07 Jan Security Token Offering Guide for Startup Entrepreneurs
Security Token Offerings (STOs) will rule 2019 as a fundraising solution, and this STO guide for entrepreneurs describes the exact steps required to launch an STO. Analysts predict that STOs will take gain ground for fundraising in 2019, so now is the best time to start one.
The prediction follows the significant decrease in ICO funds raised, from $17.5 billion in the first semester of 2018 to $4 billion in the second one, and the Bitcoin’s drop in value from appx. US $17,000 to US$3,500.
If you’re planning an STO to finance your own startup, this STO guide for entrepreneurs will take care of whatteach you everything you need to know to succeed. STOs aim to ease fundraising and make investments safer by utilizing security tokens that simplify securitization and trading of real-world assets and securities
Just keep in mind that, in order to actually raise the funds you need, besides launching your STO, you will also need to market it. We will guide you through both processes in the following lines.
STO Guide for Entrepreneurs: The Steps to Launching an STO
1. Understand Regulations and Legal Requirements
Every startup launching an STO needs to understand and comply with the regulations and security laws in the country of launching. If you are launching your STO in the U.S. or targeting U.S. investors, the following requirements are the most important:
- Securities Act of 1933 – Depending on your startup specifics, you may have to register with SEC and follow their regulations. The purpose of the registration requirement is to guarantee investor access to your financial and securities information and to prevent fraud attempts.
- Regulation D – It provides an exemption to the registration requirements mentioned above. According to Section 506C, entrepreneurs launching an STO can sell their security tokens to accredited U.S. investors (institutions or individuals with minimum $1 million net worth) on the condition that they verify the accuracy of the information their investors provide in their solicitations and they fill in “form D” after selling their security tokens.
- Regulation A+ – STO creators can offer SEC-approved security tokens to non-accredited non-U.S. investors through general solicitations for investments of up to $50 million.
- Regulation S – This regulation applies to STOs launched in other countries than the U.S. It stipulates that, although these STO creators do not have to comply with the registration requirements of the Securities Act of 1933 section 5, they do have to comply with the regulations and laws in force in their country.
2. Identify Your Target Customers
The location and the accreditation status of the investors you target determine the regulations you need to comply with and the procedures you need to follow. They may also influence other decisions, like your currency options and token value, STO caps, and other aspects discussed in the following lines.
3. Choose Your Security Token Platform
Security token platforms are regulated crypto platforms that enable their users to create security tokens in compliance with KYC/AML requirements and the securities laws in force in their area.
Since there are only small differences between the steps you need to follow according to your platform of choice, we will describe the steps required to launch an STO with Polymath.
4. Fund Your MetaMask Ethereum Wallet
In order to create your security token with Polymath, you will need a MetaMask Ethereum wallet with some funds in it. You will be able to access your wallet through your internet browser.
5. Create Your Security Token and Your Offering
Polymath displays a video of the entire token creation process on their homepage. Here is what you have to do:
- Create your Polymath account – Fill in your name and email address, accept Polymath’s conditions, and link the account with your MetaMask wallet.
- Choose and reserve your token symbol – Choose a name and a symbol for your token and reserve them to make sure no one else will use them. Your token symbol will be reserved for 15 days to allow you time to consult with your advisors. Once you confirm your choice, the information is sent to the blockchain, becoming immutable. You will receive your token creation and reservation payment information by email, to the address you used to create your account.
- Choose your providers – Polymath lets you choose partners or service providers from their database to help you during your STO campaign. They fall into four major categories: Advisory, Legal, KYC/AML, and Marketing. You will receive copies of the automatic emails the platform sends on your behalf.
- Create your token – Before you can complete your token creation process, you have to confirm that the providersadvisors you chose at the previous step have provided you with sufficient information. You will also get a chance to add details like your startup details and link to the website dedicated to your STO campaign.
- Set up your STO details – Once your token is created, you can set up the details of your offering: period, currency, cap (maximum number of tokens), rate (token value), etc. Once all details are set, you can confirm and launch your STO.
- Whitelist investors – The final step of setting up and launching your STO offer refers to creating a list of potential investors. You will basically choose the countries from which you accept investors. It is best to create the whitelist with the help of your above-chosen providers. You can update it during your STO, if necessary.
At this point, you should already know how to create your security token and launch your STO. However, keep in mind that your STO launch alone does not guarantee that you will succeed to raise the funds you need for your startup.
In order for your campaign to be successful, you need to let potential investors know about it and convince them that your offer is worth their time and money. We will provide a few marketing tips in the following lines.
Three STO Marketing Tips: How to Ensure Your STO’s Success
1. Know Your Audience
Your STO can appeal to investors from both cryptocurrency and finances markets, so don’t hesitate to target both categories. It is important to emphasize the benefits both investor categories look for in an investment opportunity, and to choose your channels, methods, and materials accordingly.
2. Choose Trustworthy Exchange Partners
In order for your tokens to remain KYC/AML compliant throughout their lifecycle, their trading needs to take place on platforms registered as securities brokers with SEC in the US or other necessary steps taken care of if outside of the US. Your partners’ reputation impacts yours, so do your research on potential partners and choose the most reliable ones.
3. Network and Educate to Build Trust
Before you can ask anyone to invest in your startup, you have to give them a chance to get to know you and your projects better. Attend crypto-events, become an active member of your community, ensure transparency, and educate potential investors on both your activitiesy and the benefits of buying your security tokens.
As this STO guide for entrepreneurs shows, securing the funding your startup needs through a security token offering is not that difficult, especially not in these market conditions. To increase your chances, even more, take your time in following the above-described steps, study the applicable rules and regulations, think long-term, and do not neglect the importance of marketing.
Now, bookmark or share our STO guide on your social media page to make sure you are able to return to it when you need it and leave a comment with any questions or suggestions you may have!