Separating Quality Signals from Noise in ICO Whitepapers for Financing of Entrepreneurial Projects

The whitepaper is a document that works as a pitch by conveying the key characteristics of an entrepreneurial project in an Initial Coin Offering (ICO), a new diversified fundraising method for blockchain start-ups (Albrecht et al., 2020). It describes the business idea and sets the roadmap for critical milestones while providing the issuers with a quick medium to raise capital by selling digital tokens (Debler, 2018). As such, it can be seen as a comprehensive guide for prospective investors as well as a strategic tool for entrepreneurs to solicit their interest and generate entrepreneurial finance. However, due to a lack of regulatory requirements like the ones in place for the prospectus in IPO settings, entrepreneurs can easily manipulate prospective investor decisions through unverified disclosures (Andrieu and Sannajust, 2023), an aspect that raises concerns about false quality signals and the risk of investor exploitation in an environment massively affected by information asymmetries (Stiglitz, 2002). We analyse 139 projects to explore this issue and provide recommendations.