Blockchain Entrepreneurial Finance: investor behavior and contributions to startup success

This thesis examines different types of investors across the evolution of entrepreneurial finance in the blockchain sector, focusing on investors’ behaviors and their contributions to the success of blockchain startups. The structure of capital inflows into blockchain ventures has undergone significant changes over time. While early blockchain financing resembled a decentralized form of crowdfunding, dominated by retail participation, more recent funding has increasingly been provided by institutional investors. Retail and institutional investors exhibit different motives, are attracted by different factors, and bring different values to new venture firms. This study systematically unpacks these dimensions to provide a comprehensive understanding of blockchain investors. Firstly, the results indicate that retail unsophisticated investors are strongly influenced by costless signals conveyed through the linguistic characteristics of new ventures’ disclosures; however, this effect does not necessarily extend to professional investors. Language that promotes radical innovation successfully arouses the novelty advocacy among retail investors, thereby generating greater attention to initial coin offering (ICO) campaigns that employ such a linguistic style. In contrast, although most ICOs are conducted at the early stage of business development, an excessive focus on future orientation is counterproductive, reducing project attractiveness during the crowdsale and being associated with higher token volatility in the first month after listing. Secondly, this study highlights the important role of professional investors. Their presence signals a project’s quality to the public. Moreover, owing to their superior screening capabilities and post-investment monitoring and coaching, blockchain projects backed by institutional investors demonstrate stronger financial and operating performance. Conditional on institutional participation, projects supported by more experienced and network-central investors achieve even greater outperformance. Finally, by delving into partner selection within funding rounds, this thesis shows that professional investors financing blockchain startups and those in traditional entrepreneurial finance follow the same underlying mechanisms when choosing partners, considering factors such as prior co- investments, as well as, geographical, industrial, and investment-style proximity.