Regulators are scrutinizing the new red-hot fundraising trend in which start-ups and blockchain companies bring in millions of dollars by issuing virtual tokens to investors in exchange for money.

But one Japanese billionaire investor thinks that, with time, the so-called initial coin offerings (ICOs) will become one of the "greatest major methods" for start-ups to raise funds in the future.

Taizo Son is a serial entrepreneur and CEO at Mistletoe, which is a venture capital firm that is also part accelerator and part incubator. Son is the younger brother of SoftBank founder and Japan's richest man Masayoshi Son.

He told CNBC at the sidelines of the Singapore Week of Innovation and Technology that ICOs are a new way for early-stage companies, and even some non-profit organizations, to get funded.

ICOs are "very good because they democratize venture financing for not only professionals like venture capitalists, but also individuals can participate in exciting projects from start-ups to support," Son said.

That method of fundraising has increasingly caught the attention of regulators. Earlier this month, China brought the cryptocurrency market to a halt by banning new ICOs as a way for companies to raise capital. Meanwhile, regulators in the United States, Japan and Singapore are studying potential oversight.

The way ICOs work is fairly straightforward: Companies create and issue digital tokens that can be used to pay for goods and services on their platform or can be stashed away as an investment. They put out whitepapers describing the platform, software or product they're trying to build, and then people buy those tokens using widely-accepted cryptocurrencies like bitcoin and ether.

Start-ups have raised more than a billion dollars this year in coin sales, and have surpassed early-stage VC funding. Some in the industry describe ICOs as uncontrolled experiments — they are necessary for innovation, but they need a lot of debugging to work properly.