How distributed ledger technologies transform capital markets and impact venture capital: A conceptual model

Abstract

Introduction: While existing literature suggests that distributed ledger technologies will significantly transform capital markets, research has not yet examined how resulting changes in capital market conditions affect venture capital. Thus, this paper addresses this gap by analyzing the impact of distributed ledger technologies in capital markets on venture capital. Methods: The paper begins with an overview of the theoretical foundations of distributed ledger technologies, capital markets, and venture capital. Additionally, the paper also conducts a specific review on literature connecting these research domains. Building on that, a theoretically grounded conceptual model as described by Jaakkola (2020) is developed. Results: The conceptual model developed proposes a framework that explains the key mechanisms linking distributed ledger technology usage in capital markets to venture capital. It also identifies contradictory mechanisms, core interdependencies, and both mediating and moderating factors shaping the internal relationships between the key constructs. Discussion: While changes in capital market processes, enhanced accessibility and increased liquidity will directly influence the attractiveness for venture capital in a primarily positive way, systemic risk will indirectly influence venture capitalists and have both positive and negative effects. We also derive some propositions for further investigation and provide valuable insights as well as theoretical and practical implications for researchers, entrepreneurs and investors. Conclusion: The findings of our research are both significant and novel. The framework developed represents the first systematic interconnection between distributed ledger technologies, capital markets and venture capital, and lays the foundation for further research.