Abstract
This paper posits that distinguishing security token offerings (STOs) from initial coin offerings (ICOs) is important for the study of entrepreneurial finance. We first provide a working definition of a security token and present an overview of the STO market using a unique STO sample. The STO activity developed after the end of the ICO market bubble. The STO market is, however, still a nascent market. STOs are geographically dispersed but concentrated in jurisdictions with accommodating securities laws. Next, we explore STO success factors. We show that various issuer and offering characteristics traditionally used in the ICO literature also matter for STO success. We also find that success is associated with good governance practices, consistent with the corporate finance literature. We conclude by discussing the implications of native digital securities, the next generation of security tokens, for entrepreneurial finance.
Highlights
The sources of external capital that entrepreneurs can tap to finance their venture have considerably evolved in only one decade
That the initial coin offerings (ICOs) market bubble ebbed away, security token offerings (STOs) have emerged, allowing investment in securities recorded on a blockchain
We find that both issuer and offering characteristics matter for STO success and failure
Summary
The sources of external capital that entrepreneurs can tap to finance their venture have considerably evolved in only one decade. That the ICO market bubble ebbed away, security token offerings (STOs) have emerged, allowing investment in securities recorded on a blockchain.. That the ICO market bubble ebbed away, security token offerings (STOs) have emerged, allowing investment in securities recorded on a blockchain.1 These securities are typically sold to accredited or experienced investors, making STOs more akin to private placements than public security offerings (Janney & Folta, 2006; Wruck & Wu, 2009; Wu, 2004). Denying voting rights (control) to investors negatively correlates with STO success (as measured by amount of capital raised). Unlike an STO, the idea behind raising money via an ICO is the value creation for a community, and this community is part of the value creation process (Schückes & Gutmann, 2020) This contrasts with an STO that aims to raise capital for startups using “traditional” investment products generally reserved for a small group of accredited or experienced investors.
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