Venture Capitalists And Communities
Many are beginning to see the value in communities and the potential as a basis for most everything. While this is certainly the case, there are some challenges. One of the biggest is the fact that many are approaching it with the same mindset as before.
Our present system is filled with people who look to do nothing but extract from what is taking place. They come by many names, most notably, rent seekers. They provide a service and take a sliver of each transaction. This caused the system to be centralized which usually creates more of this behavior.
Over time, the number of people sucking things out of the system outweigh those contributing. We end up with the pace of expansion diminishing as those who extract from the system end up flattening it.
The existing mindset is to get as much many as one can. People enter with the single focus of "what can I get out of it". This exists at the corporate and individual level.
Certainly there is nothing wrong with making money. However, if that is the single focus, in a community driven economy, it will fail.
Build The Community First
We are going to see a lot of failures by popular individuals who have a following. They have the advantage that the community already exists. Nevertheless, the mindset is to approach it to leverage financially. NFTs are an area we are already seeing this.
For example, the Kings of Leon made headlines with their entry into this market. Their idea was sound, the problem was the approach. It was really nothing more than a money grab. They did not develop the community to the point where it was actively involved in this layer. Tokenization is a different level than just a fanbase.
Hence the value of the NFTs dropped. There were only a few who were able to participate, reducing the impact of the community to only a small portion of the whole. Sure, the band made money, so from that point of view it was a success. The long-term effect, however, is a different story.
Certainly the Kings of Leon might be big enough they could go to the same well again. Yet, a smaller community is not going to be as forgiving. This is where the mindset has to change.
The approach is to think about the community first and the money will follow. In this situation, the Kings (or any other influencer) can have a printing press if the approach is correct. Develop the tokenized layer of the fanbase to the point where even the most financially challenged fans can participate and we will see a community that will flourish.
A Non-Extractive Approach
We are going to see success come to those who take a non-extractive approach to the tokenization of their communities. This is where the members will keep coming back to help out.
The payoff comes from growth. If we take a look at things from a financial perspective, we can see the sensibility of this.
As the community expands, the network effect starts to kick in. We know the value of this in financial terms from the mega-tech companies. It is simply impossible to ignore the fact that insane valuation is generated.
Of course, the problem with any community is that those who seek to continually take from the system end up potentially sabotaging the entire process. This is what it looks like Kings of Leon did. That came from the top but it easily could happen to those who are simply just involved with the community.
Here is where the common mindset will start to alter the behaviors of those who are not looking to play along. It is easy to surmise that the tolerance for takers will diminish. Those who do not show dedication to the community and a willingness to contribute will end up being ostracized. This will be especially true for those communities established as tokenized from the start.
A Replacement For The Venture Capital System
Here is where we can already foresee a major clash taking place.
Venture Capitalists provide a service which is very helpful. They are willing to put up a lot of money on risky projects in the hopes of a few of them succeeding. The challenge with this process is the community get all the benefits of the features yet none of the financial rewards. All of this goes to the VCs and founders.
Obviously the VCs are extractors. They can pull out tens of billions of dollars from extremely successful projects. For the most part, with tech, this is on the shoulders of users. It is easy to see how conflict arises between the two parties. Platforms are obligated to adhere to the VC's wishes since they are the ones who put up the money. At some point in time the users need to be monetized.
We are now seeing this in the cryptocurrency. Applications are being funded by venture capital companies, the same as before. We saw this with Coinbase™ and the money extracted from there. The result is does anyone feel loyalty and dedication to this company? Is the user base really a true community?
It would seem that is not the case. There is no tokenized layer with Coinbase™, hence few have much interest in that platform outside the service it provides. They were funded by outside money which ended up being returned to the VCs through the enormous IPO the company held.
The problem is the users got none of the financial benefit. It is something that we see across the entire business spectrum. Online this is the model of Web 2.0.
Here is where we see things changing. With the introduction of cryptocurrency, Web 3.0 can start to emerge. This is a completely new financial model based upon community. Hence, as mentioned above, the idea of extraction isn't going to hold up.
Communities are going to develop their own self-funding mechanisms which will make the VCs obsolete. The projects presently being develop via this approach will hit the market due to large financial backing. However, like with Coinbase™, what loyalty will there be? Everyone will soon figure out that the financial benefits are not going to them. It will be the proverbial "the users are the product".
Since users are not going to accept that as the new model emerges, those applications that are founded this way could encounter difficulty. The extraction model is going to die off as time passes. There will be other options emerging that are inclusive and provide distribution that allows more to gain financially.
The community based business model is shaping up to be very powerful. It is going to affect every industry. Delving through the process in this article, hopefully it is clear how things are going to unfold.
We can see how the mindset of a money grab needs to change. As communities develop, it is going to not be tolerated. Those who are involved in those groups for the long-term will end up benefiting. Unfortunately, it is going to take a while for most to see this.
Nevertheless, the foundation is going into place. Those that are aware of what is being laid will see the opportunities presented before them.
The business model is going to be changing and Venture Capitalists will be replace with communities. This opens up a host of other possibilities.
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