Document Type


Publication Date

Spring 5-15-2019


We develop a theory of financing entrepreneurial ventures by Initial Coin Offerings (ICOs). We show how distributed ledger technology (Blockchain) allows ventures to significantly decrease the price of issuance of new types of securities relative to a traditional venture capital (VC) approach. In addition, we discuss several types of new securities, called tokens. We explore the source of their value and benefits (and negative qualities) for entrepreneurial ventures and investors. We find that, in general, different types of tokens can provide unique benefits and additional information about a tokens’ issuer market sentiment. The following information would become available with the help of ICO: Net income of the company, demand for the particular good or service by an issuer of the token, and future growth rate of the issuer as perceived by the market. Finally, we provide numerical examples showing exact circumstances under which it would be beneficial for an entrepreneurial venture to issue tokens instead of VC to raise an additional capital.