OUR 10 STAGE PLAN TO YOUR SECURITY TOKEN ISSUANCE
Security tokens represent the next generation of liquidity for assets such as real estate, equities, bonds, funds, companies, IP, copyrights, artwork. By digitising these assets into tokens, pieces can be sold , traded and their ownership opportunities shared.
Traditional asset classes suffer from being illiquid in many cases, relying on a large network of participants to facilitate changes in ownership. This creates layers of friction which increases cost and slows down the efficient transfer of assets. Fractional ownership is not possible with most traditional asset classes.
Advancements in blockchain technology means it is now possible to create a digital version of an asset, tokenise the value of that asset and sell tokens in that asset. Smart contracts representing how the tokens behave are immutable and ensure that token terms are upheld without any human interface.
We provides a fully bespoke, end to end security token issuance service. We have identified the following 10 key stages to a successful security token issuance. Each stage is critical to ensure that your offering is both compelling to investors and meets the requirements of the established and evolving regulatory landscape.
1. UNDERSTAND AND DEVELOP YOUR IDEA
We will work with you to understand your security token project and how a blockchain based solution can be developed. Within this initial phase we will be able to assist with creating an investor deck for your proposal using this as the basis for offering documents created later on. The investor deck should be concise in that it needs to define the investment opportunity, how the opportunity is enhanced by the use of the blockchain and the team to deliver it. Our goal is to create an investor deck that delivers a clear message and a commercial opportunity that is compelling to potential investors.
2. DETERMINE YOUR INVESTOR BASE
It will be essential to understand if your project is seeking a purely private sale of security tokens or a combination of private and public sale. These are very different types of investor and have to be approached in specific ways. A private sale may be suitable for a security token project that is being brought by an existing and well-defined business model, i.e. a real estate investment trust or a hedge fund, which may have an existing investor base. The challenge here will be to understand how much (if any) of this current investor base could be marketed to in terms of your security token project. The goal will be to bring both traditional fiat based investors and crypto investors into your project. Once the investor base has been defined, legal counsel will be able to suggest the most appropriate offering structure within the next stage.
3. DETERMINE THE CORPORATE/LEGAL STRUCTURE
This will involve working with specialist blockchain lawyers who will analyse the first two points, draw heavily on the investor deck and identified investor base, look at the existing corporate structure and determine how best to structure the security token offering. In most cases this will involve a special purpose vehicle (SPV) entity being created to manage the issuance. The lawyers will also look at where the most suitable jurisdiction is for the SPV and any additional operating entity for the security token project itself. They want to ensure that the issuance is fully compliant from a regulatory perspective and with respect to the jurisdictions in which tokens themselves are marketed and sold to investors. The lawyers will prepare an initial analysis detailing all of these points for consideration over the next stages.
4. DETERMINE THE TECHNICAL CHARACTERISTICS
By this stage the technical characteristics of the security token itself can be determined. Once again, we will draw heavily on the investor deck that has already outlined the opportunity to investors. We will agree on the exact terms of the offering and how the tokens will function, how the sale will be structured, the security token pricing and allocation model, contribution caps, time limits and fees to investment managers. In addition, we will seek to understand the post sale liquidity mechanisms, exchange listing, secondary trading opportunities for investors, on going KYC and token holder vetting to ensure strict regulatory compliance and token ownership across and within jurisdictions.
5. DRAFT OFFERING DOCUMENTS
Again, working with specialist blockchain lawyers, they will collate all of the information gathered to this point as the basis for a set of detailed offering documents. As with any documents of this nature, they will set out clearly the nature of the investment opportunity in detail, present the terms and technical characteristics of the offering, the proposed corporate structure, the team and their backgrounds along with any financial performance from the existing business or portfolio. In addition, they will work up a detailed analysis of the risks of making an investment in the project. They will ensure all offering documents are legally compliant paying close attention to any jurisdictional regulatory requirements. A private sale can rely on much less in terms of offering documents, typically a private placement memorandum will suffice. A public sale will require much more detail and thus an offering prospectus would be required.
6. TOKEN PRIVATE SALE/PRE SALE
There may be an opportunity to capture larger, early investors from both the fiat and crypto investment communities. We will work with you to determine who these investors are, help you present the opportunity to them and work out suitable pricing mechanisms to create investor incentives. Marketing to these investors is generally on a one on one basis or via an invite. We will seek to leverage on both your current investor base, who may be intrigued by the opportunity, and large crypto investors who may be looking for alternative investment opportunities within the blockchain space.
7. TOKEN DESIGN, BUILD AND AUDIT
The token design and build takes its lead from many of the technical characteristics set out in point four and contained within the offering documents. Smart contracts will be programmed to automate much of the functioning of the security tokens. This may include mechanisms to automate the distribution of dividends or profits to investors, offer voting opportunities and pass fees back to investment managers. Once created, the code behind the tokens will be independently audited so that we can ensure it is able to perform as required. In addition, digital wallets for all parties involved in the transaction will be created supporting the required KYC/AML plug ins for investor on boarding.
8. MARKETING/PUBLIC SALE
With such an innovative investment opportunity, the marketing needs to be equally as innovative as the sale is seeking to attract a range of investor types. The marketing will be driven by jurisdictional regulatory requirements in that we will need to be aware who we are able to market your opportunity to. This will have been established during the legal analysis much earlier on. A tokenised security will need to ensure it meets the regulations with respect to how it is offered. We will discuss with you how best to optimise various marketing channels and how these need to ensure the offering stays compliant in terms of the rules around soliciting investment. If the capital raise has been achieved via either a private or pre sale, the public sale will not take affect.
9. TOKEN/FUNDS DISTRIBUTION
Once the minimum raise has been reached and/or the duration of the raise completed, tokens will be distributed to either the private sale, pre sale and/or public sale participants. KYC/AML permissions plus any jurisdictional requirements of investors will determine their investment being completed. Any investors not meeting these requirements will not be permitted to invest and will have their funds returned to them. These are strict requirements to ensure that the token sale meets the regulatory standards set out in individual jurisdictions. At this stage, successfully invested funds will move from escrow (for fiat payments) or cold wallet storage (for crypto payments) to the token issuer.
10. TOKEN LIFE-CYCLE MANAGEMENT
This is effectively the management of the security token life-cycle, post sale and distribution. Whilst the expectation is that much of this process can be automated via smart contracts, it is expected that any corporate actions relating to the on going performance of the tokens themselves, on going investor community engagement and any other significant events likely to affect the tokens, i.e. exchange listings, regulatory audits etc, will be coordinated by the manager of the issuance.
Tokenport provides a bespoke, end to end security token issuance service. If you are interested in discussing how we can help you with your security token project, please get in touch. Drop us an email at email@example.com or check out our website www.tokenport.io for further information on how we can help you.