Further detail on our cost structure
The numbers
Operating Costs
We’re at 20.7% in line with the regular 20% overhead for time bound contracts without continuity (i.e. projects).
However,
- our Marketing costs (8%) are also added there and maybe they shouldn’t be as marketing also adds value directly to Arbitrum… this is debatable
- We have a 60k Program Development costs (2%) which is arguably missclassified as it’s directly about continuous adaptation of the workshops to better serve the Entrepreneurs in Residence
- And we have high legal costs (1%) because DAOs…
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:
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.