Crowdfunding and STO - the hottest fundraising trend?
Hi,
This time Maciej Zieliński (a.k.a. Maciej number 2 😎) is writing for you. The same as Maciej number 1 I’m responsible for our consulting department. We're glad that Nextrope Insights gained such a great interest from the VC's community, not only from Poland, but also from the CEE region and beyond.
That’s why we decided to devote this release to the investment industry 🤠, more specifically to raising capital through crowdfunding and tokenization based on Blockchain technology. I realize that in most cases this goes beyond your current activities. But thanks to that, the more it’s worth your attention💥
So in today’s issue we’ll tackle:
🔭 Trends in crowdfunding to watch
🔥 Hot new projects to observe
💰 Niche crowdfunding platforms
🔗 STO vs Traditional Crowdfunding
What’s recently hot in the crowdfunding industry?
Capital raised via crowdfunding in June 2019 by Industry Source: Start Engine
Crowdfunding accelerators
Despite the appearance of crowdfunding platforms, some projects have been left behind and have never drawn the due attention of potential investors.
Nowadays begging startups can get assistance in generating sufficient assets by joining the so-called “boot camps”. Additionally, these mentoring programs provide detailed guidance on such things as developing a business strategy or post-sale management.
One of them is Crowdboost - a 5-week accelerator for entrepreneurs who want to raise funds and awareness through an equity crowdfunding campaign. The whole campaign covers key stages:
campaign launch
investors involvement
press statements and marketing pieces of training
25 companies have already raised a combined £10M after participating in Crowdboost.
If you are into equity investing you might want to check StartEngine. This business incubator is devoted to catapulting new technology projects in 3 months. By now they have already raised over $150M for more than 350 companies.
Another crowdfunding accelerator which might get your attention is German Aescuvest, which focuses on supporting crowdfunding campaigns for innovative start-ups in pharmaceutical and medical industries. #CrowdBeatsCorona is the most recent initiative of Aescuvest which aims to support the development of start-ups dedicated to fighting against COVID-19.
RealEstate crowdfunding
Real Estate Crowdfunding utilizes crowdfunding methods to raise capital for real estate investments. It’s very similar to equity crowdfunding - an investor can buy into a property and become a shareholder. The investors don’t need to buy the entire property. Instead, they can earn a portion of the profits generated from the real estate investment. Any revenue generated from the building's rental income or any proceeds from the sale of the building is shared between them.
Right now capital commitments in real estate are skyrocketing and have already beaten the financial injections into other industries.
Source: Crowdnetic Investment Crowdfunding Industry Report Sept 2015
What makes it so attractive? Profits on both sides: backers get unlimited access to venture capital and real estate developers can escape from a bank and reduce costs to a minimum.
STOs and equity crowdfunding – a perfect match?
Security Token Offerings are pretty similar to ICOs (Initial Coin Offerings - cryptocurrency equivalent to an Initial Public Offering: IPO) - both are built and managed on blockchain technology. That means better transparency, a simpler and easier fundraising process, with lower administration and management costs for companies and investors. But there is a significant difference between these two: STO is backed by real assets or securities. Hence, they offer the same rewards as traditional equity such as ownership, dividend and voting rights. Essentially, they are digital representations of the same financial instruments which investors know for decades.
ICO vs STO processes. Source: RecordsKeeper
STO vs Traditional crowdfunding methods
Main differences:
The Product Involved
Traditional Crowdfunding methods involve diverse industries and in the case of ICO and STO, only blockchain-based projects are done.
Risk
In both cases, the exchange of money takes place between the investor and the fundraising site. Though (because of many failures incidents) ICO’s seems to be too risky for many, STO platforms guarantee a return on investment which remains trustworthy for token buyers. While Traditional Crowdfunding cannot be guaranteed in terms of Return on Investment.
Rewards
In STO rewards are received as a return on investment. Mostly in a form of tokens, which can, in turn, provide access to the company’s services.
Regulations
In traditional crowdfunding regulations are limited. When it comes to Security Token Offerings, they are completely regulated in adherence to SEC Guidelines in all the countries.
Why could STO be a better investment than a traditional fundraising campaign?
Consider you are investing $10,000 in traditional crowdfunding. There is no liquidity guaranteed and you end up with your capital locked for some period of time. Security tokens can eliminate these concerns. Once a fund is tokenized, an investor can buy and sell fund shares depending on supply and demand. In this case, the markets offer high liquidity with everyday fluctuations. With higher liquidity, the value of the cryptocurrency enhances as the projects start to grow.
STOs vs Traditional Crowdfunding in numbers
Total Transaction Value in the STOs segment 2019-2030:
Source: Standard Capital CO.
Will the big players support STO platforms?
Apparently YES. Lately, Microsoft reveals its plans to work with Waves Enterprise, in part to create an asset tokenization platform for company equipment:
Microsoft Partners With Waves Enterprise to Tokenize Industrial Assets
Are there any cons of STO's?
Of course, there are. Last June, Neufund, one of the first European platforms to issue security tokens, announced its intent to move away from digital securities. Check out this fresh interview with its CEO Zoe Adamovicz and learn what obstacles STOs still have to overcome:
Neufund CEO Zoe Adamovicz Explains Reason for Pivot: Security Tokens No More?
How to run STO in the best possible way?
Here, let me openly present what we do at Nextrope. We have already acquired over $10M of financing for our clients, using blockchain and tokenization. Recently, we published an article about the best tokenization practices.
Where else STO will find its application in the future?
I would love to know what your feedback is. If you have any questions, feel free to message me at mz@nextrope.com. 😁