Overcoming the Novelty Discount: The Roles of Open-source Development in the Initial Coin Offerings

Extensive literature has indicated that investors are biased against novelty in the evaluations of new ventures. However, few studies have focused on identifying avenues to help entrepreneurs and innovators overcome this bias. In addition to confirming the existence of a bias against novelty in initial coin offerings, our research draws on signaling theory to suggest such bias can be mitigated by reducing the technological uncertainty. From an analysis of 1845 new ventures raising funds through initial coin offerings, we find that publishing open-source codes—and especially signaling the activeness, richness and popularity of the development process through the open-source repositories—can alleviate information asymmetry and technical uncertainty, helping dissolve or even reverse the bias against novelty.