The venture capital industry is beginning to take a good, hard look at a new financial instrument coming out of the bitcoin community — Initial Coin Offerings, or ICOs. Also known as “token sales,” this new fundraising phenomenon is being fueled by a convergence of blockchain technology, new wealth, clever entrepreneurs, and crypto-investors who are backing blockchain-fueled ideas. ICOs present both benefits and disadvantages, as well as threats and opportunities, to the traditional venture capital business model.
What Initial Coin Offerings Are, and Why VC Firms Care
The venture capital industry is beginning to take a good, hard look at a new financial instrument coming out of the bitcoin community – Initial Coin Offerings, or ICOs. Also known as “token sales,” this new fundraising phenomenon is being fueled by a synergistic convergence of blockchain technology, new wealth, clever entrepreneurs and crypto-investors who are backing blockchain-fueled ideas. ICOs present both benefits and disadvantages, as well as threats and opportunities, to the traditional venture capital business model. Detractors of these new funding schemes scream for structure and protection, point out the scams, demand more control, and say that investors don’t have enough skin in the game. Meanwhile, proponents retort that there’s a real need for freedom to invest outside the accredited system, which sees the wealthy getting wealthier, and where VCs have been making massive returns on the backs of entrepreneurs for far too long.