The Dialectic Reciprocity Pledge
Today, we announce the Dialectic Reciprocity Pledge, an annual tradition to allocate a significant portion of Dialectic’s fees from returns created by our portfolio of companies towards non-profit projects. We will direct these resources towards projects that are meaningful to our leading portfolio entrepreneurs, as well as some projects that are deeply meaningful to our core team.
The Why - More Reciprocity in VC
There is a great debate raging currently on how extractive venture capital has been in the creation of Web3 and other industries. While we will refrain from diving into this discussion, we must all admit that many investors had considerable windfalls in 2021, and we are compelled to think deeply about reciprocity and sharing some of this upside with important causes of those who enabled such outlier success.
We also note that unfortunately there is not enough discourse in crypto, or venture capital more broadly, about structurally programmed ways to give and support philanthropic endeavours and open-source projects. When talking with my contemporaries, I am often left somewhat disappointed in how little mindspace and resources are allocated to giving back.
We created Dialectic to be a very different wealth manager. We are a bespoke invite-only multi-family office, not a fund. We invest in venture, in large part, because it is the last asset class with an asymmetric return profile. However, being a family office gives us significant advantages:
As our investors have an intergenerational view (and some have an inter-planetary view), we are able to take the longest possible investment horizon and back founders who are building the inspiring future that we want our children and their children to live in. However, because we balance exceptional returns with wealth preservation (i.e. not losing money), we aren't forced into a beauty contest based on the last cycle’s returns.
Finally, and most liberating, since we are a family office that mostly attends to our staff’s and portfolio entrepreneurs’ generational-wealth moments and the issues that this kind of capital appreciation creates, we focus on our returns for our investors (who are largely ourselves) and are not focused on management fees that we can accrue from our investors. Why would I care about making money from fees from a portfolio of what is, in large part, my own capital? That is tax-inefficient and literally just taking money from one pocket to place it in another. This flexibility gives us a greater range of vision regarding what to do with the fees.
The Vine Ventures Case Study
When I started a highly experimental adjacent fund focused on mental health and psychedelic therapies in 2019, Vine Ventures, I tried a new approach to giving back, with the Vine Reciprocity Pledge - pledging 50% of GP carry (the fees and profit that the management company accrues from investor returns). It seemed very natural to me, and I wanted to really ‘walk the talk’ on being in that space for the right reasons. Over three years running Vine, I have been amazed by how much the Vine Reciprocity Pledge has helped our fund. Entrepreneurs find Vine and the Vine Reciprocity Pledge attractive because they can be confident that a significant part of the proceeds they generate will go back into nonprofit initiatives that they resonate with. Investors find it refreshing to be dealing with a venture capitalist who is willing to experiment with their own interests while preserving limited partner (LP) returns. I truly believe that when venture capital is applied correctly, it seeks to create (and accrue) great value from solving the world’s biggest problems. The Vine Reciprocity Pledge has led to an undeniable edge whereby teams are consistently seeking us out for participation in their investment rounds, sometimes months after closing. ‘Walking the talk’ culminated in Vine being selected by MAPS, the most important organization in the history of the psychedelics space, to lead their only for-profit fundraising.
The What - The Dialectic Reciprocity Pledge
The Dialectic Reciprocity Pledge is an annual gift on behalf of five of our top-performing portfolio entrepreneurs to a charity of their choice. The gift will initially be the equivalent of our first cheque into that project or another amount set together with the entrepreneur in question. By pairing the donation with the first cheque, we offer more value for potential portfolio entrepreneurs evaluating to work with Dialectic.
Further, we will pair this with 6 gifts to open-source projects and charities that are important to our team. My most important clients (and frankly, the majority of our clients) are our portfolio entrepreneurs and our team members, and thus we seek to help them with a variety of life’s challenges, effective altruism included.
We select the top five projects based on 2021 liquid returns within the portfolio. Paper gains do not count until they are vested. We apply nuance by reserving one spot for outstanding work whereby a portfolio company has made such a significant social impact that we are compelled to recognize their contribution to their industry, community and the world generally. This year, we must recognize the life-saving opportunity that Play-To-Earn gaming made, saving perhaps hundreds of thousands of families from job-loss and economic hardship during the Covid pandemic. Further, we are inspired by how NFTs enabled thousands of digital artists to find both financial and artistic freedom for the first time in many generations.
The Who - Our Portfolio Entrepreneurs & Team
We have had an amazing 2021 at Dialectic, and I am so deeply grateful to all of our entrepreneurs and team members who have made such a memorable annum possible. The list of this year’s donations and their supporters are as follows:
- K.G. Jebsen Centre for Alzheimer's Disease at the Kavli Institute for Systems Neuroscience - chosen by Aleksander at Sky Mavis
- Sponsor-a-Scholar Program - chosen by Gabby, Beryl and Owl at Yield Guild Games
- Rhizome, Art Start, Partnership Against Domestic Violence, and Futures Without Violence - chosen by John and Zack at Super Rare
- Women in Games - chosen by Mark, Marco and Tommy at Merit Circle
- Our Rescue - chosen by Michael at Star Atlas
Additionally, our team has selected the following projects for support:
Social projects within the Canton of Zug chosen by Dialectic, working with the Zug Cantonal authorities. We are constantly reminded of the central role that Zug has played in enabling the crypto industry to flourish and believe this merits recognition by the community.
If you are making the observation that very clearly we like P2E gaming, art NFTs and open-source infrastructure projects and these areas are of particular interest to you, please reach out. We are always looking to hire, fund, incubate and support great people who want to build the inspiring web3-enabled future we want to live in.
The How - Deployments
We will be making a series of deployments to the aforementioned causes over the next two to three months. Our target is to give away as much as a quarter of our fund fees effectively, but we will adjust these numbers based on feedback from organizations and new philanthropic opportunities that arise.
While the VC community need not shy away from thoroughly enjoying the fruits of their labour and risk-taking, we do all have a responsibility to give back. But more importantly, we must innovate on models to program giving into the incentive mechanisms that we design and to create more value than we accrue. It really is not that complex or difficult to do, and the case study of Vine shows a path that structural reciprocity can help to form a more sustainable industry and actually lead to an even higher return profile and better fund performance.
I call on all venture capitalists, investors and entrepreneurs, especially those that had a bumper year in 2021, to design a thoughtful plan for how you will individually and collectively give back. It is very important at this moment that we self-regulate and design philanthropy into our fundamental business models, or we as an industry may face far greater scrutiny in the future that may result in suboptimal outcomes.
Within 2022, we will open-source all of the documents, roadmaps, legal and tax analysis required to set up your own reciprocity pledge. We also invite feedback on how to evolve the model further. We at Dialectic wish everyone a happy and productive 2022.
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