Digital assets are attractive to many businesses because they break down geographical barriers and unlock new global investment opportunities. But even in this connected world, where there are no physical limits as to who can invest (unless you set them), location still needs careful consideration.
When it comes to digital fundraising methods like Security Token Offerings (STOs), companies think about where in the world their investors will come from. Most choose to put rules in place, so that only people in certain jurisdictions are eligible to participate.
Before you launch your first STO, look more closely at where your tech partner has put down roots. Here are some examples of how their location could make a huge difference to the speed and simplicity of your investment model…
One of the great advantages to using a company with a European base is the ease with which you can engage investors in multiple countries. Most financial services firms that are registered in an EU state can take advantage of an approach called passporting, which means you can do business with prospects in other EU countries with minimal interference.
Attracting investors from across the EU is set to get even easier this year too, as new legislation is being introduced that will reduce the paperwork (and the associated costs) that SMEs require to issue securities. Under the directive, the threshold for producing a prospectus when launching a digital asset offer will be raised to 8 million Euros. You can read more about the upcoming changes in this article.
But while Europe as a whole offers greater international flexibility than some other parts of the world, there are particular countries that are better set up to support STO legislation – and they are not always the obvious choices. In fact, smaller regions are often better adapted to helping businesses launch quicker, cheaper digital fundraising offers.
The forerunner in the European STO movement is Liechtenstein, where the government has already launched a dedicated Blockchain Act to regulate digital asset transactions. This means technology providers operating out of this country have a defined framework of processes in place, so STOs can move forward in a few short weeks – not the months (or even years) it can take to launch an IPO or private fundraising offer.
Own is one such company using Liechtenstein as our European headquarters, and we recently formed an STO Alliance with four other Liechtenstein service providers to provide quicker, cheaper fundraising opportunities to ambitious businesses. This interview with ICO blog explains more about our decision.
Rest of the world
While launching an offer in one European country can open doors to many others, there are still companies setting their sights further afield. The challenge with looking at other parts of the world, however, is that each country tends to be regulated by a separate governing body, without the flexibility that passporting offers.
For example, many businesses want to break into North America, which offers huge investor potential. However, companies need to be registered with the Securities & Exchange Commission (SEC) in order to launch an offer. This organisation was established to protect investors’ rights, and the USA was one of the first countries in the world to set up a dedicated body to oversee security legislation.
But while it might feel like North America is heavily regulated, there are a number of exceptions that make it easier for firms to infiltrate the market. For instance, under Regulation A+ of SEC guidelines, issuers can raise up to $20 million without having to pre-empt state securities registration laws. Additionally, under Regulation S, any STOs completed entirely outside the USA to non-US residents are exempt from SEC registration.
As with Europe, this is where a technology provider that understands the ins and outs of the market will offer the best support. Own has an international partner network helping businesses launch and manage digital asset offers, and we recently launched a collaboration with Hamersley in the USA.
It’s good to talk
Ultimately, STOs exist to offer a simpler, easier way to raise capital, and quizzing technology providers on their office network can feel like adding an unnecessary step into the mix. However, it’s a great opportunity to test their market knowledge, and ensure they can set realistic expectations about how straightforward it will be to launch your offer – and the timescales involved making it live.
A good tech partner will always have a reason for setting up in a particular location and should be able to explain to you the rationale behind their choices. Having a simple conversation like this up-front could make a significant difference in your choice of STO platform, influencing not only the success of your initial offer, but future fundraising as well.
For more advice on choosing the right technology provider, download our free ebook: 8 things to consider before launching an STO.