Cryptocurrency Investment DAOs As a New Venture Capital Platform : Power Law in Startup Returns

Startup investors have considerably more misses than hits. We use the power law to model the performance of startup portfolios. With the power law model at hand, we identify the key factors that drive excess returns. We quantify the chance of an outlier in a portfolio of early-stage investments and its expected return multiple, we discuss the optimal portfolio size and the optimal holding period. We calibrate the tail index for cryptocurrency and NFT startups and compare it to that of traditional startup investments.Furthermore, we introduce the concept of investment DAOs (decentralized autonomous organization) and evaluate startup portfolio construction and expected alpha in a comparative discussion of the traditional venture capital model. Unlike traditional venture capital, DAO investors have autonomy over investment decisions. We identify two characteristics innate to DAOs, the absence of the agency problem and the absence of a fixed investment period with the ensuing long-term perspective, that will provide DAOs a tailwind for investment performance