Without Regulation ICOs Unlikely to Disrupt Venture Capital According to OECD

The organization concluded that ICOs can't be properly harnessed until there is regulatory consensus internationally and it is unlikely to replace venture capital for mainstream seed financing.

Keeping issuers accountable, properly structuring token economics, and evolving definitions for "Utility" and "Security" token have stunted many companies post-ICO. In extreme cases, the Securities Exchange Commission has even compelled companies that have conducted ICOs to return funds to investors via recision.

The policy group asserts that "Private sales of tokens ahead of ICOs raise a number of issues," and "Not having 'skin-in-the-game' is a source of potential conflicts."

"IPOs follow series A-D financing or are used as an exit after venture capital funding, while ICOs look for seed/early stage financing, similar to seed financing."

Unlike ICOs, venture capitalists can meet with startups, get acquainted with the founding team, and then decide whether to provide funding.

"Academic research suggests that ICOs are preferred for projects with a high risk of failure and right-skewed payoff distribution, given that in case of some retention of ICO proceeds by the entrepreneur, the payoff for the entrepreneur is positive even when the project fails."

Establishing a clear alignment of interest between token holders and founders is one of the largest impediments to ICOs succeeding.

As the report claims, the OECD anticipates that the only way to harness ICOs is through international regulatory consensus.

The FMA, the financial authority in Austria, suggested that ICOs require a license to help protect investors.

ICOs were once lauded as a potential way to disrupt VC financing.