This is a draft for an investment fund dedicated to increasing Polkadot adoption and generating capital returns through strategic investments, with a strong focus on JAM and forward-looking developments both within and beyond the Polkadot ecosystem.
Motivation
Below are several characteristics of the current treasury grants model, especially for higher-medium and big spenders.
Spend-oriented.
Low to no accountability except for community credit.
No legal binding for responsibilities.
Lacks a milestones model.
Tracking efforts place an extreme burden on the community’s shoulders.
Passive, with low engagement, as there is no proactive request-for-proposals process.
Proposed PFIF model:
Actively and consciously invests with a focus on adoption and growth.
Employs both traditional and modern investment strategies, techniques and legal procedures.
Operates with 100% accountability, aiming for investment transparency and efficiency.
Clearly defines investment targets, identifies development teams, and invests for equity and broader adoption.
Seeks capital returns for sustainable funding and profitability.
Objectives
Increased Polkadot Adoption Across Sectors: Identify and invest in projects and companies that could leverage Polkadot technologies (with JAM in focus) in their operations and contribute significantly to the Polkadot ecosystem.
Capital Efficiency: Address the limitations of the current treasury grants model by enforcing strict accountability measures.
Capital Returns: Secure financially viable and profitable investments, thereby providing capital appreciation to the fund’s investors.
Fields of Interest
PFIF’s fields of interest include but are not limited to:
Software
Protocol development
Gaming
Tooling
Industry-specific operations software
Hardware
Mobile
Networking
Internet of Things (IoT) devices
Infrastructure
Communications
Data centers
Physical network infrastructure
Energy systems
Investment Ticket Size
Initial investment ticket sizes range from $50K to $500K USD. Ticket sizes will be periodically reviewed and adjusted as the fund grows and evolves over time.
Fund Size
Initial Target: $10 million to kick-start operations.
Medium-to-Long-Term Target: $100 million.
Operations
Operations should be carried out under a legal foundation to ensure compliance.
Ten members on the investment committee, each locking 10,000 DOT in OpenGov at maximum conviction (6x) on a newly created identity-verified account dedicated to PFIF. This deposit remains locked in OpenGov throughout their membership.
An advisory board of reputable leaders in the ecosystem, and parachain team representatives.
Decisions operated under a 6/10 multisig.
2% operation cost. Committee members are compensated at $150 per hour and receive performance-based fees.
Quarterly publication of transparency reports and profit distribution to all investors.
Fundraising Sources
Treasury
Web3 Foundation (W3F)
Polkadot Community: Polkadot community at large should be able to invest in the fund in a trustless manner. Real-world examples should be examined to model public investment.
Investment Committee & Board Members
Individual and Institutional Private Investors
Closing Thoughts
I believe that a well-managed PFIF can be very successful in creating widespread adoption and generating capital returns, and can set a great example of how to manage ecosystem resources. While there are many details yet to be discussed, I hope this post serves as a productive starting point for discussions.
Thank you for your attention, and please share your thoughts.
Edits:
Added parachain team representatives to item #3 under Operations.
Under definition, used the word ‘draft’ instead of ‘proposal’ to describe this text.
I think this is an interesting proposal. This would work very well with the proposed Polkadot Community Foundation, which could serve as the limited partner in order to ensure the PFIF returns are properly owned by tokenholders. Then the fund could be managed by a different legal entity composed of general partners. Does that setup fit what you meant by “operations should be carried out under a legal foundation?”
Thanks for your reply. I’m going to read your proposal, but I think all possible ways of organization are open to discussion. I meant “legal foundation” solely as legal compliance and accountability for investments at this stage, various configurations for that should also be discussed.
Hey hey, thank you for sharing this! Interesting idea. I am also interested in learning more about the legal set up for something like this: you mention a foundation-style legal structure - any ideas on the jurisdiction, limitations, mandate?
You also mention that these idea aims to “…secure financially viable and profitable investments, thereby providing capital appreciation to the fund’s investors”: I am wondering if you have thought about any standards/requirements/benchmarks with regards to projects. What investment policies do you envision? how much risk?
Thanks for your reply, Raul. Regarding the legal setup, I mentioned a foundation-like structure rather than a typical VC partnership or company because the fund’s purpose is not solely to make profits, but also to increase Polkadot adoption and contribute back to the technology through the requirements of technical integrations. Yet, I understand that foundations typically do not disburse profits to their investors, and an investment with no returns will likely not attract private or institutional investors. So I think we’ll need to find a legal structure that caters to both investor profitability and the focus on the development and adoption of the technology.
Regarding investment policies, standards and benchmarks, the fund setup process should include time spent on the initial formation of these, ideally modeled after real-world investment experiences, and in consultation with industry investors. I believe that W3F and industry VCs could provide invaluable insight and experience here.
There are still many questions to be answered, but I think if we set our intentions clearly, we should be able to clarify everything with proper expert support. The only thing I emphasize heavily is that it should remain a grassroots movement with organic ties to the community at both social and technological levels.
PS. As I wrote this reply, a fellowship/collective with its own treasury came to my mind. But it would need to have a legal representation for both compliance and accountability.
I think the idea of having a Sovereign Wealth Fund for Polkadot has been bounced around for a while now. Would be nice to see something like this coming to live.
I am not a finance person, so disregard if this does not make sense, but i dont see from what categories the financial profit would come from. Concretely things like Gold, Bitcoin and real estate are missing?
The treasury is currently nearly 100% in DOT, which is not well diversified. With the Ethereum bridge, we can get access to a lot of other Crypto assets as well. I think it could help to diversify a bit.
Thanks for the feedback, Oliver. Regarding profits, I’m thinking of researching small development teams, start-ups and small companies who are not necessarily building on Polkadot but could benefit from it, especially with the new upgrades (JAM), then investing in them in return for equity and supporting them in development and business. This could bring capital appreciation just like it does with the VC model, but on top of it, we can use the development experience to improve the protocol and the VM, creating a positive feedback loop. We could also announce request-for-proposals in specialized fields, and apply the same method. This is an active investment model.
The fund could also establish profitable businesses itself. Renewable energy initiatives, mobile devices, data centers, network hardware production, or a combination of all these and more, all involving the utilization of the protocol. I think we can get really creative with business, and also set examples for future businesses.
Passive investment through diversification as you mentioned is also a possibility, and probably a necessity too. I’m confident we already have experts in the ecosystem to consult with.
Hi agree with @kukabi that a new Polkadot Ecosystem Fund is needed, to focus on accountability in investment, and to support quality projects moving over to Polkadot. The current model has many issues in this respect. At Harbour Industrial Capital, we currently run a 10m Polkadot ecosystem fund, and are in the process of launching a new and much larger second fund. The main difference I see to PFIF is the source of funding. This proposal mentions 1) Treasury 2) W3F 3) Polkadot Community 4) Investment Committee. Only 5) is private investors. Our focus will primarily be the latter, i.e. private investors such as Family Offices, as we are looking to bring outside capital into the Polkadot ecosystem. Having said this, given that there is limited overlap of funding sources, but a shared vision for the operations of the fund, I see a lot of potential for synergies and I look forward to working with PFIP.
This is a great initiative that will require a lot of time, planning, and attorney fees. Will establishing a fund for profit have an impact on DOT as a security? The committee members will need liability coverage, especially if the fund has any bad investments or losses. Last question - will the investment decisions require community approval (I wasn’t sure what the 100,000 DOT or 10,000 per director was for)? If yes, I do not think that will be enough DOT and a lot of time, research and opportunities will be wasted.
When you’re suggesting the fund is seeking capital returns for sustainable funding why do you think this is an optimal approach? If a financial return to the fund is expected then this reduces the incentive to create open source software. Open source software creates a return on investment for the wider ecosystem by making the ecosystem more useful that can increase the amount of adoption and network usage. This could increase the probability that the projects being funded need to introduce some form of token to achieve that outcome by trying to capture some value. They might need to do this even in situations where a token might not be necessary or useful over the long term.
You might not have meant that it needs to be a direct capital return on investment so please clarify if so!
In either event, would be great to see these two funding approaches competing with one another. I believe funding open source initiatives that benefit the wider ecosystem to increase the networks value will likely be the more effective and efficient solution, it can help to create compounding benefits for the users and ecosystem developers due to the shared open source code.
Thank you, @kukabi, for writing this post. I see the strong need for Polkadot to have a new ecosystem fund. There needs to be more accountability in investment and support for startups that can add value to the ecosystem.
It would be great if the fund invested in startups that want to build on Polkadot but won’t launch a token ( traditional SAFE agreement). In the future, many startups that want to build on Polkadot will not launch/need a token. At the PBA cohort in Hong Kong, I noticed that some startups didn’t need a token but almost “forced it in” because they believed it was the only way to raise VC money.
I think this is a good ticket size to start with. It will attract projects/startups that are in the early stages of development.
Overall, I support this initiative and look forward to seeing it succeed!