Since our announcement about The LAO, the story around DAOs has started to change. As the Ethereum ecosystem has shrugged off it’s PTSD from the “The DAO,” developers and blockchain supporters are increasingly searching for a way to take advantage of these novel structures without running afoul of existing laws.

One of the key ways to do this is through a LAO, a limited liability autonomous organization. The idea of wrapping DAOs in a legal structure is invading the consciousness of the blockchain ecosystem, with a growing number of projects exploring these new structures.

The reason for this is not surprising. The internet democratized access to information, and today, we have more content and publications than ever realized — no longer controlled by reporters and large media companies.

The same phenomenon is now happening to money. With the continued growth and development of Web 3.0, we’ll continue to see the evolution of startup financing through the use of decentralized organizations (or DAOs) that enable individuals to pool and deploy capital in ways that are unimaginable today.

Just like how the internet opened up the world to a torrent of information, blockchain has the opportunity to do the same for financing. Soon these fundraising mechanisms will become available to a greater range of the public, not just to a handful of coveted investors. As the cost and expense of pooling and managing capital continues to decrease and novel structures are deployed that enable a greater range of participants to fund innovation. The grasp that traditional venture capital funds and Wall Street have over startup financing and capital formation likely will fade.

Collecting and managing capital creates risk and, by default, creates liability for those participating in these structures. LAOs hold out the promise of providing participants in these organizations with one away to achieve a limitation of liability, by relying on existing legal structures, and thus the freedom to experiment with less of a concern that the entity will place members’ other assets at risk.

The first widespread attempt at decentralized autonomous organizations (DAOs) in 2016 — “The DAO” — was a spectacular experiment, which animated the imagination of what’s possible, but brought with it security and legal risks. Since then, there has been a much-needed revival of the concept of self-organized groups pooling funds via Ethereum. Coming at the heels of DevCon5, the conversation around DAOs is reignited. And the Ethereum ecosystem is rallying around DAOs as a means to self-organize, pool funds, and invest in projects that need capital to grow and flourish — fulfilling one of the initial visions of the Ethereum ecosystem. As we quickly make our way to 2020, we (like many others) predict that DAOs will fundamentally change the future of financing.

An Early Preview of The LAO

The LAO is the next great experiment in limited liability DAOs and an important step in bringing the vision of venture DAOs to life. With The LAO, we’re bringing Silicon Valley into the ether. For members, everything from funding to project financing, voting, legal agreements, and the transfer of tokenized stock happens can happen in a more streamlined way.

As we announced several weeks ago, The LAO will be set up as a limited liability entity, organized in Delaware, using curated smart contracts (extending MolochDAOs smart contracts) to handle mechanics related to voting, funding, and allocation of collected funds. The governance and legal/commercial layer for DAOs will create a mechanism of fundraising projects in the Ethereum ecosystem in a compliant fashion — all while democratizing venture fundraising to those accredited investors that would like to participate — will be powered by OpenLaw’s tools.

The LAO will have 10 founding members, with the other 90 members sourced through a public crowd sale. The administration of the LAO will all be handled through a dApp that will enable projects to apply for funding, members to vote on who should receive funding, with all of the necessary legal documentation automatically created on the backend.

To see an early glimpse of what this will all look like in practice, watch here:

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As shown in the above, any project from around the globe can apply to the LAO for funding. To do so, the project will need to provide The LAO with information about the project and agree (for the time being) to set up and organize its project in Delaware and tokenize its stock with the help of outside counsel.

Each project will provide the LAO with a flurry of standard information, including, but not limited to: details about the project, website url, links to pitch decks, or a whitepaper — anything to help LAO members understand the project.

By applying, each project will agree to tokenize its stock and grant an ownership interest in the project to the LAO (for demonstration purposes a 10% stake, although that may change in the final version) and will be presented with automatically generated documents containing the terms of potential financing.

The project will then move into member voting, where members can review materials submitted by the project and vote on whether to provide funding. During this process, members will be able to discuss the project “off-chain” and OpenLaw will help collect any additional materials needed for the members to make a decision and arrange for any follow-up meetings or other conversations needed for members’ to make a decision.

The tokenized stock will be held by the LAO during the voting process. And, if the members of the LAO approve the funding, the LAO smart contract will retain the projects tokenized securities and funding will be transferred to the Ethereum address provided in project proposal’s application. If the application does not pass, the tokenized securities will automatically be transferred back to the project.

Projects Applying to The LAO

The LAO is giving project founder(s) from around the world the flexibility to get funding.

That’s because we believe that everyone should be able to participate in wealth creation, regardless of geography or background. No need to finesse angel investors when looking for your first capital. With a structure like The LAO, entrepreneurs are now able to focus on their product and building online support — thing they already do — rather than appealing to an inclusive club of investors oftentimes located hundreds if not thousands of miles away.

With projects such as the LAO and other DAOs in the ecosystem, traditional seed financing can start becoming more democratized. While we’re currently working with the current restraints of the legal system, eventually our aim is to open up venture financing to all those willing and able to participate around the globe.

Please stay tuned for interesting updates and DAO partnerships, founding members of the LAO and more information on how to get involved with the public sale early next year.

We are always looking for input and feedback to make sure that we can take the next step in the evolution of DAOs. Please continue to abreast of any updates through our Twitter, Telegram and Medium page or hit us up at hello@thelao.io.