A Q&A on the process and legality of ICOs, and what they might mean for VCs
It wasn't very long ago that bitcoin felt nascent, laughable and small. Tweets: Brian Roemmele / @brianroemmele : ICOs have already began to find billions of dollars of investments in to these new investment tokens, bypassing VC and IPO markets. http://twitter.com/... Naval Ravikant / @naval : ICO heat because • Anyone can buy via blockchains, not banks. • Anon buyers secure claim via blockchains, not courts. • Immediate liquidity Jonathan Libov / @libovness : Facebook, Twitter, Google in 2006: Products in search of business models Today's ICO's: A business model in search of products
Context & Ripple Effects
This Q&A lands at the peak of the 2017 token boom, when 65 projects had already raised $522M in ICOs by mid-year according to Smith + Crown — money flowing to teams with no bank intermediaries, no court-enforced claims, and immediate liquidity for buyers. It follows the earlier argument from AVC that crypto-tokens enable new financing models for open protocols, with creators retaining tokens at launch instead of selling equity.
The piece matters because it addresses the audience ICOs most directly threaten: venture capitalists. As Naval Ravikant's framing in the article notes, blockchains substitute for banks and courts, which is exactly the infrastructure VCs sit between.
First-order effects
- Founders can now raise directly from anonymous global buyers with immediate liquidity, bypassing the VC term sheet and the IPO pipeline that previously gated access to public-scale capital.
- VCs face competition for deal flow at the earliest stage, since token buyers will fund projects — including pre-product ones, as Jonathan Libov observes — that would never clear an institutional diligence bar.
Second-order effects
- Funds adapt rather than resist: Lightspeed's Jeremy Liew and Blockchain's Peter Smith note early bitcoin millionaires diversifying into tokens are a major demand driver, pushing VCs toward participating in or advising token sales.
- The retail-open model proves unstable — by late 2018 many projects had shifted to private-sale ICOs restricted to accredited and strategic investors, re-importing the accredited-investor wall ICOs initially bypassed.
Third-order effects
- If the 1999-bubble analogy holds, a crash winnows speculators while leaving durable protocol-funding infrastructure behind — the same way the dot-com bust produced the next generation of platform companies.
- The endgame critics describe is a two-sided legitimacy problem: tokens let insiders distribute holdings to an enthusiastic public outside securities regulation, deepening the crypto legitimacy gap until regulators or market discipline force a reckoning.
The trend: Fundraising is unbundling from regulated intermediaries — banks, exchanges, and VCs — into token-based capital formation whose openness keeps collapsing back toward accredited investors.