The Summer of ICOs: VC Implications
Jeff Bussgang

Solid article. Agree with you and Jonty Kelt on the conflict between token holders and equity holders.

Could almost be like owning a minority interest in a football team but having no power to get any liquidity or dividends. If the platform/network powered by the token grows it will allow the tokens to retain or grow in value. The value of the entity will thereby increase but between the use of corporate ownership of tokens to fund operating expenses plus personal ownership of tokens to provide personal liquidity, it will reduce any imperative to improve or make the equity liquid in any real form.

It will be interesting to see the clauses that arise in funding documents that allow for add-on rights to token sale or possibly even buy backs of equity from token pools.

A couple things not addressed here are front forwarding of corporate entity creation and tax treatment of token sales. Any US company doing a token sale almost has to create an offshore entity (caymens, estonia, etc.) to hold and disburse the tokens and run the sale. Almost unheard for a seed/pre-seed company to have to do so.

Similarly, how one records the proceeds from the token sales on the books and what the tax treatment is is fascinating. If it’s not a security then it’s not capital. Is is deferred revenue? If so, when does it get recognized. Oh my.

Nice stuff. Thank you again.

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