Web3 startups are facing a significant decline in venture capital investment, with funding dropping by 76% in 2023. This trend has forced startups in the Internet Computer ecosystem to explore alternative fundraising methods, turning to the Service Nervous System (SNS) community governance model. Through SNS, projects like OpenChat, Kinic, and Hot or Not have successfully raised a total of $15 million.
The decline in VC funding for Web3 startups has been a persistent issue, with a 74% drop between 2021 and 2022. Q2 of this year saw a further 76% decrease compared to the same period in the previous year. Investors’ focus on AI-driven companies has contributed to this downturn, leaving Web3 startups in search of new avenues for funding.
Community governance has emerged as a promising solution amidst the decline in VC investment. The SNS framework allows communities to actively participate in project governance, with all governance token holders having the power to propose and vote on changes to a decentralized application (dApp). Unlike traditional DAOs, SNS operates fully on-chain and covers all aspects of project management. This model has attracted projects to the Internet Computer ecosystem due to its inclusive decision-making and transparent governance structure.
While VC funding brings financial support and industry expertise, it often comes at the cost of equity stakes and control. Community governance models offer startups an alternative, allowing them to customize and nest governance models to leverage community talent and insight. Token-based governance systems foster community engagement and provide founders with more control over their project’s direction.
The success stories of projects like OpenChat, Kinic, and Hot or Not demonstrate the tangible gains of the SNS model. OpenChat raised $5.5 million in just six hours through a decentralized token swap, ensuring democratic governance and funding for future development. Similarly, Kinic secured over $2 million to challenge centralized tech giants and prioritize user data privacy.
As Web3 startups navigate the challenges of VC investment decline, community governance fundraising models offer a promising solution. By empowering communities and embracing transparent decision-making, startups can secure resources while maintaining control over their projects’ direction.
Q: Why are Web3 startups facing a decline in VC investment?
A: Web3 startups are experiencing a decline in VC investment due to increased investor focus on AI-driven companies.
Q: What is the SNS community governance model?
A: The Service Nervous System (SNS) community governance model allows communities to actively participate in project governance, with all governance token holders having the power to propose and vote on changes to a decentralized application (dApp).
Q: How do community governance models differ from traditional VC funding?
A: Community governance models offer startups more control over their projects’ direction while leveraging community talent and insight, compared to traditional VC funding, which often involves relinquishing significant equity stakes and control.
Q: What are the tangible gains of the SNS model?
A: The SNS model has shown success in raising significant capital for projects like OpenChat, Kinic, and Hot or Not, ensuring democratic governance, funding for future development, and community engagement.