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

Magnus Schückes () and Tobias Gutmann ()
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Magnus Schückes: University of Mannheim
Tobias Gutmann: EBS Universität für Wirtschaft und Recht

Small Business Economics, 2021, vol. 57, issue 2, No 23, 1027-1052

Abstract: 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 in-depth 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.

Keywords: Initial coin offerings; Entrepreneurial finance; Entrepreneurial decision making; Social identity; Digital entrepreneurship; Blockchain (search for similar items in EconPapers)
JEL-codes: G23 G32 L17 L26 M13 M15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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DOI: 10.1007/s11187-020-00337-9

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