Yasir Shirazi. Working Paper. “Blockchain based ICOs and Start-up Ecosystem: The diminishing role of Venture Capital funding”.
Abstract:Blockchain technology is transforming our world. While there is consensus that blockchain
technology can revolutionize our lives, start-ups in this field have struggled to raise funds through traditional VCs. Historically, start-ups would approach VCs to pitch ideas and raise financing rounds. However, Blockchain start-ups initially did not receive an encouraging response from venture firms for multiple reasons including traditional mindset, limited understanding of blockchain potential, and lack of known experts in this field. This challenge has given rise to a new phenomenon known as an Initial Coin Offering (ICO) whereby startups can raise funds via general offerings without requiring VCs to participate. The magnitude of ICO funding is staggering. According to coinschedule.com, more than $3.6 billion dollars have been raised to fund 228 start- ups in blockchain ecosystem in first 10 months of 2017. In June 2017, ICO funding was estimated to have surpassed early-stage Angel & VC funding for internet businesses. Are ICOs disrupting the VC ecosystem? Will the next Facebook or Google be funded via an ICO? These are important questions to investigate since they can drastically impact the future of start-up ecosystems. This project will evaluate risk factors across qualitative and quantitative data for ICO funding between 2015-17. This project is critical since it would show whether ICOs are a short-term fad or a long-term threat to traditional VC model.