Are token offerings alternatives to venture funding?

TL;DR: Asset-backed and utility token offerings provide modern alternatives to venture funding for tech startups, offering innovative ways to raise capital, expand investor access, and maintain founder control, though they present unique risks and regulatory considerations.

What Are Asset-Backed and Utility Token Offerings?

Asset-backed token offerings (ABTs) and utility token offerings are fundraising mechanisms where startups issue blockchain-based tokens to investors. ABTs are digital tokens backed by tangible or financial assets like real estate or patents, allowing fractional ownership and tradability [Deloitte; BlockchainHub]. Utility tokens, in contrast, serve as digital coupons that provide future access to a startup's product or platform and are not backed by assets [Cointelegraph].

How Do These Offerings Work?

Tech startups create smart contracts on blockchain platforms such as Ethereum to launch Initial Coin Offerings (ICOs) or Security Token Offerings (STOs), allowing global investors to purchase tokens in exchange for capital. Unlike traditional venture capital (VC), which targets accredited investors, token offerings can increase liquidity and democratize early-stage funding by letting more people participate [Forbes][McKinsey].

How Do Token Offerings Differ from Venture Capital?

Venture capital requires negotiations for equity, board control, and ownership, and typically restricts participation to institutional or accredited investors. Asset-backed and utility token offerings let startups avoid dilution and maintain more control. In 2024, tech startups globally raised $1.4 billion via token sales versus a relative decline in traditional VC for early-stage deals [CB Insights].

What Are the Key Benefits?

• Liquidity: Asset-backed tokens can be traded on secondary markets, offering quicker liquidity for investors.
• Global Reach: Anyone with an internet connection may participate, expanding the investor base beyond geographic borders [Deloitte].
• Efficiency and Automation: Smart contracts automate token issuance and exchanges, lowering administrative costs [BlockchainHub].
• Fractionalization: Traditional illiquid assets (e.g., real estate or IP) become accessible to small investors.

What Are the Main Risks and Regulatory Issues?

Are These Offerings Regulated?

The regulatory environment for token offerings is evolving. In the U.S., the SEC clarified in 2025 that tokens used strictly as tools or within digital ecosystems may not be treated as securities, but each offering must be closely evaluated [SEC][Brookings]. Jurisdictions vary sharply, and compliance is vital to avoid enforcement actions.

What Are the Major Risks?

• Project Risk: Utility tokens are often as risky as the underlying project; if it fails, the token can become worthless [Cointelegraph].
• Regulatory Uncertainty: Rules for token offerings shift often; a compliant offering today could be noncompliant tomorrow [SEC].
• Token Liquidity and Value Risk: Some tokens may not find a secondary market or support sustainable demand, resulting in losses for holders [Forbes].

What Are Some Recent Examples and Trends?

Global tech startups are using token offerings for a variety of business models, especially in Web3. Notable past examples include Ethereum’s 2014 ICO, while recent years saw marketplaces and prediction platforms like Polymarket and Augur gain traction in the asset-backed space [CB Insights][Crunchbase News]. Research from Hong Kong and European universities highlights that token fundraising continues to evolve as a mainstream alternative for early-stage tech commercialization [ScienceDirect].

How Should Startups Assess Whether Token Offerings Are Right for Them?

What Does the Research Say?

Harvard Business School research provides frameworks for startups to assess which funding models match their business goals, regulatory tolerance, and target market [Harvard Business School]. For instance, asset-backed tokens are useful for capital-intensive tech (like hardware or IP) while utility tokens work well for network or SaaS models.

What Do Industry Experts Advise?

Experts recommend startups consult legal counsel before launching any token sale, to navigate often-ambiguous regulatory environments and to consider long-term implications for governance, token economics, and investor relations [Brookings][Deloitte].

Conclusion

Asset-backed and utility token offerings have established themselves as important, modern alternatives to venture capital, helping tech startups access global capital, improve asset liquidity, and preserve founder control. However, they require rigorous planning, compatibility with regulatory guidelines, and strong investor protections to succeed amidst evolving market conditions.