In a galaxy far far away, a space MMO game turned to an STO (Security Token Offering) to raise capital. So far Pixelmatic’s Infinite Fleet has raised USD 7.8m in funding through STOs. While crypto currencies and NFTs have stolen the limelight, STOs quietly promise to revolutionize capital raising for smaller companies.
Security Token Offerings are the blockchain version of an IPO (Initial Public Offering). Instead of issuing share certificates with records kept by a central registry, companies issue digital tokens with smart contracts, which are stored on a blockchain.
Unlike an ICO where investors receive a crypto coin, with an STO, investors receive a digital financial security. These securities are recognised by a growing number of jurisdictions, including the US, EU, Switzerland, and Singapore. Most Security Tokens provide investors with a share of revenue or profit.
IPOs are expensive with underwriting fees in the millions. Then there is the cost and requirements for the prospectus and listing. IPOs also take time to prepare. While preparations typically take around six months, they can drag on much longer.
Given the burden of IPOs, many companies have remained private for longer or have taken the cheaper SPAC route to listing. In 2021, the proceeds from US SPACs reached a record USD 162.5 billion. SPACs (Special Purpose Acquisition Company) are like a backwards IPO. A SPAC creates a listing and raises funds, and then acquires a private company to go with its listing.
However, SPACs are out of the reach of many smaller companies. Until recently, these companies have had to rely on private debt financing or family, friends, and fools.
This all changed under the Obama administration. In 2012, Obama introduced the American JOBS Act, which among many other reforms included an exemption from registration requirements for public offerings (Regulation A) for companies looking to raise USD 75 million or less in a year. Regulation A made STOs…
