How to Think About Investment Club Governance

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jihad esmail
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April 21st, 2022

By: Jihad Esmail & Delleon McGlone

We’ve written about who should start an Investment DAO, but the toughest part is the how. Like any other DAO, Investment DAOs require governance processes that allow for members to make their voices heard and understand the ins and outs of the decision-making process.

With over 1000+ investment clubs launched on Syndicate’s protocol in less than 3 months, we’ve been getting into the weeds with our communities on the best ways to govern their clubs as a DAO. Not only that, but we’re committed to democratizing access to investing for all while sticking within the guidelines for investment clubs from the SEC, adding another dimension to the governance process.

Governance is often the most overlooked aspect of building an investment club. The infrastructure is there, but how should you run it?

For investment clubs, Syndicate’s Gitbook has provided guidelines for addressing and establishing governance within your community. For example, everyone in a club must actively participate in every investment decision.

But there are many other decisions that a club will make that aren’t explicitly defined rules – they’re up to you. These include how to think about adding or removing members, how to split a non-fungible asset if a member decides to leave the club before liquidation, and so much more.

From a club admin’s perspective, one of the biggest challenges is explaining the governance structures to club members. Governance voting can be on-chain using tools such as Tally or off-chain using Snapshot—the preference is up to each investment club and its members.

What involvement looks like is up to you to define!

Club Charters

Oftentimes, investment club members will ratify a “charter.” These are working agreements amongst members that answer questions like:

  1. What type of investments are we making? For example, a club might choose to only invest in liquid tokens (on-chain assets, tokenized equity), startup equity, or collectibles (NFTs).
  2. What is our investment thesis or area of investment? Investment clubs or investment DAOs vary in their investment focuses. Some are mission-driven, like solely investing in women or minority-led companies, while others are focused on the assets themselves, like NFTs, governance tokens, DeFi, etc.
  3. Why do we exist? Is the club a group of friends just ape-ing into tokens together, or is it an angel collective with a high returns-driven goal? Keeping expectations aligned is critical.

A club charter doesn’t need to be an extensive contract – just something that is collectively agreed upon to set expectations around the club’s purpose and existence.

Membership

Another critical question is around membership. How should a club think about adding members?

There are a few considerations, some purely practical and others with legal implications:

  1. Trust. How well do you know the members of your club? Are people's values and expectations aligned? Having low trust communities means you’ll need to solidify more rules and expectations in writing vs. just running on “vibes.”
  2. Accreditation. Are members accredited? For investments that are only offered to accredited investors, typically every member of the club must be accredited. Keep this in mind as you decide who can gain membership to your club and what your club will be investing in.
  3. Role. Many investment clubs have various roles for members: some source deals, others do portfolio management, and others do admin work. As long as all of these members are actively participating in all investment decisions, you should be in good shape. But having clear roles helps folks understand how they can help and makes the club function much more smoothly.

Again, membership is basically all up to you! You could gate access to a club based on ownership of a specific token, an application process, or anything else. Just keep in mind that clubs created on Syndicate cannot publicly solicit investments. Make sure to keep your membership search to colleagues, business partners, friends, family, and people you already have a relationship with—not to the general public.

Voting on Investments

There are countless ways you could structure voting for a club. Again, so long as everyone is voting, what the voting system looks like is entirely up to you. Some questions to consider include:

  • How should a proposal be made for an investment vote?
  • How are club members made aware of proposals?
  • How are proposals communicated?
  • How long should it last? Does this timeline make sense (e.g., if the club is investing in startups, is your timeline too slow to get into competitive deals)?
  • How many votes does it need to pass?
  • How are deals executed and by whom? (e.g., who is on the multi-sig?)
  • How should a proposal be made to exit or sell an investment?

Every Syndicate investment club mints non-transferrable “club tokens” for members that represent their stake on the cap table. Given that these are ERC-20 tokens, they can also be used across web3 governance tools! Some structures include:

  • On-chain and off-chain voting
  • Token holder voting
  • Token weighted voting
  • …or good old fashioned emoji voting in Discord or polls in Telegram

To enable web3-driven governance, there are quite a few tools you can use. For example:

  • Snapshot: off-chain voting, gasless, multi-governance community polling dashboard
  • Tally: governance protocol with multi-chain support for DAOs.
  • SafeSnap: Combining the Gnosis Safe with decentralized governance platform Snapshot, SafeSnap enables decentralized execution of crypto governance proposals, through on-chain execution of off-chain votes.

Investment Clubs for All

Starting an investment club on Syndicate is as easy as ever. Start one today here.

We’re developing the investing infrastructure for web3, and we believe web3 investment clubs are a core primitive to allow communities big and small to invest together and win together.

Join our Discord or reach out to DAO Vader on Twitter with any questions! We are here to help!

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