What Is The Process For Raising Capital With A Security Token?

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A revolutionary way to raise capital while avoiding intermediaries and high costs is here: in the form of a security token offering (STO) Companies wishing to raise capital while avoiding intermediaries and high costs may opt for a security token offering (STO).

It’s similar to an initial coin offering (ICO), but the issuer acknowledges the token as a security. This is an incredibly unique opportunity: STOs enable companies to also raise capital for specific projects and allow investors fractional ownership, while raising more, losing less, and having the ability to compete with other companies on a limited number of options.

A security token is digital traditional security on the blockchain, backed by tangible assets, company revenue or profits. Ownership is verified via the blockchain using smart contracts. 

An STO enables a company to define a token’s rights and terms of ownership. 

Investors buy security tokens with the expectation of future returns and are protected under security laws. Companies offering STOs are subject to the registration and filing requirements of the U.S. Securities and Exchange Commission (SEC). Some of the regulations companies must comply with are Regulations A+, S, and D.

When choosing the STO path, it is crucial to make sure the company is under these regulations. INX is a company that adopted all the SEC standards and, in fact, worked closely with traditional regulators to tailor the new alternative capital raise. 

The Process of an STO

Companies seeking investments through traditional investors may face more challenges than those raising capital through an STO. Before the STO, companies need to define what they’re offering investors, the quantity of supply, price and underlying rights. 

Businesses can tokenize asset-based, debt-based, equity-based, fund-based and derivative-based tokens. Companies need to stipulate if token owners will have voting and information rights. They must also determine the revenue types owners will receive — dividend payments, profit sharing, debt token coupons or token buybacks.

It’s important that companies offering an STO establish a target market. Determining the targeted investors will guide companies on factors such as the investment criteria and the marketing strategy needed to attract such individuals or entities. When you know your target market is interested, you can assess potential and capitalize on a good marketing strategy that will help you reach your goal. 

A security token’s value is based on the number of tokens created and the value of the underlying asset represented. 

Companies must meet legal, governance and regulatory requirements for their own benefit, giving people confidence in the process itself.  Opting for an STO platform to conduct transactions means that companies need to ensure the platform can handle all the functions to issue tokens such as volume and checks.

Another consideration for companies is cross-border tax implications. To make the purchase attractive to investors, companies can offer token ownership in a tax-favorable territory. That could result in the growth of a capital asset and a future value increase on a secondary market.

A company makes a contract available to investors on the blockchain. The contract stipulates the terms and conditions for securities sold, represented by the tokens. Investors gain access to the contract once on the blockchain, and changes to the contract are reported. Companies can expect requests from potential buyers to make purchasing decisions available publicly.

With some STOs, companies make tokens available only to accredited investors. After establishing accreditation status, companies may offer tokens directly to investors without a broker-dealer. Because STOs offer fractional ownership, investors don’t need a large sum of money to partake.

Few companies deploy a pre-sale promotional campaign for a token to attract attention to the STO like INX does. The sale period usually lasts a day, but it can stretch to several weeks. Investors pay for the tokens as stipulated by the issuer — fiat or cryptocurrency. INX is a unique company that follows all these elements in a meticulous method, in addition to its commitment to follow all future regulations. 

Potential investors should do due diligence on the company offering the STO and may seek a business model that provides value over a significant period.

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.