Are you confused about launching an STO? Do you have questions regarding is it the right choice for fundraising?
In this analysis article we will go through each and every detail if launching an STO is the right choice for your firm. To determine if STO should be a preferred choice for you, we will go through a number of questions you should ask yourself and you should analyse your firm based on that for determining if you are going the right way.
Do you have a Past Experience of Raising Money?
Having raised money before can give you a much needed experience to analyse about how your next fundraise will look like. Its time to go through the points that can help you for your next fundraise.
- If you raised funds before, what was the process and your experience?
- How much time did it take to complete the process?
- Which channels did you use to reach out to proper investors?
- How did you use the funds raised?
- Were you able to make a significant progress with those funds?
- WILL YOUR PREVIOUS INVESTORS INVEST AGAIN?
Is Your Business Still Growing?
Investors generally like to invest in a firm which is at a growing stage and still has more room to grow. You need to have a defined plan of what your company can achieve in future with the raised funds. You need to have a set growth and control over the future growth plans.
What is the rate of consumer growth and interaction?
If you have a “job search” website, the increasing number of users on your platform is good sign but that does not guarantee that investors will come looking for you. The thing that interests investors is the interaction rate. Your website is meaningless if no one is actually using it to find jobs after making their accounts. The interaction rate is what that keeps the growth rate in check.
How much you desire to raise and at what valuation?
Now when you are raising money there are three things to analyse first
- Valuation of firm before money raised
- Amount raised
- Valuation of firm after money raised
To explain this if you are raising $2 million at a valuation of $18 million. It means that your are giving away 10% to the investors for an investment of $2 million.
Here is how –
Amount Raised / (Pre-Valuation + Amount raised)
= Amount Raised / Valuation after money is raised
= $2 million / $20 million
= 0.1 or 10%
How will you used your funds?
Before going through the round of fundraising you need to have a clear defined path of how will you use the funds for your firm. If you are going through a fundraising round, investors want to hear how their money will be used to accelerate the growth of the company. Investors like to hear how you can be a problem solver for the difficulties that exist in the market.
Investors don’t like to hear that you will use their money to figure out what you gonna do with your business. So, have a clear set of goals how the raised money will be used.
What are your financing options?
Keeping this article totally unbiased. Being straight forward, STO is not the answer to every solution. If you just want a bridge loan, it is better to take it from your known sources rather than going on the STO road. Explore your other investing options. A traditional loan might work much better than an STO in a few cases. Don’t run an STO just for the sake of it.
Choosing the Target Investors
It is advisable to make a list of the types of investors whom you will target for your fundraising round. Make a list of investor profiles generalizing the types of investors that you wish to target. You don’t wish to target the investors who don’t even invest in the sector of your firm. Through investor profiling also figure out the types of investor your are going to target, are they going to be big fund investors, venture capitalist or any angel investor. Investor analysis is an important step before any fundraising round.
Additionally, do research about the companies that your target investors have ownership in. Target the investors for whom your company can add value to their current portfolio.
Do you need a STO?
Don’t try to run behind the hype. Before raising funds through a security token offering (STO) you should know exactly why you need it or do you even need it and what are the regulatory compliance to follow. Investors might just test your knowledge of STO to check if you actually have a well-researched use case for your offering or if you are just using STO and blockchain as buzzwords to raise money.
Please make sure if your firm even needs tokenization and what value will the tokens add to your firm. As a security token it will reflect your company’s growth. You don’t want a token in the name of your company which can add no value to your ecosystem.
Though, there is no denying that security tokens offer various benefits like easier liquidation, increased execution speed etc. But, the point to analyse here is that if your company need these benefits.
How much will you spend on promotions?
When you have decided to run an STO. It is a type of crowdfunding model and in the end will require some marketing efforts from your side to deliver a message among the investors. Make a marketing strategy and specify the funds before you start your STO.
Analyse your presence in the market. Make sure you are present on the internet. Simple things like a good social media reputation or even the profiles of the management team on LinkedIn add a lot of credibility.
How much resources you have?
When all things are set up. Make sure that you just not start an activity but you have to make sure that you can successfully complete it. In the case of STO the use of advisors play a very crucial role. Use your advisors wisely to get shortcuts to enter the market. Take there help in getting the resources from the market.
In the end, these were all simple questions which you should ask yourself before you plan to run an STO. We hope this article will add value to your analysis. Read our “Ten Step Guide to Launch Your Own Security Token” here