Over the past years, the pace of digital innovation across various industries has increased tremendously. Advances in storage, networking, and computing power have produced an expanding array of nascent technologies and as a result, new business/financial models. So far some of these new digital models (think Amazon, eBay, Uber, and Airbnb) have revolutionised some sectors and even disintermediated traditional incumbents in various industries.
They have been able to remove friction from the value chain in their respective industries, and this has led to new innovative products and services that provide the consumer with increased purchasing power.
Data indicates that start-ups can increase revenue by 34% relying on digital-first strategies, with business organizations increasing revenue by 23% with new product and service offerings being the largest contributor to revenue growth across all enterprises. Notably, 30% of all companies interviewed by IDG say that new product and service offerings are pivotal to revenue growth for their organizations, followed by adding new capabilities inside the company and improving sales capacity to cross-sell and upsell. 22% believe that digital business strategies with the ability to increase product and service delivery speeds is contributing big-time to increased revenue.
A security token offering (STO) refers to the sale of tokens that can represent a company’s equity and thrives within a fully compliant trading ecosystem. It enables the ownership of token transference over blockchain technology so that tokens can be viewed as “digital assets.” Security token offerings create the high-demand for a system that allows functionalities and benefits that traditional stock market cannot provide.
This new digital strategy combines aspects of ICOs with IPOs to provide the seemingly perfect balance between gaining access to capital at a low-cost while remaining compliant with securities laws.This is achieved through security tokens which are essentially digital, liquid contracts for fractions of any asset that already has value (think a real estate property, a car, a painting, equity in a company, etc.).
This new way of fund-raising wants to “uberize” the venture capital model and improve the way start-ups and companies raise funds. There is no arguing that traditional finance institutions have a lot of middlemen involved and this simply increases the execution time and not to mention that transactions can be expensive thanks to the fees associated with the middlemen such as banks. Security tokens remove the need for middlemen which reduces the execution time and fees as smart contracts will be able to automate many of these processes that require middlemen. In fact, recent research by The Block shows that security tokens can help remedy a number of issues facing the stock market.
These are just some of the benefits associated with security tokens and that’s why various companies in all industries are planning to join the STO bandwagon or have already conducted STOs. This article, therefore, seeks to look at some of the marketing tips start-ups and companies can adopt so as to ensure they conduct a successful security token offering (STO).
Unlike Initial Coin Offerings (ICOs), security token offerings demands for a lot more from start-ups and companies. Conducting an STO goes beyond just having a flashy website as security-token purchasers expect to be able to perform due diligence. This means that your marketing strategy should allow them to do just that, by providing details such as an impressive team and a well-written, thoughtful whitepaper from start to finish.
Here’s a detailed look at some of the strategies you can adopt to gain credibility of security-token purchasers:
Companies and start-ups should know that in order to market a security token effectively they need to know who their target consumers are. STO is normally done over the internet and will involve a global audience, that is, accredited and non-U.S investors. Accredited investors are generally either institutions or individuals with a net worth of $1 million or higher. Therefore, for a successful security token offering, companies and start-ups will need to target the right income group.
The managing director of SharesPost, Rohit Kulkarni, claimed in a guest contribution to the Nasdaq blog, that security tokens represent a perfect mix of venture capital and utility tokens. Venture capital boasts: issue-investor alignment (with everyone incentivized to help the venture succeed); access to expert networks; KYC-AML compliance (which protects investors and companies from fraud and money-laundering); and regulatory oversight. Utility tokens, on the other hand, offer investor liquidity (quick access to cash via exchanges) and a dynamic investor community. Security tokens integrate all these benefits.
Therefore, a proper STO calls for a solid marketing strategy that will point out all the advantages associated with STOs and thus appeal to all type of investors. The right message will appeal to traditional investors as they will be able to respond to STOs’ increased liquidity and lowered administrative costs while feeling reassured by the presence of investor protections and real-world assets. On the other hand, the right message will also take into considerations the crypto-natives’ concerns who have first-hand knowledge of the whole cryptocurrency landscape. They understand very well that crypto fortunes can be made or lost quickly.
This type of investors, therefore, want to keep the benefits associated with blockchain and at the same time embrace the security of more traditional investment products. The implication here is that your marketing message should be able to capture all the concerns of both the finance native and crypto native investors. Make sure you leverage various platforms (think social media & Programmatic advertising, a user-friendly website/Landing page, PR & Media, etc.) when it comes to sharing your content and understand how to effectively make the best use of each platform.
When it comes to the security token offering landscape, trust is really paramount. Telegram’s ICO for instance, utilized Regulation D and raised almost $2 billion. Now, Regulation D allows a particular offering to avoid being registered by the SEC as long as “Form D” has been filled by the creators after the securities have been sold. The company or start-up which is offering this security may solicit offerings from investors in compliance with Section 506C.
And Section 506C normally requires verification that the investors are indeed accredited and the information which has been provided during the solicitation is “free from false or misleading statements.”
Telegram achieved this success because it worked hard on its marketing strategy. The company made sure that they participated heavily in the crypto world and also networked in the finance one, exploiting social connections among investors. The idea here is that companies and start-ups offering security tokens need to understand that you can’t get potential token-buyers to trust you overnight and hence they need to advocate for their product, in person whenever possible. This involves attending crypto events, meeting movers and shakers and participating in the crypto community.
Sections that should be covered when writing a whitepaper for STO include:
Even though the blockchain technology makes it easy to exchange fractional ownership of an illiquid asset such as a real estate investment or a private equity fund, tokens must remain compliant as they change hands. Therefore, this requires an ongoing KYC/AML process throughout the token’s lifecycle.
Additionally, companies and start-ups that choose to go the STO route should know that security tokens are not utility tokens and, therefore they require a unique infrastructure and a new approach. They need to know some of the existing technical security issuance platforms and these may include: Polymath, Harbor, Securitize, etc.
In today’s digital age, where enterprises and technological innovations are closely intertwined, security token offerings (STOs) can help create a whole new paradigm in the ecosystem. STOs represent a next-generation shift from the present fund-raising models; it renders many of the existing initial public offering and initial coin offering concepts and approaches obsolete and opens up a new world of opportunities.
ICOSERVICE’s comprehensive marketing methodology helps companies and start-ups get started on the right foot with their security token offering initiatives as they embark on this journey. ICOSERVICE comprises of experts with varying skills from technologists, to digital marketers, to legal players, to blockchain enthusiasts and therefore partnering with ICOSERVICE not only helps you with the marketing side of conducting a proper STO but also evaluating and implementing blockchain technologies in your business domains and deliver real value.