(Reuters) – In Silicon Valley, venture capitalists traditionally have controlled the destinies of tech startups, as they are virtually the only source of funding. But the burgeoning digital currency market is flipping the venture capital model on its head, as new tech companies are minting their own money with so-called initial coin offerings.
Reuters Correspondent Gertrude Chavez explains.
GERTRUDE CHAVEZ, CORRESPONDENT, REUTERS,
“Initial coin offerings have been a big trend for the last year and a half in the blockchain space. Blockchain is the underlying technology for Bitcoin, the original digital currency. And these companies in the blockchain space have been raising cash through creating their own tokens, or coins, and selling them to them public like an initial public offering. And they’re raising tons of cash, about $1.1 billion in 2017, so that’s more than ten times for the whole of 2016.”
Now, VC firms are going to the startups instead of the other way around, hoping to get in on a piece of the action. And since the shoe is on the other foot, some issuers are limiting the size of pre-sale deals, making the venture capitalists scramble like everybody else for the highly sought-after public offers, which can often lead to big returns. But ICOs are not without risks.