Short version: Leverage the remaining Startup Funds at a 1-2 ratio to bring in outside dollars to further build out the ecosystem without needing to back first time GPs/ GPs focused only on NEAR.
I’ve been in the NEAR ecosystem since pretty much the start and have been following it on and off. Watching it from afar, I’ve been happy with the developments on some aspects and frustrated with others. I’m hoping this proposal generates some discussions (both here and at the NF) and impacts the ecosystem positively.
I want to hone in specifically on the Startup Funds per the Q3 transparency report. According to that, the NF has allocated $100M, with $28M already committed and $10M committed in Q3 (MetaWeb, Move Capital, Stealth Capital, OpenWeb Collective). That leaves that $62M that is left to be allocated. In addition, the NF has anchored/seeded NEAR focused venture funds including Caerus Ventures and Lyric Ventures. My understanding is that these GPs are all emerging/ first time managers. While there is nothing wrong with supporting emerging managers, especially those focused on NEAR, there should now be a move towards supporting more established managers. As you know, being a GP and running a fund is very different than an angel no matter the track record.
I understand the strategy of funding VC firms focused exclusively on NEAR. Projects building in the ecosystem need the monetary/ operational support. I strongly support this initiative. While a good start, the NF needs to create velocity with the remaining $62M. Supporting first time managers focused on NEAR only doesn’t do that.
I propose that the NF stop allocating funds focused to emerging VCs/ VCs exclusively focused on NEAR for the following reasons:
- It’s impossible to know what else is out there in terms of innovation if the GPs are only focused on NEAR. GP won’t be able to take learnings from chain to chain to support founders
- Focusing just on NEAR creates an echo chamber. You want GPs to see the bigger picture and catch trends and narratives before they become trends and narratives
- Few GPs want to limit themselves to one ecosystem-- not matter how interesting it is. Forcing GPs to focus their time and energy only on NEAR limits the pool of good GPs
I propose that the Funds team at the NF create a program to bring in outside investor dollars that is invested exclusively into NEAR while also allowing those GPs to invest on whatever chain they want. Let me elaborate.
Proposal:
The NF should use utilize the remaining/uncommitted $62M, to deploy into non-NEAR focused venture funds for the following reasons:
- Attract established VC funds
- Get VC funds to really pay attention to NEAR/ bring projects from other chains to NEAR
- Force outside LP dollars into NEAR
The core of my idea is to leverage the $62M in NF dollars alongside that of private money. In other words, the NF could allocate money to VC managers and use that to leverage more investment into the NEAR ecosystem. In my initial thinking, for every $1 put into said VC fund, $2 has to be put back into the NEAR ecosystem by a fund taking NF money
How this looks like in practice
Fund manager XYZ gets $5M from the NF and promises to invest the $5M from the NF + another $10M from non-NF LPs. Thus, with $5M invested by the NF, it would effectively leverage another $10M for the ecosystem for a total of $15M. This money may have been invested into the NEAR by VCs. Or not. But either way, the NF has just gotten $15M for the ecosystem for the price of $5M. In theory, this would be used to incentivize investors to pay attention to/ back founders building in NEAR. In turn, because there’s a lot of money in NEAR, that itself attracts developers looking for a great chain to build in. The $62M from NF at a 1-2 leverage ratio would bring in $186M to NEAR. At 2.5, it becomes $217M. This is counting strictly on dollars being “forced” into the ecosystem. It is not counting dollars that will come in naturally.
Given the state of the market, there are a lot of VC funds that are having/ will have a difficult time raising additional capital. For a VC fund raising, getting dollars from the NF in a bear market could be the difference between reaching a first close or not. Since the ecosystem is still so young, and the tech is great, there isn’t a strong reason why a VC wouldn’t want to invest into NEAR-- getting money to do so-- even if “forced” to put in another $2 for the $1 received is compelling. Especially if they were interested in putting money into NEAR anyway.
Concluding
Bootstrapping an ecosystem is hard. As mentioned at the start, from what I can see, the NF is trying. The difference is that the NF dollars are being invested into NEAR at a 1-0 ratio (or close to that anyway). This proposal would create an additional 2 for every 1 being put up by the NF. Overall, this strategy creates leverage/ velocity for NF dollars. Doing this makes the dollars going into the ecosystem go up. And if the NF decided to keep the dollars going into the ecosystem flat from where it is now (as in not invest all of it quickly into funds focused on NEAR), then those dollars can effectively be extended longer into the bear.
As far as I am aware, there are no other blockchains that use this strategy (at least not publicly). And since we’re in a bear market, something like this works well since the power shifts from GPs to LPs. This is the best time to implement something like this.
