Initial Coin Offering to Finance Venture Capital: <i>A Behavioral Perspective</i>

What the paper says

An initial coin offering (ICO) is the procedure whereby ventures raise capital by selling tokens to investors. Compared with traditional financing methods, ICOs are new and less understood by both the industry and academia. For example, the literature is not clear about which factors determine the success rate or the amount raised in an ICO. Existing literature (Fisch 2019) shows that the signals of the private information of an ICO’s high quality determine the amount of funding in the ICO. This article is the first in the literature that provides evidence that investor sentiment and investor awareness are determinants of the amounts raised in an ICO. Moreover, it provides evidence confirming the signaling hypothesis. Specifically, ICOs with a pre-ICO and with a higher rating are more likely to raise more funds. This article is the only one in the literature that uses the entire market of 4,367 ICOs to confirm its findings. The results extend the understanding of the dynamics of an ICO to the behavioral field and enable investors and practitioners to understand the crucial determinants of both ICO success rates and the amounts raised. <b>TOPICS:</b>Private equity, currency, in markets, statistical methods