Public Consultation Post: Polkadot VC Bounty

[Max]

Public Consultation Post: Polkadot VC Bounty

With this forum post, we would like to kick off a 1 month long public consultation process about the possible creation of a new on-chain Venture Capital bounty. The purpose of this is to allow the treasury to invest in projects building on Polkadot and obtain a direct financial return on investment. This stands in contrast to the existing model in which the treasury hands out grants to projects for building on Polkadot, but does not receive any equity ownership in the projects in return.

What problem does this solve?

For the next growth phase of Polkadot to be successful, we need a proliferation of new Apps. The imminent roll-out of Hub presents a huge opportunity, as new startups can deploy on Hub more easily than in the past. However, they will still need funding, to pay for costs and overhead. Currently the most likely scenario is that these projects will ask the treasury for grants. However, we believe that the better model would be to create a structure that allows the treasury to take ownership in the projects it supports. This will create more accountability to deliver on milestones, and tie the project more closely into the ecosystem than a grant would do.

Treasury as a VC?

In general, we believe that large DAOs are not well suited to act as a VC. There are many examples from other ecosystems to prove this point. Investment decisions have to follow term sheet negotiations with founders regarding valuation, size, vesting and exits. Otherwise investors are overpaying and projects are underdelivering. Running such negotiations through OpenGov would be slow and inefficient. That’s why we propose to structure it as a bounty with a subset of the DAO as curators.

On-Chain/Off-Chain Structure

A VC fund can’t exist only on-chain, but needs to interact with the off-chain world. Investments usually happen pre-TGE (Token Generation Event), so the bounty has to be able to sign and enforce a SAFT/SAFE (Simple Agreement for Future Tokens/Equity). For equity investments, it has to be able hold company shares on its balance sheet. If this legal entity was a simple LLC, it would immediately run into scrutiny from regulators.

In the past there were some attempts to run a “Rev Share” model, “transfers of IP rights”, or token swaps. But these rights were not enforceable and the model didn’t scale well. Instead we believe it takes a fully licensed and regulated VC Fund structure that provides strong legal assurances for the treasury, and allows it to legally own a stake in the companies it invests in.

Setting up such a structure is expensive, time consuming and operationally complex. Hence we propose to leverage the existing BVI / Cayman structure of Harbour Industrial Capital (HIC), which operates an existing Polkadot ecosystem fund, for investment holding, legal and compliance. Importantly, Investment decisions would remain on-chain, and only at the discretion of Bounty curators.

Next Steps

We have discussed this idea with many different stakeholders over the past couple of months, and would now like to use this forum post to open it up to a wider audience. Many questions remain, so we would like to gather community feedback for one month, before putting anything on-chain. The main open questions we would like to hear about include:

• Do we need a VC Bounty in Polkadot?

• Does the theme “less grants and more investments” resonate with you?

• What’s the best on-chain/off-chain investment holding structure?

• How can the treasury obtain the highest legal assurances that it actually “owns” the projects it invests in and receives an ROI payout at the end?

• What investment verticals should the bounty focus on?

• What investment stage should the bounty participate in?

• Should there be one global bounty, or multiple regional bounties (with different local curators)?

• What size (in DOT) should the bounty be?

• Who would be a good curator? (feel free to volunteer yourself here or nominate someone else)

If you are a voter in OpenGov, would you vote in favour or against such a Bounty creation? If you are on the NAY side now, what structural changes would you like to see in order to change your vote AYE? All feedback is welcome, please feel free to comment below!

[Mork]

I’d support this but perhaps not for the same reasons as you.

In general, we believe that large DAOs are not well suited to act as a VC

That’s putting it mildly

such a structure is expensive, time consuming and operationally complex. Hence we propose to leverage HIC

Cool. Good plan (as long as treasury retains proper property rights over its investment).

Do we need a VC Bounty in Polkadot?

IMHO… Not exactly VC, not exactly Bounty. But given that you’re willing to step up on this, I wouldn’t Nay for the sake of small differences.

Does the theme “less grants and more investments” resonate with you?

Not really. There are many problems with the ecosystem’s heavy reliance on grants (and what are effectively grants). I think that in many of these cases, if lumps we pay out were treated more like investments than grants, then it’s likely to be an improvement. But I’m not sure that seeing them as profit-seeking investments is quite the right model either.

Pros of grants rather than investments:
Builders are not bound by a strict economic logic which has killed many projects already and prevented others from getting off the ground.

Cons of grants:

OpenGov is understandably sick of funding projects with little or no expectation of ROI, and whose common good benefits are speculative (this is not my position, but I get it).

Pros of investments rather than grants:
OpenGov does not have the human bandwidth (and would likely be bad at the job even if it did) to nurture projects and keep them disciplined. The major benefit of having a ‘VC’ or ‘investor’ in the loop would be specific responsible external people (with more skin in the game than bounty curators) to keep projects on track.
I don’t think that possible ROI necessarily counts as a pro for investment since, IMHO, the expected ROI in Polkadot in not really comparable to VC world.

So, while I understand your proposal as being for a fund (ie bounty) operating on the usual VC principles (be ruthless, seek profit, look for the 100X), this feels like not quite what we need.
There are many, many projects with a common good dimension which we should be funding (some of which would end up profit-making), but which would be rejected by a profit-maximising VC. Yet those projects might be better served by having VC rather than grants behind them.

The functions and qualities of a VC which I feel would be desirable are: To be able to both nurture with experience, and enforce some discipline, on the projects they are funding; and to have some skin in the game. I’m not sure how we can replicate or mimic skin in the game with a bounty curator rather than an actual VC but .. somebody with VC experience, willing to put their reputation and paid position on the line, is perhaps the nearest we can get.

You’ve not mentioned how a VC bounty would apply to already established projects which are getting, effectively, grants from the treasury. Would they be out of scope? Or would the VC seek a small stake when they are strong but raising capital (and therefore get a less good deal, perhaps competing against other VCs)? Or would the VC wait until the established projects get stuck and have to take the VC’s terms? All of those options are non-optimal, it would be good to hear if there is any other way it could work..

I have had to assume some of the details, but it feels like what you’re proposing improves the situation in only a subset of cases.
Having a treasury-owned VC fund cherrypicking projects which might otherwise get a grant, or just not get funded - Yes, that’s better than the status quo but it feels like the resulting situation would still be suboptimal.
Would it be possible to flesh out how you see things panning out from this more holistically (eg -what happens to the other projects seeking funding, but not promising a VC-like ROI?)

[labormedia]

Thanks for opening this consultation, Max. The idea of shifting part of Treasury activity from grants to investments is worth serious debate—especially given the on-chain/off-chain complexities and your proposal to leverage a licensed fund structure while keeping investment decisions on-chain via a bounty with curators.

Thesis: If Polkadot is positioned to compete with all forms of private money—echoing Friedrich Hayek’s ideas in his 1976 book “The Denationalisation of Money,” where he advocated for competing currencies to drive efficiency—then two core questions arise:

1. Should the protocol raise transaction costs to subsidize activities? Competitive markets have historically been effective at delegating risks from legacy capital to distributed enterprises. These enterprises absorb risks in exchange for potential future capital returns and exits, with success probabilities distributed across competing activities. However, this assumes subsidies enhance rather than distort competition.
2. How do we evaluate if these aggregated transaction costs would be better eliminated entirely? Removing such costs could enable more efficient global capital and payment flows—the very market Polkadot targets. In a low-barrier, frictionless DLT industry (pioneered by early Proof-of-Stake experiments), a more efficient alternative could quickly erode Polkadot’s edge.

What I’ve seen with public “VC-style” subsidies

Speaking from experience, public subsidy programs that channel “common capital” through a few “VC managers” tend to: inflate lobbying costs, encourage manager concentration/collusion, and misalign incentives—often subsidizing legacy capital that would have invested anyway. That pattern can dilute risk absorption and degrade information signals. If we go down the subsidy route, we should design hard guardrails to avoid these economic failure modes.

Concrete proposals

1) “Proof-of-Acquisition” (PoA) for growth spend.
Tie any growth/VC disbursement to verifiable net new DOT purchases (from DEXes/CEXes) into escrowed or programmatic wallets. This creates direct buy-pressure, aligns recipients with DOT’s success, and is trivial to audit on-chain. Curators would verify purchase proofs and enforce cliffs/vesting tied to product milestones.

2) Stabilise token economics counter-cyclically.
If we are willing to promote long term investment, emphasise short-term stabilisation. Reduce grants in favour of broader money supply effects like bonds acquisition, to preserve capital and reduce portfolio risk. Let reserves offset dilution.

3) Competition at the capital layer (no single gatekeeper).
If we do a VC bounty, avoid a single global manager. Run multiple regional bounties (with independent curator sets) that compete on performance, transparency, and fees; periodically re-tender mandates. This lines up with one of your open questions about global vs. regional bounties and should reduce capture risk.

4) Limit shared VC’s equity to under 10-12% of the total stake of an enterprise.
This encourages syndication, reduces concentration risks like collusion and over-control, and aligns with VC research showing syndicated deals yield higher exit rates and innovation through diversified ownership. This shifts the dynamics from concentrated “winner-takes-all” funding and invites fresh inflow to compete in for prosperous capital performance.

5) If leveraging an off-chain fund structure, build strict on-chain guardrails.
Your post suggests using an existing BVI/Cayman vehicle (Harbour Industrial Capital) purely for the legal/compliance wrapper, with all investment discretion staying on-chain via curators. If that path is chosen, require for every regional VC:

• Standardized term sheets/side letters, fee caps, and on-chain transparency of commitments, calls, and realized ROI back to Treasury wallets.
• Mandatory co-investment/matching from outside capital (e.g., ≥1:1) to crowd-in external risk capital.
• A conflicts-of-interest policy and quarterly reporting (positions, NAV methodology, realized exits), on-chain accessible.
• A clear legal mechanism guaranteeing the Treasury’s claim on equity/tokens/low-risk-bonds and enforceable ROI back on-chain—explicitly addressing past “rev-share/IP transfer” shortcomings.

Regarding your consultation questions:

• Yes, a VC Bounty is more explicit for the interest of attracting new capital investment, but only if structured to avoid grant-like pitfalls.
• Favour multiple regional bounties with local curators for diversity.
• Budget: Start modest (e.g., 1-2% of treasury) to test, scaling based on ROI.
• Structure: Leverage HIC for off-chain compliance but ensure on-chain curator decisions are transparent and DAO-governed. This is not easy to accomplish, but worth a try.
• I’d vote AYE if Proof-of-Acquisition and competition safeguards are included; otherwise, NAY to prevent subsidy inefficiencies.