A New Era of Entrepreneurial Finance? Venture Tokenization and Public Markets for Startups

Abstract

After initial coin offerings (ICOs), decentralized digital platforms (DDPs) decide whether to go public or remain private. We explore the implications of the public-versus-private decision for the growth and decentralization of DDPs. Employing a difference-in-differences framework, we find that public DDPs scale faster post-listing relative to matched private DDPs. An important driver behind public DDPs’ superior growth is a spillover effect of financial speculation on fundamental platform activity, especially when DDPs are undervalued, hastening network effects. The goingpublic decision also facilitates DDP decentralization, although this stems mostly from the left tail of the token ownership distribution, while blockholders largely remain in control. Exploring the trade-off between going public through token exchange listings and remaining private with the help of institutional investors, we find that crypto fund-endorsed token listings yield more platform growth than unendorsed listings, while crypto fund backings without listings create the least value. Overall, our study suggests that early-stage startups may economically benefit from tokenization and creating liquid markets for venture tokens.

Keywords: entrepreneurial finance, decentralized platforms, tokenization, blockchain technology

JEL Classification: G240, G320, K220, L260