 3 and Fund): we’ll continue nourishing the pipeline of builders and add the final step with a fund that can support promising ventures (as they complete the Venture Builder program or come from outside).

Funding needs

RnDAO funding needs

  • Pilot program (already committed): 156k ARB
  • Cohort Two (this proposal): 400k ARB for program + 40k ARB for Arbitrum Collab Tech Gitcoin round (project attraction+ideation) + Foundation’s grant for legal setup (up to $250k equivalent)
  • Cohort Three and Fund (future proposal): 400k 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) + 40k ARB for Arbitrum Collab Tech Gitcoin round (project attraction+ideation).

Recommended complementary programs (funding needs to be estimated by the corresponding initiatives)

  • Developer Relations: tech customer support and training (including Orbit chains related)
  • Arbitrum DAO as first-customer: procurement for CollabTech venture solutions
  • Arbitrum ventures: Fund of Funds to serve as limited partner for the fund.
  • Retroactive (Public Goods) funding for value add to the ArbitrumDAO functioning

Our team

We have decades of experience in CollabTech 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.

Web2 Socials:

Closing Thoughts

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 an innovation pipeline with sustainable ventures, generating sequencer fees and, after Cohort 2, also compounding ROI.

6 Likes

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.

4 Likes

Hello, @danielo
I really like this proposal of using DAO funds as venture capital.
I wanted to know some more details:

  1. How much of the total amount do you plan to use for your team’s salaries?
  2. What results do you want to achieve as a result? I mean, what specific parameter values?
  3. Why do you propose the 12 + 4 (Ventures) scheme if, according to statistics, 1/10 of projects make a profit? Why not 10 Ventures?
  4. Are there any preliminary results from the pilot project or is it still in the early stages of the product?

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:

  1. 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?

  2. 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.

  3. 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?

  4. 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.

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:

2 Likes

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.

  1. Medium term is to better incorporate the lessons from competition law. We’ve all see the failure of blitzscaling and VC capital whales driving out community porpoises The classic example being the refusal of certain tech-bros to acknowledge patents (and no I don’t want a bureacratic reversion) … see Denial enrichment cycle

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.

  1. The long term solution is to set up better cultural lore. Accept there will always be tensions between vile capitalist running dogs (sarcasm intended) and common prosperity do-gooders. My point is not to arbitrate the fights but to support both sides in reaching accord by giving them tools / techniques to argue constructively, and if necessary agree to disagree but avoid the toxic disparanging which divides communities on techno-philosophical grounds (ETC ETH codeslaw yadda yadda).

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.

1 Like

FAQ

Thanks for all the feedback and questions thus far! We have created an FAQ to answer.

1 Progress thus far: 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?

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

  • one workshop where the fellows learn new concepts and skills and practice them,
  • days of doing the work (interviewing users, experts, analyzing data, mapping and synthesis),
  • and what we call “swarm time” - a less structured workshop where they share recent learnings, pick up on overlapping insights, and applying collective intelligence attack challenges that they are all facing.

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):

2. 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.

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).

3. 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?

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.

4. 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.

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?

5. 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.

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.

6. Cost breakdown: How much of the total amount do you plan to use for your team’s salaries?

For Cycle two, we have budgeted:

  • 9% is allocated to program management & admin costs
  • 8% to fellowship support (direct work with the fellows)
  • 14% to venture support (direct work with the ventures)
  • 61% to direct capital allocation.

As we scale the program, the % on program management & admin will decrease, and we’ll increase the allocation to venture support.

7. Outputs/KPIs: 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!
  • Grow sequencer fees
  • Create enablers and defensibility for other verticals through enriching Arbitrum’s infrastructure offering
  • After the setup of the fund, also grow Arbitrum’s equities portfolio

8. Why do you propose the 12 + 4 (Ventures) scheme if, according to statistics, 1/10 of projects make a profit? Why not 10 Ventures?

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.

9. Vertical choice: Why CollabTech?

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.

10 Value: 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 fellowship 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 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.

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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.

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