Dominique Salzgeber
Published: 2019
Total Pages:
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With the development of the Blockchain technology a new alternative of funding for start-ups was introduced to the market: Initial Coin Offerings (ICOs). At its core, an ICO is a fundraising mechanism, which facilitates the issuance of digital coins to a crowd of investors. Two prominent projects that were funded via ICO were Ripple in 2013 and Ethereum in 2015, the emergance of ICOs on a big scale however only started taking place in 2017. The hype that ICOs experienced in 2017 was ended on the 17. December of the same year, with the collapse of the coin prices. Since then, the ICO landscape has experienced deep reaching changes, not least due to regulations. One example being the FINMA guideline of February 2018, on how to legally handle ICOs. As a result, ICOs are starting to represent a widely accepted alternative funding method to venture capital. Therefore, an impact or causality between the two funding methods is possible. This potential interplay is the subject of this paper, for which cases conducting ICOs were examined in detail in a first step. The qualitative analysis resulted in four observations: Firstly, the advantage of utility tokens for start-ups offering a business model based on user interaction. Secondly, the benefit of the liquidity of the ICO market for investors. Thirdly, the fact that start-ups need more support than just fundraising and lastly the short time to market of ICOs, which results in a competitive advantage. In a second step these observations were used to form four propositions for venture capitalists (VCs) to participate in an ICO environment: firstly, VCs investing into utility coins can leverage their resources to increase user interaction on the platform and thus secure their investment. Secondly, a VC can contribute to the ICO market with value-add. Thirdly, the liquidity of ICO markets opens up potential for a VC to offer a more diversified portfolio of investments. Lastly, ICOs can sh.