Will token sales ‘democratise’ investing?

  • by Helen Disney
  • February 21, 2018
  • 1

In the first six months of last year, venture capitalists invested close to $378 million into blockchain-based companies versus $932 million raised from token sales. So could Initial Coin Offerings with their new type of decentralised crowdfunding approach attract more non-traditional investors to put money into blockchain startups? And vice versa will this make it easier for traditionally overlooked groups including women and ethnic minorities to attain funding for their new ventures?

At first glance this may all seem a bit counter-intuitive. Technology is a traditionally male-dominated industry. Bitcoin and cryptocurrencies are no different (if not worse) with only 5% to 7% of all cryptocurrency users being women. Women in general tend to find it harder to get funding for their startups and those that do are likely to receive smaller deals. This may in part be due to the small number of women venture capitalists – a chicken and egg type scenario.

According to a recent Forbes article by Jackie Lam, co-founder of Oddup, which researches and rates start
ups, “in 2016, only 4.94% of all successful VC fundraisers involved startups that were led by women. On an average, these deals received $4.5 million of funding, which is less than 50% of the $10.9 million per deal average achieved by startups led by men. Approximately 15.8% of startups around the world have women in their founding teams. A similar trend can be seen on the investment side where women make up only a reported 6% of VC firm partners”. As for minorities, the situation is even worse, female CEOs get only 2.7% of all venture funding, while women of colour get a mere 0.2%.

So what is happening with ICOs which might change all that? Could this new fundraising opportunity allow women and minority groups to overcome some of the inherent barriers to entry or biases prevalent in traditional funding? In theory, almost anyone can invest in an ICO – at least for now, unless further regulation comes along to change that. So the first aspect is that the potential market for ICO investments is global and is open to a wider pool of different types of potential investors. You don’t have to be a venture capitalist, a high net worth individual, or an accredited investor nor do you need to have access to any exclusive, high-level networks to take part. That in itself has the potential to open up involvement in cryptocurrencies and blockchain applications to a much wider marketplace of investors.

At the same time, the general trend in startup land is an increase in women going into entrepreneurship. From 2015 to 2016 across 51 economies that participated in a GEM survey, the rate of female entrepreneurs increased by 10% on average versus 5% among men. So far, so promising.

New forms of female entrepreneurship are even springing up to solve the very problem of lack of access to seed funding for female entrepreneurs. Moms Avenue recently launched as the world’s first blockchain-powered reward-based social entrepreneurship platform designed for women. Via the sale of the MOM token, the idea is to build a powerful social network and foster sustainable value flow by inspiring and empowering women to start, grow and scale their own businesses.

But what about the figures for investors themselves? In a recent keynote speech to the 2018 Crypto Finance Conference, Meltem Demirors, Director at Digital Currency Group, a leading cryptocurrency venture capital firm, discussed the types of investors currently involved in the space and the topic of investor homophily – in other words, the tendency of individuals to associate and bond with similar others, as in the proverb “birds of a feather flock together”. According to the research she presented, investors in cryptocurrencies are drawn from a mix of angel investors who tend to cluster by alma mater, location, or sector; venture capitalists, where few players lead and others follow; investors in IPOs who have a tight network and usually work with known players, and around 10,000+ ICO investors where everyone is a ‘crypto believer’ and already owns bitcoin or ether. In other words, although they might perhaps be younger and more ethnically diverse than the average angel or VC investor, the degree of homophily among ICO investors is actually extremely high.

While the pool of potential start up funders has indeed widened with the addition of ICO investors, sceptics might say that the technical barriers to investing in ICOs remain high. It is also hard to obtain actual data about the demographic make up of ICO investors. But reading between the lines this is a field that not many people at all – and that includes women – understand. Even then we would need to assume that those who do understand enough to want to invest have enough personal wealth to risk on a highly speculative form of investment. Since women tend to be slightly more risk-averse investors than men, the opportunity to invest in token sales is realistically still largely reserved for a new type of crypto-elite rather than (or in addition to) the Silicon Valley elites of the recent past.
As mainstream adoption of cryptocurrencies widens and understanding of the technology increases, that balance could certainly change – and such a change would be beneficial – but for now the democratisation of investing still continues to be more of a pipedream than a reality.

Helen Disney is the Founder and CEO of Unblocked Events, a hub for Blockchain events, information and commentary.

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Founder, Unblocked. Innovate Finance Women in Fintech Power List, 2016. Advisory Board, British Blockchain Association.

*Member, Innovate Finance, Women in Fintech Power List 2016*
Founder of Unblocked, a hub for Blockchain events, education and information.