One advantage for entrepreneurs is that ICOs allow them to raise capital by selling tokens rather than shares and therefore do not require them to give up ownership and control rights to investors as would be the case with venture capital or equity-based crowdfunding (Schwienbacher 2019). After completing the ICO, the tokens may be traded on an online exchange and increase in value with the success of the project. The cryptocurrency tokens typically act as a digital medium of exchange to access the firm’s digital platform and services.
At the time of the ICO, the project is mostly at the idea stage and the actual launch of the product or service is expected within one to two years after the ICO (EY 2017). In an ICO, entrepreneurs raise money for their venture by selling newly created cryptocurrency tokens to investors in exchange for fiat currency such as US dollars or cryptocurrencies such as Ethereum or Bitcoin (Chohan 2020 Kastelein 2017). Initial Coin Offerings (ICOs) have become an increasingly popular way to raise capital for blockchain technology startups. We conclude that for entrepreneurs it is important to make an ICO as transparent as possible and that profile and expert ratings are a valuable means to overcome the information asymmetry problems associated with token sales. Longer-term project success is positively impacted by having a pre-ICO GitHub repository, a shorter planned token sale duration and having a larger project team at the time of the ICO, although these results depend on the ex-post success measure used. ICOs that disclose more information to investors and that have a higher quality rating at the time of the campaign show stronger ex-post performance. have a higher profile rating), have a higher quality rating by cryptocurrency experts, have a pre-ICO GitHub repository, organise a presale, refrain from offering bonus schemes, have shorter planned token sale durations and have a larger project team. We find evidence that ICOs are more successful in raising funding when they disclose more information to investors (i.e. We analyse the determinants of success for 630 ICOs undertaken from August 2015 up until the end of December 2017, a period in which the market for ICOs grew to an unprecented level.
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