Successful STO: a step-by-step guide.

Security token offering is a disruptive instrument in the realm of finance; still, the way it is conducted is not common knowledge yet. In this article, we are going to unveil the mystery of conducting an STO and take you through every detail there is to set up a wholesome security token offering.

Successful STO: a step-by-step guide.

Security token offering is a disruptive instrument in the realm of finance; still, the way it is conducted is not common knowledge yet. In this article, we are going to unveil the mystery of conducting an STO and take you through every detail there is to set up a wholesome security token offering.

The process of launching an STO is a pretty standard procedure that may vary slightly depending on the jurisdiction of choice. The essential part remains the same: everything is tied to the offering type and whether it requires registration.

Five main stages to set up an STO

The process of conducting a brand new security token offering can be divided into five main steps: advisory (consulting), legal, technical, marketing, and secondary trading.

#1. Advisory stage

Advising is the first step you should take if you have reached a decision to conduct a security token offering. This is where you determine what your offering is about and how it will be conducted; it’s the time of planning and making important choices. At this stage, you should conduct research on what jurisdiction is the best, what type of security you will issue, what financial structure you will have, how exactly you will enable the secondary trading, which investors you will target, what the risks are, and how you plan to deal with them, as well as answer other unobvious yet important questions.

An action plan at the consulting stage also includes negotiating with the service providers you are going to cooperate with.

At this point, there are two most critical tasks you will face: setting up a corporate structure and preparing documentation. Setting up or changing a corporate structure suggests creating new companies if you deem it necessary, building relationships between them (merging, for example), and transferring a certain asset to the new company, as well as opening a bank and exchanging accounts for all of the existing bodies.

The second task ― preparing the documents ― includes the following group of papers necessary:

  1. Disclosure documents. This group includes everything your potential investors should know about your company. First of all, it’s an offering memorandum where you describe your business, the way it functions and possible risks, the offering conditions, etc. It may sometimes feature additional documentation like historical financial statements if your company has been around for a long time.
  2. The contracts you sign with investors while conducting an offering. Normally, the absolutely necessary one is the token purchase agreement describing the conditions of buying a token and the rights granted to the investor. Sometimes, depending on the structure of the organization, you may have to prepare some additional agreements. For instance, if it’s an investment fund you’re tokenizing, you’ll have to prepare the fund management agreement, according to which, the investors will have to transfer the money management right and agree to the commission distribution.
  3. The company policies. The Anti-Money Laundering (AML) and Know Your Client (KYC) policies are absolute necessities, as while making the offering, you have to check your investors’ profile to make sure that your company isn’t financing money laundering or other illegal activities. At the same time, the law department will have to work on privacy policy: you undoubtedly will be collecting investors’ personal data, so it’s crucial to keep track of the way this data is preserved.

Stobox provides complex legal services in the field of tokenization. Our legal team is here for you whenever you require complex legal management for the project in question or simply need consulting. Feel free to book a 30-minute consultation on our Legal Management page.

#3. Technical stage

A technology-related work can be put in progress in parallel with developing the legal side. While conducting this third step, you have two important tasks: firstly, you have to issue the token which will fit the whitelisting requirements; this is when the tech team should get down to developing the smart contract.

Secondly, you have to launch a token-sale platform. Over there, the investors will be signing up, passing the Anti-Money Laundering (AML) and Know Your Client (KYC) procedures, and actually buying the token. The STO platform is an essential element the investors require.

Stobox Digital Securities Dashboard is a white-label solution to tokenize digital securities and conduct all operations with them in a convenient digital environment. Sell the shares, pay dividends, conduct corporate voting and corporate actions in a new, digital way. Raise capital and streamline investor relations.

#4. Marketing and promotion stage

Stage number four is about reaching out to your potential investors and launching the marketing campaign.

The first and most important thing to grasp is the target audience for your services, which should be determined based on the risk-return profile, investment horizon, and other criteria. After that, you should make a map of channels you are going to use to communicate with your audience. First of all, you can use paid advertising, social media promotion, or partner with influencers in order to make yourself recognizable. Apart from that, start thinking about link building, registering your business on these platforms, and engaging in community life.

Related: Conducting an STO marketing and reaching out to investors

#5. Secondary trading

The fifth and last stage comes after the offering is over. This is the final stage of the offering, which mainly sets the purpose of making the investors even more satisfied with the results of their choice. The main goals at this step include delivering an extra return. Furthermore, it’s important to provide a possibility for your investors to sell their token upon their wish; for this purpose, you have to pass the listing on a stock exchange or create a liquidity pool on a decentralized exchange. Also, as an alternative, you can simply provide P2P trading. What you have to remember at this stage is maintaining a proper token policy and investor relations.

The algorithm of conducting an STO doesn't depend on a specific country in a lot of ways. The only significant issue about it is the fact that not every country's legislation is entirely friendly for STO initiatives, in which case you should incorporate a Special Purpose Vehicle (SPV) in a different state. See our recent video “A secret recipe to successful multijurisdictional offering strategy”, if you feel like understanding the legislation worldwide is a complicated task.

If you wish to set up an STO campaign, it’s best to choose a turn-key solution. This way, the offering in development will be overseen comprehensively at any given stage. Additionally, you will avoid the problem of data transitioning operations between different providers, which reduces the chances of mixups and delays. Feel free to request a complimentary 30-minute consultation with Stobox specialists on our Tokenization Consulting page, if you want to pick the best jurisdiction for your security token offering.