- Instead I will make a few observations about how an investor might think about the impact of ICOs / token launches on the venture capital industry, in particular, and some of the downstream ramifications that need to wrestled with.
- The ICO generates excitement and valuable incentives to contribute to the ecosystem which accelerates its growth and, as the ecosystem grows, the company has a cash flow formula that allows value to accrue to the equity holders of the corporation not just the tokens.
- If a portfolio company can raise money in an ICO and retain tokens that then rise in value, it dramatically reduces the company’s incentive to seek an exit.
- If the management team and employees receive tokens as part of their compensation plan and those tokens are highly liquid — as they should be after an ICO thanks to the meteoric rise of exchanges and crypto hedge funds — then the value of their compensation may be more through token value than equity value.
- Are investors and management as aligned as they are in a company that does not raise money in an ICO or do token sales create more opportunities for misalignment—which gets back to the issue of governance.
Goldman Sachs and CB Insights recently reported that startups have raised over $1 billion in Initial Coin Offerings (ICOs) this summer — more than the to…
Continue reading “The Summer of ICOs”