Why do startups pursue initial coin offerings (ICOs)? The role of economic drivers and social identity on funding choice

Abstract

Initial coin offerings (ICOs) are a novel form of funding that has driven billions of dollars into the blockchain ecosystem, potentially challenging traditional funding vehicles such as business angel or venture capital investments. However, little is known of entrepreneurs' rationales for leveraging this emerging form of financing. This article investigates the economic and behavioral factors that motivate entrepreneurs to fund their startup operations with ICOs. By conducting indepth interviews with C-level managers or founders of ICO-funded startups, our analysis reveals four dimensions that have an impact on the decision: (1) funding, (2) community building, (3) tokenomics, and (4) personal and ideological drivers. Our findings suggest that the entrepreneur's social identity in conjunction with the enabling mechanisms of the blockchain technology shape entrepreneurial pursuits and funding choice. We contribute to the literature on entrepreneurial finance by increasing understanding of ICOs and to the literature on entrepreneurial decision making by providing qualitative insights into the influence of founder identity on key decisions in startups such as financing.

Success factors of initial coin offerings

“…Although a growing number of studies investigate new ways to finance entrepreneurial ventures, which emerge on the crossroads between private and public equity (Audretsch et al, 2016;Butticè & Vismara, 2021), several emerging forms of finance have started making their way into entrepreneurial finance. Research on entrepreneurial finance will need to cope with collective-action problems, explaining the nuances of crowdfunding campaigns (Vismara, 2018(Vismara, , 2019, and further investigating the emerging role of "quasi" crowdfunding such as ICOs (Huang et al, 2020(Huang et al, , 2021Kher et al, 2020;Schückes & Gutmann, 2021). The general expectation is that both ICOs and equity crowdfunding "democratizes" entrepreneurial finance (Cumming et al, 2021), thereby increasing the possibility of various founders from different backgrounds raising finance (Fisch et al, 2020).…”

New Horizons in Business and Management Studies

“…The majority of entrepreneurship research examines ICOs as a novel form of entrepreneurial finance for highly innovative BT ventures (Chen, 2019;Kher et al, 2020). Schückes and Gutmann (2020) enriched the literature on entrepreneurial finance by advancing the understanding of ICOs and the literature on entrepreneurial decision making by explaining the entrepreneurs' funding choice.…”

Entrepreneurship Education Centres in universities: evidence and insights from Italian “Contamination Lab” cases

“…Another factor is that an entrepreneurial mindset may be one of the success factors in this digital and globalising world (Balocco et al, 2019;Brynjolfsson and McAfee, 2014). Moreover, entrepreneurial mindset influences key decisions such as financing projects (Sch€ uckes and Gutmann, 2020).…”