The price of a bitcoin is 1,300 percent higher than it was a year ago. Entrepreneurs are harnessing the concept behind the currency. (Chris Ratcliffe/Bloomberg)

An earlier version of this story incorrectly stated TaxToken raised money in the past through initial coin offerings. As of Dec. 18, all of the company's financing had come through more traditional means that in one case granted additional revenue should a coin offering take place. The story has been updated.

Inexperienced entrepreneurs have long been at a disadvantage in the search for investment dollars, as many wealthy individuals brave enough to bet money on start-ups tend to favor seasoned business people.

But as new virtual currencies gain broader acceptance, a growing pool of start-ups are turning to "initial coin offerings," called ICOs, in lieu of traditional funding arrangements.

One group trying to use an ICO to launch a business is a group of current and former students at James Madison University in Harrisonburg, Va., who started a company called TaxToken. The company sells an electronic tax-filing platform based on the blockchain technology that underlies cryptocurrencies such as bitcoin.

Instead of courting venture capitalists through the usual channels, founder Nathan Nichols is offering investors virtual "tokens" that let them use the company's application, similar to online crowdfunding arrangements that proliferated for years before regulation put limits on their use.

People who purchase tokens don't get an equity stake in the company as in a traditional funding arrangement. Their ability to draw a profit from the arrangement depends on the perceived value of the token they are getting; any investor could profit if the token's value increases or lose money if its value drops. Founders such as Nichols appreciate ICOs because they can keep full ownership of the company and acquire potential customers from those buying the tokens.

"It's a more innovative and open environment to facilitate growth," says Nichols, a 22-year-old accounting student at James Madison.

Nichols says the firm has already raised more than $700,000. He says the young company initially raised $400,000 in a round that valued his business at $5 million, and another $300,000 at a $10 million valuation. An investor in the first round was granted additional revenue should a coin offering take place. The company has outlined plans to raise $50 million in a coin offering to hire top engineers and spend enough money on advertising to unseat established players like Intuit.

He has a long way to go: ­TaxToken employs just seven people, most of them fellow students at James Madison. It does not bring in any revenue yet. The company's only real asset may be three patents that protect its technology.

Even though it's not real investment capital — those buying the tokens do not gain a stake in the company — a $50 million funding round would dwarf some of the Washington area's best-funded technology outfits. The few start-ups that have raised that much money here — such as Leesburg-based cybersecurity company Phishme, which has raised $58 million from venture capitalists — did so after years of building a regular stream of revenue. The limited pool of start-ups that have managed to pull in more than $10 million in their first few years — like Herndon-based Expel, and Reston-based Sourcefire — were founded by seasoned entrepreneurs near the top of their fields.

Nichols and his colleagues are trying to capi­tal­ize on a recent frenzy in cryptocurrency investing. The advent of smartphone apps such as Coinbase means that people with no knowledge of bitcoin technology can buy the currencies with a few clicks, allowing speculation on the digital currency to go mainstream. On Friday afternoon, the price of a bitcoin stood at $10,782, up nearly 1,300 percent from where it was a year ago.

The currency's astonishing rise has sparked recent debate about whether the technology is a fad or something more durable. Governments around the world are beginning to take notice of the largely unregulated field.

Jonathan Aberman, a Virginia-based cybersecurity investor who runs a start-up accelerator called TandemNSI, says he expects ICOs to go away as the government takes more aggressive steps to regulate them.

"Securities rules exist to keep people from lying about the true nature of things," Aberman said. Initial coin offerings "are just a backdoor way to raise a lot of money without complying with those rules."

Indeed, some are worried that initial coin offerings could allow unscrupulous companies to victimize naive investors. Start-up investing is inherently risky because a large majority of start-ups fail.

"The problem is there's some grandmother out there that's going to lose 10,000 bucks," said Jim Hunt, a technology investor who teaches an investment class at Georgetown University's business school.

Dmitri Dain, a cryptocurrency expert who works as an ICO adviser with a Russia-based company called Blockchain Solutions Group, says he thinks ICOs are here to stay, even though he says the market is replete with "insidious individuals who just want to make quick money and run away."

"In any growing market there are excesses and bubbles," Dain said. "This market just experiences them much faster than we've ever seen. It can go from cold to hot in a couple of weeks or even hours."

For TaxToken's founders and investors, those wild price swings are a natural consequence of something so new, and part of its allure. Nichols started the company after investing his own money in bitcoin in the early days of the currency's rally, when buyers were mostly tech-savvy enthusiasts.

"A few months ago, nobody was following bitcoin except for its 'evangelists,' " Nichols said.

Now, as it gains notice, it's providing fuel to build his company.