Angels and Devils: The Early Crypto Entrepreneurs

After the collapse of FTX and a summer of crypto failures (Terra Luna, Celsius, Three Arrows), the Securities and Exchange Commission (SEC) will want to act quickly and treat more digital assets as “securities.”  But which ones?  In a new article, I attempt an answer by re-interpreting the Howey test for determining what is an “investment contract” and thus a security.

The first crypto entrepreneurs – such as Satoshi Nakamoto (Bitcoin) and Vitalik Buterin (Ethereum) – look like the angel investors who have long funded traditional startups.  They engage in “for-profit philanthropy,” investing financial capital in startups but also contributing … Read more

A Tokenized Future: Regulatory Lessons from Crowdfunding and Standard Form Contracts

Cryptocurrencies and other digital assets (“crypto”) are surging in popularity.  If cryptos are securities (“investment contracts” under the Howey test), they must be sold in accordance with the federal securities laws.  This likely requires registration with the Securities and Exchange Commission (SEC) and initial and ongoing public filings – the same arduous process that exists for public companies with centralized management teams rather than decentralized autonomous crypto networks.

For those cryptos found to be securities, there is a regulatory scheme in place, as ill-suited to the occasion as it may be.  For cryptos that are not securities, there is substantial … Read more

Corporate Venture Capital

Why are venture capitalists the winners in the startup funding game?  VCs have funded most of the big-name startups that now dominate the NASDAQ and, in a sense, have been the only game in town for high-growth startups needing millions to grow as private companies.  Entrepreneurial finance’s ancillary players – angel investors, venture lenders, and now crowdfunding investors – all depend on VCs to fund and advise startups as they grow and either exit via IPO or sale to a larger company.

But there is one player whose entry into this space can significantly alter that dynamic: the large corporation.  … Read more

Should Angel-Backed Start-ups Reject Venture Capital?

My new Essay Should Angel-Backed Start-ups Reject Venture Capital? challenges the conventional wisdom that venture capital is a necessary – and even desirable – source of financing for all start-ups.  In particular, this Essay argues that some start-ups that attract angel investors should stop there, rejecting proffers of venture capital that may follow. The Essay challenges the notion that venture capital is a necessary condition for start-up success, and argues the counterintuitive proposition that venture capital may actually be harmful to entrepreneurs and angel investors in some situations.

At the outset, I observe that angels are now able to fund … Read more

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Editor's Tweet: Professor Darian Ibrahim of Wisconsin Law discusses whether angel-backed start-ups should reject venture capital.