The Security Token Offering (STO) is bringing significant balance to the risk/reward equation for investors in the cryptocurrency sector. STO regulations enforce accountability on token issuers, a much-needed reassurance for boosting investor confidence. Since the ICO market went bust in 2018, the SEC has cracked down and startup companies must now follow standard SEC securitization practices deeming all crypto-assets as securities.
2019: The Year of the STO
Security tokens don’t use individual blockchain protocols, relying on established cryptocurrencies such as Ethereum, Bitcoin, and a host of issuance platforms which create and distribute utility tokens. Verified asset backing and regulatory oversight are the primary drivers behind the shift from the wild-west environment of ICOs to the SEC-tamed STO. As a result, STOs are rapidly replacing ICOs as the financing instrument of choice for tapping into the power of crypto-funding. While some complain that the STO goes against the grain of the original intent of deregulated, decentralized blockchain financing, the last quarter of 2018 saw more STOs than ever before, so the verdict is certain in the STO vs ICO debate.
But it’s likely that we’re preaching to the choir here. As 2019 emerges as “the year of the STO” the question now is how to get the word out that your company is launching its STO.
Targeting Investors For Your STO
The majority of successfully completed STOs were registered in the US and are subject to the terms of SEC Regulation D which only permits accredited investors to participate in the offering. For any type of promotion to the general public the type of issuance titled Rule 506(c) applies. Under these SEC regs, it’s a waste of time and resources to launch a mass media campaign at a target audience when the majority can’t participate in the offering. Accredited investors are the target.
Accredited investors are recognized by the SEC and granted privileged access to deal in securities which may not be registered with financial authorities. These privileges are earned by fulfilling certain requirements for net worth, income, asset size, and professional experience. Targeting accredited investors means that your marketing bar must be raised to attract the most financially sophisticated sector. Accredited investors include:
- high net worth individuals (HNWI)
- insurance companies
While the crypto-community at large considers the STO to be much more trustworthy and safer than the ICO, savvy investors like those listed above still tend to view any token offering as a risky investment. To overcome the negative reputation which is the legacy of the all too recent ICO bust, STO campaigns must build trust with this most discerning source for funding.
Building Trust is Essential to Your STO Success
When accredited investors are your target, relying on the enormous numbers of twitter followers and social media influencers which pulled the masses into ICO investments is no longer an option. STOs are a step up from the crowd, and accredited investors are a step up from the masses. In order to entice this elite group to allow you to take charge of their capital, building trust is essential.
You’ll need to focus on educating investors about your product with a distinct emphasis on ROI. From the already narrowed pool of accredited investors, it’s wise to develop a profile for your STO’s ideal investor and tailor your STO presentation accordingly. Preparation is the key because in-person meetings are frequently required to close the deal with timid risk-averse investors.
So how do you track down these prime candidates for your STO?
Targeting Industry Events and Trade Shows
While scattershot, mass social media ICO campaign tactics don’t apply to STOs there is a role for social media in the STO campaign process. LinkedIn is an excellent source for locating where your ideal investors will be available for the critical face-to-face meetings you need to pitch your STO. Potential investors can be located with hashtag searches for industry-related events relevant to your STO. The best events will be those attracting people involved with finance, investment, and crypto.
When an event is drawing a cross-section of prominent family office reps, HNWIs, and essential venture capitalists it’s worth it to pack up your marketing materials, grab some booth space and begin to build your potential investor network in person. It’s important to avoid jumping right to the hard sell with venture capitalists and accredited investors who are constantly inundated with cold email and hopeful LinkedIn pitches. Take advantage of the personal contact to establish a likable confident persona that presents your concept and your team in the best light, since these high-level investors will be evaluating both before reaching into their deep pockets.
The Pitch Deck For Angel Investors and VCs
Nothing kills trust-building with experienced angel investors and venture capitalists like a poorly formatted pitch deck loaded with typos, grammatical errors, and design gaffes. A pitch deck is usually a 10 or 20 slide email presentation or printed brochure summarizing your business plan and startup vision. As such, the pitch deck establishes the all-important first impression which can make or break the STO deal with investors. With these marketing materials, it’s best to spend the resources in time and money to ensure professional-level quality so that each marketing element is tailored to highlight your company’s strengths. Strong pitch decks can be developed to showcase your products, business model, or to introduce your team but they must be done well or not at all.
Advisors & Infulencers
Many STOs are offered by startups with limited name recognition, still in the seed-funding stage, and lacking an MVP (minimum viable product). For these companies, direct outreach and email campaigns are largely ineffective. In order to build trust, outside fundraisers and advising companies can help, but the business model must be rock solid in order to pass rigorous due diligence and thorough vetting standards. Fundraising companies have vast databases of accredited investors and available funds but they won’t risk the reputations which are the foundations for their own success on what they perceive as a high-risk venture.
The Role of Social Media in STO Marketing
While a social media blitz might be wasted in an STO campaign, social media does have a role to play. You can subtly promote your STO to targeted investors by participating in relevant communities, commenting on the posts of those who fit your investor profile, and following similar hashtags. All of these can help build awareness and present your company as a trustworthy entity.
Press releases are effective for raising awareness of your STO and provide an opportunity to deploy the FOMO factor, the Wall Street coined term for Fear of Missing Out. Again the scattershot method should be avoided and press releases should be targeted to the publications which your ideal investors are most likely to read. Press releases can bolster search engine presence which is so important for inquisitive potential investors conducting their due diligence on your company before taking the plunge on your STO.
About TokenRaise and Your STO
Investor relations is one of our specialties at TokenRaise, and we can connect you with our extensive investor network when you’re looking to raise funds with an STO, ICO, or IEO. Our compliance, auditing, and certification services boost investor confidence by ensuring that your offering is up to industry-best standards and our full range of support services take your blockchain project from startup to launch. When you’re ready to tap into the power of blockchain funding for your enterprise you’re ready to get started today with TokenRaise.