Tech startup Tezos raised $232 million in July through an “initial coin offering”; Spending $50 million on venture investing, rest being put into stocks, bonds, and precious metals; An unusual use of funds from a tech business, likely to fuel criticism of ICO sector.

LONDON – Early-stage tech companies are enjoying a funding boom in 2017, raising over $1 billion so far this year through so-called Initial Coin Offerings.

ICOs involve selling newly created digital currencies online. This new method of fundraising was pioneered by Ethereum in 2014 and has caught on with investors and startups this year after a big rally for Ethereum’s Ether currency.

One startup that plumped for an ICO is Tezos. It raised $232 million selling “tezzies” back in July, the biggest ever ICO at the time.

Tezos is building a database-like platform for banks and other corporates to use to write “smart contracts” on. It uses blockchain technology, originally developed to underpin bitcoin, and competes with other platforms like Ethereum and Bancor. Tezos has been in development since 2014 and is the brainchild of husband and wife team Arthur and Kathleen Breitman, former Morgan Stanley and Accenture workers respectively.

What has the company been doing with its huge pile of cash since raising it? Investing it, apparently.

Crowdfund Insider reports that Tezos is committing $50 million to venture capital investing, backing companies that are building on its platform. As for the rest of its cash, it’s investing it in “things like stocks, bonds and precious metals,” according to the report.

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This is all pretty unusual.

Firstly, tech companies don’t often double up as venture capital offices – it’s not their area of expertise. Those that do have venture capital arms – Salesforce or Google, for example – tend to be Goliaths who are making enough spare cash to justify it, not early stage ventures.

Foto: Tezos’s website.sourceTezos

Investing in companies that use its platform is also pretty close to paying people to use its product – never a good look. Tezos would no doubt argue that it is simply seeding the beginning of a rich tech ecosystem but one VC described it to me as like a tarmac company investing in car manufacturers to drum up business for roads.

Investing in stocks, bonds, and precious metals is relatively unusual too. Companies usually raise money to build products, launch new markets, and generally fund expansion. Traditional investment institutions would get skittish if their money was put into stocks or bonds – the investment will be part of a diversified portfolio that would most likely already contain stocks and bonds, so a startup would be undercutting the funder’s logic and risk management.

Tezos say putting its cash into stocks, bonds, and precious metals “will ensure that our organization is resilient in good times, and bad times,” Crowdfund Insider says.

However, it’s bound to fuel the debate around whether ICOs are a good idea or not. Critics believe that many of the businesses raising money in this way are extremely high-risk, meaning investors could lose big. They also believe that a lot of these businesses are just raising as much money as they can, rather than enough to pay for a costed and well-planned business proposition.

As David Rutter, a Wall Street veteran who now runs fintech company R3CEV, told Business Insider earlier this year: “Many of them are based on powerpoint decks and not a lot more, not fundamentally sound business plans.”

An ICO can be set up in as little as an hour and many startups are raising millions with little more than a white paper – a document outlining their idea.

Rutter said: “Of course you would, if you can go and make $10 million or $15 million or $20 million on an ICO in a matter of hours, based on a really well put together powerpoint – if you think that’s good for the economy and the world and young entrepreneurs, that’s fine. I don’t.”

While Tezos’ investment activities are relatively unusual, they’re actually pretty vanilla compared to ideas it floated ahead of its fundraising. Tezos said in a document ahead of its fundraising that if it raised more than $20 million its “Mars-shot” idea – a far-out plan that would likely not come to much – was to: “Negotiate with a small nation-state the recognition of Tezos as one of their official state currencies, which would immediately give Tezos favorable treatment in terms of financial regulation. Attempt negotiations to purchase or lease sovereign land.”

Compared to establishing the great nation of Tezosistan, investing in stocks and bonds looks pretty tame.