Risks Facing VCs Planning to Invest in Cryptocurrencies

Some venture capital firms, including Bessemer Venture Partners and Union Square Ventures, are planning to invest in initial coin offerings, giving them direct exposure to cryptocurrencies after years of investing in startups operating in the sector. Making such investments would be risky and unorthodox for VCs.

ICOs are crowdfunding campaigns through which new ventures raise money selling digital tokens. Investors have poured hundreds of millions of dollars into tokens sold in ICOs by ventures like Bancor and Tezos in recent weeks, reflecting a bubble-like rally among cryptocurrencies. At the same time, there are signs the bubble may burst: Ethereum, one of the best known cryptocurrencies, rose 5,000% from Jan. 1 to its peak in mid-June but lost half its value in the past month.