CROWDFUNDING – OPTIONS GALORE
Crowdfunding is an effective fundraising tool, well suited to the needs of Startups. BrewDog raised a world record breaking £25 million through their crowdfund. According to MarketWatch, the global market is expected to be worth circa $22bn by 2024.
Below are the key points from the talk that I gave at WeWork Labs. All of the slides that I presented are here.
THE “NEW” NEW CROWDFUNDING
However, traditional crowdfunding’s relatively high costs and lack of a secondary market leaves some investors unimpressed. The good news is that some Crowdfunding platforms already address these issues. Security Token Offering (STO) Crowdfunding Platforms enable a direct to investor form of crowdfunding, with lower fees and access to secondary markets. The use of digital tokens, to represent shares, enables the transfer of value, easily and quickly. In short, tokens are just a digital wrapper (with all the benefits of digital).
The innovation here is that the share – represented by the token – can be pre-programmed to enact or block certain outcomes. For example, you could pre-program a token to make sure that buyers and sellers comply with certain legal requirements or maybe automate actions such as dividend payments or fund transfers. Traditional crowdfunding platforms that use manual processes pass on high costs to comply with these regulatory requirements. Also, some of the new STO Crowdfunding Platforms use public blockchains to lower costs further, by removing the need for a middleman. In all cases, the use of common standards and digitalisation lower costs significantly and provide very fast processing times. Most importantly, the use of tokens that adhere to a common standard means that shares can be traded across global exchanges, 24/7, introducing secondary markets and the prospect of greater liquidity which attracts more investors.
THE BUSINESS CASE
There are now a dozen or more STO Crowdfunding Platforms, including a few based in the UK that have voluntarily passed through the Financial Conduct Authority’s (FCA’s) sandbox program and are now authorised. The concept is well proven – Initial Coin Offerings (ICOs) despite their shortcomings – successfully raised more than $13 billion through ICOs. Unlike ICOs, STOs offer transparency and are designed to automatically comply with regulatory requirements. Through digitalisation, automation and removal of intermediaries, STO Crowdfunding Platforms offer the business benefits of traditional crowdfunding but with lower costs and better liquidity.
To discuss traditional or sto crowdfunding for your startup, contact G2Guide.
G2Guide – Funding and developing software for startups