We’ve been working with 30+ grant programs this year. Here is what separates the good grant programs from the nots.

Devs or MBAs?

Many grant programs view themselves as pre-seed funding. This is exactly wrong. Grants is capital allocation by devs to devs. Venture capital is allocation by MBAs to devs.

They are fundamentally different. VC is best suited for projects that have a business model or are likely to have one in near term future. VC is for projects that push the boundaries of business - innovation in business models, markets, new product lines suddenly possible because of the existence of a technology.

However, grants are best looked at as capital to push the boundaries of technology. Usually grant programs are setup by protocols. These protocols are usually building bleeding edge tech. It is usually hard to imagine what products can be built on this tech. It wasn’t immediately obvious that we’d have tokens, exchanges and nfts once we had a programmable blockchain. It needs imagination and deep understanding of the tech to build on it before it becomes mainstream. Grants fund such projects. These projects may are may not become profitable businesses - but they perform two critical roles.

  1. It exploits what the technology offers, this signal feeds back to the protocol development team as to where they need to put their efforts. E.g. CryptoKitties led to the ERC-721 standard which directly or indirectly forced protocol teams to think about L2 scaling.
  2. It brings usage to the protocol even if it isn’t profit making. Many public goods are possible because they can be run on-chain, with low or no cost. This dynamic is possible because the end users usually pay for the transactions (gas fees) - meaning they pay for what they use. E.g. Uniswap can continue to exist even without the Uniswap Labs or Foundation, completely on chain. All those gas fees is revenue for Ethereum and its validators.

Looking at grants as preseed funding is wrong. Protocols may run their venture arm but it should be run in parallel to a grant program - both with their independent mandates.

Why grants?

Grants super-charge composability. Because of the crypto primitives it is impossible for some tech to be built that will be discontinued at the discretion of a single person. Something that’s on chain, is on chain forever. That means devs can build on top of new protocols without having to trust them to exist forever. Thousands of dapps are built on top of Uniswap - even though UniswapV3 is only a few months old. Even if Hayden Adams says Uniswap should be discontinued, he can’t rug the devs who’ve built on top of Uniswap.

Grants supercharge this trustless composability. The downside protection is provided by trustless composability - i.e. projects won’t fail because of underlying infra getting shut down. Having access to capital provides upside, an incentive to be bold and innovative.

These projects that are looking for grants are usually

  • Public Goods, with no business model in the near future
  • Research projects, with uncertainity on whether they’d be able to build the product at all
  • Whacky ideas, that just trigger imagination for builders to build more in the above two categories

The catch

The catch is the grants program must be run by devs or someone who has their ears to the devs’ conversations. Because it is they who really understand the limits of the tech they’ve built. It is them who’d be able to judge what is possible now, what will be possible in 2 months, what won’t be possible for the next 2 years. It is only with this knowledge a grant program will be able to identify the projects to back and which to pass.

A Grant Program is by the devs for the devs, preseed funding is by MBAs for devs.