69: The right kind of money to build cool stuff
Quadratic funding, Gitcoin grants and great families
We've decided not to take more money from investors (for now).
In today's email, I'll share why.
The money to get started
In most cases, getting projects off the ground needs money.
There are various ways to do this: bootstrapping (ie. using your own money), raising from investors and getting grants.
Bootstrapping can be challenging if what you're doing is expensive, you don't have a high risk appetite or you don't have a lot of money.
Raising from investors has its own challenges, which I've explored in email 61.
Today I want to talk a bit about grants. In particular, I've drawn two conclusions in the last month or so.
(1) Grants are a contract
I think it can be tempting to look at grants as free money.
But grants almost always come with some kind of requirement. You may need to meet some target that they define.
Or it could be as simple as committing to executing on what you promised in the grant.
Surely this is fine, given that you're just doing what you wanted to do?
Well, perhaps you're considering pivoting away from the original idea - but you can't do so without breaking the terms of the grant. Here, the formerly "no strings attached" money could play a role in influencing your decisions.
Grants are a contract on how you'll spend your time, and given that "time is money", this is a form of payment.
(2) 'Grantability' depends on the type of project, rather than its quality
The kinds of granting bodies that exist, and the kinds of project they support, are influenced by outside factors.
So a project could be really cool and impactful, but if it's not 'in vogue' it may be harder to support it through grants.
One thing I'm seeing in the web3/blockchain world is that it's easier to get grants for projects solving problems lower down the tech stack. E.g. If you're helping to solve ethereum's scaling problems, it's easier to get funded than if building an app on top of ethereum.
The future of grants (and beyond)?
Quadratic funding is a really cool mechanism that's become popular in web3 (and is slowly moving out into the 'real' world).
With quadratic funding, all donations made to a project are backed from a central pot of money. This part is the same as any other 'we'll match all donations'-type fundraise.
However, the way in which quadratic funding matches the donations is clever - and involves some maths I don't fully understand.
The core idea, though, is that the total number of votes/donations a project gets is more important than the financial amount of those donations. This is designed to make the matching more fair. You can't just get your wealthy friends to back your project and get matched - you need interest from a wider audience.
Right now, for example, we're accepting donations for a project via Gitcoin Grants, which uses quadratic funding. Because we've received quite a few donations, even though they're relatively small, now for every $1 donated we'll receive around $20 from the matching pool. Which is pretty cool!
(non-subtle shill: if interested in donating to our project, check out the project details here and let me know if you need a hand setting up an account, etc!)
I shared more about this, with example projects, in a tweet thread:
A new way to count votes
Vitalik Buteryn points out that the same mechanism has applications that go beyond just matching donations:
To the proponents of these voting schemes, this is not just another slight improvement to what exists. Rather, it's an initial foray into a fundamentally new class of social technology which, has the potential to overturn how we make many public decisions, large and small. The ultimate effect of these schemes rolled out in their full form could be as deeply transformative as the industrial-era advent of mostly-free markets and constitutional democracy. - Quadratic Payments: A Primer, by Vitalik Buteryn
It seems that one such application is for counting votes - to move away from the one-person-one-vote approach. This method has already been trialled by the Colorado Democratic party, for example.
I'm not an expert on this, but I can see why this could be a superior method over existing methods of voting (such as 'first past the post' or 'proportional representation’) if implemented well.
A public-funding approach to building a company
Getting funding from investors can be great for raising large amounts and growing the company fast. But this isn't our focus right now - and there's a lot that we can do without needing large amounts of money.
Grants offer the blessing of being able to just work on our project. To actually build, rather than spending time talking to investors.
So our plan is to see if we can be self-sustaining from grants and competitions for a while - and build up to a large investment raise when the need arises.
If you both believe in the project - more details here - and are not that familiar with crypto/web3, just hit ‘reply’ and I’m happy to share information on how to get set up and donate. Now’s a great opportunity to support us, given the heavy backing that all donations are receiving, but no worries at all if you’d rather not 🙂
(1) Start now. No funding needed. by Derek Sivers - a blog post that provides a nice counterbalance to what I’ve written above.
(2) Secrets Of The Great Families by Scott Alexander - a completely unrelated blog post, which I just got round to reading and found fascinating. Scott looks at families where many people have achieved great things, and looks for a reason behind it.
Hope you’re having a great week,
👋 Hi, I'm Chris Lovejoy.
I'm a medical doctor 🩺 -> machine learning engineer 👨💻 -> start-up founder 💡
I'm on a mission to improve how we manage our health - and share my learnings and experiences here, on my personal website and on YouTube.
I also throw in my favourite things from the internet, and the occasional joke (humour is work-in-progress).