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What is Security Token Offering, And when a business should consider use it?
maanirochild
Member Posts: 51 ✭
in Promotional
A Brief Recap on STOs:
Let’s just have a brief recap on what Security Tokens are before we go ahead.
I will briefly touch on securities, as Security Tokens qualify as legitimate securities in their own right.
In terms of finance, a security is a certification or some other financial instrument, that has an intrinsic monetary value.
These securities can then either be traded by exchanges, who will broker the transaction or, they can be traded directly from peer-to-peer.
These securities are then broken down into two subcategories, equity, and debt securities.
This is in effect, owning part of a company, without actually taking it into your possession.
Companies use these methods so that they can raise capital from investors, to fund other parts of the business, such as expansion plans.
In return for their investment, the financiers are normally offered to make their money back, and make a profit through means such as dividends, interest rates or a share on the company profits.
Security Tokens are in essence, cryptographic tokens that can pay the owner dividends, entitle them to a share of profits, pay them interest, or, they can be used to reinvest into other Security Tokens.
[b]When should A Business Consider an STO?[/b]
There are some key points to consider so that you can make sure you get good value for your STO.
Your company should only consider using an STO, if you are looking to generate a lot of capital and your company aligns with four of the following seven descriptions.
Currently turning over more than $10 Million annually: This is because, to run a successful funding round by using an STO, your business needs to generate the best valuation possible. The higher the turnover and profits of your business, the higher your company valuation will be. This will increase the amount of capital you can get for the percentages of your business.
Operating a global business: This is because, to maximize the potential of your STO, you must be able to market to a global audience, rather than being limited to being regional. This will help you to raise a lot more capital, a lot quicker.
You should be interested in a funding method that connects with your current base of customers. If you wish to issue an asset that is readily transferable, then it would be wise to consider using an STO, as these can be transferred relatively easily. You should also be a high growth company if you want to maximize the positive effects of carrying out an STO.
Furthermore, you should be willing to take a slight risk, in the sense that the regulatory position surrounding STOs can change in different places, at any time. This could potentially place your source of investment at risk. Especially, if countries with more spending power such as The United States, The United Kingdom, Germany, Russia, and South Korea, tighten their own regulations. This carries the risk of massive losses of the business. Thankfully, the risks of this happening to seem to be very slight, therefore everything should be okay.
Finally, you should be desiring greater liquidity in the assets of your stakeholders. This is because, as opposed to ICOs, which do not offer that much in this sense, STOs are an incredibly liquid investment.
If your company fits in with the majority of these descriptions, then your company would be incredibly likely to gain a lot of capital and support from your fundraising efforts.
However, if your company falls short of these points, it may be worth not jumping in at the deep end. This is because a failed attempt at launching using an STO, could have dire financial implications for your business. Especially, if the amount of capital raised, is lower than the amount of money used to set up the offering.
If you are still set on using an STO, then I recommend you check out
How to launch an STOGuide
it would be worth waiting until your business is at a point where it aligns with these descriptions a bit more closely. It will also give you more time to plan your offering.
Let’s just have a brief recap on what Security Tokens are before we go ahead.
I will briefly touch on securities, as Security Tokens qualify as legitimate securities in their own right.
In terms of finance, a security is a certification or some other financial instrument, that has an intrinsic monetary value.
These securities can then either be traded by exchanges, who will broker the transaction or, they can be traded directly from peer-to-peer.
These securities are then broken down into two subcategories, equity, and debt securities.
This is in effect, owning part of a company, without actually taking it into your possession.
Companies use these methods so that they can raise capital from investors, to fund other parts of the business, such as expansion plans.
In return for their investment, the financiers are normally offered to make their money back, and make a profit through means such as dividends, interest rates or a share on the company profits.
Security Tokens are in essence, cryptographic tokens that can pay the owner dividends, entitle them to a share of profits, pay them interest, or, they can be used to reinvest into other Security Tokens.
[b]When should A Business Consider an STO?[/b]
There are some key points to consider so that you can make sure you get good value for your STO.
Your company should only consider using an STO, if you are looking to generate a lot of capital and your company aligns with four of the following seven descriptions.
Currently turning over more than $10 Million annually: This is because, to run a successful funding round by using an STO, your business needs to generate the best valuation possible. The higher the turnover and profits of your business, the higher your company valuation will be. This will increase the amount of capital you can get for the percentages of your business.
Operating a global business: This is because, to maximize the potential of your STO, you must be able to market to a global audience, rather than being limited to being regional. This will help you to raise a lot more capital, a lot quicker.
You should be interested in a funding method that connects with your current base of customers. If you wish to issue an asset that is readily transferable, then it would be wise to consider using an STO, as these can be transferred relatively easily. You should also be a high growth company if you want to maximize the positive effects of carrying out an STO.
Furthermore, you should be willing to take a slight risk, in the sense that the regulatory position surrounding STOs can change in different places, at any time. This could potentially place your source of investment at risk. Especially, if countries with more spending power such as The United States, The United Kingdom, Germany, Russia, and South Korea, tighten their own regulations. This carries the risk of massive losses of the business. Thankfully, the risks of this happening to seem to be very slight, therefore everything should be okay.
Finally, you should be desiring greater liquidity in the assets of your stakeholders. This is because, as opposed to ICOs, which do not offer that much in this sense, STOs are an incredibly liquid investment.
If your company fits in with the majority of these descriptions, then your company would be incredibly likely to gain a lot of capital and support from your fundraising efforts.
However, if your company falls short of these points, it may be worth not jumping in at the deep end. This is because a failed attempt at launching using an STO, could have dire financial implications for your business. Especially, if the amount of capital raised, is lower than the amount of money used to set up the offering.
If you are still set on using an STO, then I recommend you check out
How to launch an STOGuide
it would be worth waiting until your business is at a point where it aligns with these descriptions a bit more closely. It will also give you more time to plan your offering.