US venture capital firms lining up for a slice of the burgeoning digital currency market are grappling with a novel challenge - some of the hottest tech start-ups that sell the coins just do not need their money.
Only a few years ago, digital currency entrepreneurs, like other Silicon Valley peers, had to line up to pitch their ideas to venture capitalists, who controlled their destiny as virtually the only source of funding.
So-called initial coin offerings (ICOs), where new tech companies using blockchain technology can raise millions quickly by creating and selling digital "tokens", with no regulatory oversight, have turned traditional relationships upside down.
Blockchain, a public online ledger of transactions, gained prominence as a technology that underpinned the first digital currency, bitcoin.
"The day when VCs were the elusive elite and primary source of capital for start-ups has ended," said Jamie Burke, the founder and chief executive of the VC firm Outlier Ventures, which specialises in blockchain and other technology investments.
"When a start-up can raise US$35 million in 30 seconds without any dilution, the genie is out of the bottle and it isn't going back in," he said, referring to Brave, an open source Web browser that blocks ads and trackers, which sold its Basic Attention Token in June.
By mid-July, tech firms raised about $1.1 billion in 89 coin sales this year, about 10 times more than that in the whole of 2016, according to data compiled for Reuters by the crypto-currency research firm Smith + Crown.
Coin sales have already eclipsed funds blockchain firms received from venture capital, which invested over $300m in equity in the sector in the first half of this year, Coindesk data showed.
Still, the tokens' strong gains on dozens of online exchanges got venture capital firms' attention and several sought to get a slice of the offers in exclusive pre-sale deals, public sales or both. The prominent venture capitalists Tim Draper and the Blockchain Capital co-founder Brock Pierce said they have participated in coin offerings.
Many of these VC firms also take equity in the start-ups that issue the coins.
However, venture capital firms moving into the world of digital currencies face unprecedented pushback. Some issuers limit the size of pre-sale deals, making venture capital firms scramble like everybody else for sought-after public offers.
Mr Pierce said the old business model that gave venture capitalists and founders the lion's share of a company no longer worked with blockchain firms.
"Whether VCs like it or not, venture capital will become a very small part of capital formation," he said.
The reason is that firms issue tokens not only to raise money but also to attract a broad group of enthusiasts who can help develop their projects hoping to lift the value of their investments.
"Tokens can galvanise a community: lots of individuals and corporations are able to work together and improve a decentralized network," said Ryan Shea, the co-founder of the tech start-up Blockstack in New York.
Blockstack recently launched a new browser that will give users access to new applications on their own devices without remote servers.
For Blockstack's own token launch later this year, Mr Shea said the firm plans a combination of a crowdsale and so-called "mining", in which market participants solve complex mathematical problems to release a coin.
Reuters