The value of a SMILE in public fundraising: Evidence from ICOs

• ICOs with trustworthy-looking teams attract significantly more funding. • Facial trustworthiness is unrelated to post-ICO performance, revealing biases. • Individual investors are more prone to biases than institutional investors. • The results highlight the need for regulations in unregulated fundraising markets. Investor protection regulations, such as the Securities and Exchange Commission’s prohibition on general solicitation, aim to prevent individual investors from being misled by marketing. However, their impact on investor behavior remains unclear. This study examines the Initial Coin Offering (ICO) market, an unregulated setting in which issuers freely advertise projects without standardized disclosures. In the absence of reliable financial information, investors may rely on alternative cues, such as ICO team members’ perceived facial trustworthiness. Using machine learning–based proxies, such as smiling, this study finds that ICOs with more trustworthy-looking teams attract significantly more funding. However, this perceived trustworthiness is unrelated to post-ICO performance, suggesting a behavioral bias in investment decisions. The effect is stronger among individual investors and for ICOs in low-trust countries. Together, these findings highlight systematic biases in investor decision-making and underscore the importance of regulations in protecting investors in unregulated markets.