If you are planning on launching a security token offering there’s an extensive due diligence checklist which should be performed. This checklist will be divided between business and legal compliance. The business aspect is somewhat globally consistent while the legal may vary from jurisdiction to jurisdiction, and this should only be a guide, with full legal-compliance being performed by an Digital Securities Attorney.
Business Due Diligence:
- Whitepaper should be reviewed by unbiased third parties which have reviewed these type of documents before. Common mistakes include promising high returns, failure to communicate effectively the technology, or explaining what the company is designed to perform.
- Tokenized securities should include enough details to actually make sense to investors. If it’s a tokenized real estate fund, are we investing in residential or commercial properties? In what cities? Is the goal to flip distressed properties or to invest in luxury high rise accommodations? These are the types of questions which are important to investors but are often overlooked.
- Business plan. If it’s a start-up that’s seeking to raise funds via an STO, we need details on what the business is setting out to achieve. Simply being an “AI” or “Blockchain” company is not enough.
- Profit Sharing – This should be broken down. Investors should understand if dividends will be paid out quarterly, annually, the payout, etc.
- Does the product or business make sense? Simply tokenizing a business and calling it “AirBNB on the blockchain” is not enough. We need to understand what the business model is, why now, and how the company plans on accomplishing its goals.
- Differentiating factor – Having reviewed 100s of businesses this is often where business plans, whitepapers, and founders fail completely. It’s a competitive landscape, and this level of competition is simply increasing over time. Explain what differentiates your product/company from competitors and explain this in details. It can be the team, the technology, patents, etc.
Legal Due Diligence:
At its root level legal due diligence is performed to ensure that the corporate entity is formed correctly, with sound corporate governance in place.
It is always significantly more cost effective to be legally compliant from the start, then it is to retroactively change the corporate structure.
Due diligence will ensure that all shareholders and other entities are legally authorized to perform the investment. Additional due diligence may reveal additional risks and liabilities which may not be obvious to someone who does not practice law.
Hiring an attorney to perform due diligence can raise red flags while it is still early enough to take corrective action. This can include discovering undisclosed risks, potential liabilities, compliance/tax issues, litigation issues, or simple contractual issues.
These are what a legal team should be hired to uncover.
- Background checks of management and shareholders. This includes running them through multiple international watchlists which include OFAC sanctions list, and the exposed persons list which is also known as PEP.
- Preparation of essential corporate documents which include articles of incorporation, bylaws, minutes of stockholder meetings, partnership agreements, shareholder agreements, fund offering agreements, and capitalization tables, etc.
- A legal team should review material contracts with partners, management, employees, service providers, and other, which could potentially cause legal issues.
- Trademark & Intellectual property rights.
- Compliance review, this includes but is not limited to registrations, SEC form filings, state filings, licensing, and compliance policies.
- Ensuring that proper KYC and AML is performed for the jurisdiction that you operate in, and based on where investors are headquartered.
- Whitepaper review to ensure that securities regulations are adhered to. For example, specific returns should never be promised.
While this breakdown may offer some clarity on some of the due diligence that should be performed, SEC regulations are complicated and it is important to hire a legal professional. The information on this page is for entertainment purposes only and is not meant to be construed as legal advice.
Below is a list of companies that are currently assisting STOs with the legal process:
|BX3 Capital||www.bx3.io||261 Madison Avenue New York, NY 10016|
The Nu+ Company – Sustainability with Chocolate and Trees
Not every STO needs to revolve around a billion dollar tokenization. One of the draws towards the digital securities sector is the ability to open capital generation opportunities for companies of all sizes. A young start-up has recognized the potential benefits they stand to experience by turning to this new way of raising capital.
The Nu+ Company, a German company with a focus on healthy and sustainable food practices, have announced their intent to raise funds through tokenization platform, NeuFund. The company specializes in their line of chocolate bars, which tout unique characteristics.
While full details of their anticipated raise have not yet been divulged, the company has made their pitch deck available for interested parties to peruse.
As this capital generation event is being structured as a security token offering within Liechtenstein, strict compliance measures will most likely be put in place. This means access to accredited investors only, along with typical AML & KYC practices – although, as stated, structuring of the event has yet to be confirmed.
A large part of the appeal behind a company such as The Nu+ Company, is the ideology which drives them. This fact is not uncommon in many companies which have sought out the benefits of blockchain. As the technology has the ability to afford ease of access to capital – while driving new levels of efficiency in many company operations – tokenization through Neufund is right up The Nu+ Company’s alley.
Another example of a company utilizing blockchain, in a means of attaining their goals for bettering our impact on the earth, is Almond. This London based start-up has developed an intuitive app, designed to incentivize sustainable purchasing habits. Much like The Nu+ Company, Almond will plant trees to offset carbon footprints, based on user activity. Make sure to check out the following articles to learn more about how Almond intends on affecting change.
Health Conscious Chocolate
The Nu+ Company has developed various chocolate bars, to date. These products were designed with the health of both, the environment and the human body, in mind. They are vegan, nutrient rich, and touted to contain 65% less sugar than a traditional a chocolate bar.
Currently, The Nu+ Company has a product line with three flagship products.
- nucao white
- Small on the surface, big change underneath
To date, these products have totaled over 1.5million sold, resulting in over €2 million in revenue last year.
The Nu+ Company is more than just their product. While their chocolate has been engineered with health and sustainability in mind, the team did not stop there. What is the point of developing such a product, only to package the chocolate in a traditional fashion?, ie. plastic.
This led the team to recently establishing a deal with a company called Futamura. In doing so, The Nu+ Company will make use of a Futamura product called ‘NatureFlex’. This is a new form of packaging, which has the potential to replace plastic. The following are a few key traits of what NatureFlex has to offer.
The aforementioned ideology, which drives The Nu+ Company, is not simply for show. The team behind the project fully intend to act on their idea of sustainability. This is most evident in their promise to do their part in re-establishing forestry within the island nation of Madagascar.
The promise, on behalf of The Nu+ Company, is that for every bar sold, the company will fund the planting of one tree. More specifically, they will plant mangrove trees – known for their ability to consume high levels of CO2.
Madagascar is like no other place on Earth, and has captivated humans for decades, due to the unique wildlife found within its forests. Unfortunately, it is believed that roughly 97% of dry forests in the country have been decimated – primarily due to human activity. For those that subscribe to Netflix, an original production was produced under the title ‘Our Planet’. There is an illuminating episode found in this series, discussing the scope of this issue, which continues to plague Madagascar.
While the team at The Nu+ Company numbers over 40, including advisors, it is the vision of a trio of cofounders which got the company off the ground.
Each of these individuals boast degrees in Industrial Engineering – a profession typically based on maximizing the efficiency of systems and products. This is something that should serve the team well, as this start-up looks to really get off the ground.
Looking At You
The Nu+ Company is in the fortunate position of following up another recently successful campaign, hosted through Neufund. GreyP is a Croatian tech company, set on transforming the mobility sector, with an influx of ‘smart features’. They also held their STO in Liechtenstein, much like the upcoming STO discussed here today. Their process and experiences should act as a rough blueprint, moving forward, for The Nu+ Company, as they look to replicate the success of GreyP.
Swiss Regulators Approve First Tokenized Incorporation – Overfuture
This week marks another important first for the EU security token sector after the Swiss IT solutions and industrial systems provider, Overfuture received final approval from regulators to list its articles of incorporation on a public blockchain. The news marks the first time a company received approval to carry out such a task in Switzerland. As such, the approval marks an important milestone for the entire Swiss blockchain community.
News first broke of the approval via a press release from the STO advisory firm Andriotto Financial Services. In the release, the firm explained in detail some of the attributes of the plan. The report stated that Overfuture will tokenize their Initial Public Offering (IPO) in order to offer investors access to tokenized class A shares.
In the report, Andriotto Financial Services called the accomplishment a “huge revolution for the financial industry.” Importantly, the report explains why allowing firms to launch an IPO and coordinate secondary market transactions without the use of banks is a game-changer. For example, a traditional IPO requires the use of multiple financial intermediaries. These firms can include broker-dealers, central depositary systems, notaries, and investment managers, just to name a few.
Removing these third-parties from the equation brings about some serious benefits. For one, it lowers the overall cost of conducting business. Additionally, it reduces the friction encountered by both firms and investors looking to participate in public crowdfunding strategies.
Overfuture Strategic Partnerships
In order to make the Overfuture IPO a reality, the firm made a number of strategic partnerships. For its part, the Swiss-based European Digital Assets Exchange, EURO DAXX programmed the smart contracts that ensure each share remains compliant throughout its lifecycle. Smart contracts remove the need for multiple third-parties because the regulatory compliance mechanisms become part of the token’s core protocol.
Andriotto Financial Services provided the necessary financial advice surrounding the entire project. Andriotto is well-known in the space as a financial service advisory. The decision to utilize the firm definitely expedited the project. Additionally, Andriotto Financial Services ensured full compliance with Swiss regulations.
Two Audit Firms – Overfuture
As a regulatory compliant tokenized IPO, Overfuture decided on the use of dual auditing firms. The firm hired Swiss-based auditors, PKF Certifica SA, as well as, Studio Mariotti & Capelleti. The latter is an Italian auditing firm that has been in operation since 2011.
According to Overfuture’s investor prospectus, the firm intends to offer a total of 8,399,000 common equity shares. Importantly, these tokenized shares will live on the Ethereum blockchain. Ethereum-based tokenization protocols are by far the most popular standards in use today in the sector. Notably, each share will cost €1.25 ($1.38). Notably, the IPO is only available to Non-US residents.
Overfuture Looks Bright
Overfuture is an IT solutions and industrial systems provider. The firm provides advanced systems to large enterprises globally. As such, the company remains on the cutting edge of information tech and innovative technologies. Given the company’s network, timing, and technical know-how, you can expect to see the Overfuture IPO go off without a hitch.
MEDsis Partner WTIA to Launch Kfinancial
The next-generation blockchain financial platform, MEDsis International announced a strategic partnership with Korean-based WTIA this week. The partnership is part of a broader strategy focused on the launch of the highly-anticipated Kfinancial platform. Importantly, the launch is set to coincide with the company’s upcoming STO.
The partnership and expansion strategy carried out by MEDsis isn’t a complete surprise. The firm announced plans for such a deal way back in December 2018. In the announcement, the company expressed a desire to develop a custom blockchain. In the end, the company decided it was more cost-effective and an overall better approach to partner with the WTIA Korean blockchain to accomplish its tasks.
Interestingly, the partnership strategy continues to take shape. Company officials stated that contracts, financials, strategies, pilot program results, funding, and strategic partnerships will continue to see expansion as the program develops. According to company officials, all of this information will become publicly available through the upcoming KFinancial White Paper.
Discussing the new strategy, Joshua Dax Cabrera, CEO of MEDsis spoke on the years of planning the firm has put into the expansion. The new partnership will provide unprecedented reach for the MEDsis platform moving forward. Cabrera explained that the new approach brings MEDsis’ global payment opportunities to the masses. Additionally, he touched on how the maneuver strengthens the firm’s current partnerships as well.
MEDsis – KFinancial White Paper
The release of the new joint White Paper associated with the STO will shed some light on the project moving forward. For its part, KFinancial will become the stand-alone payments and fintech division of the new joint venture company KFIN WTIA PTE. The new firm will operate out of Singapore. Importantly, Singapore is one of the most blockchain-friendly countries in the world currently.
Billions in Revenue
The merger will bring investors and token holders the direct rights to more than $3 billion in projected revenue. Uniquely, the STO will assign revenue and not equity toward the STO. In this way, investors receive direct access to revenues without previously anticipated equity dilution.
Discussing the merger, WTIA Chairman Keun Kim, explained the motivation behind the decision to partner with WTIA. Kim described the immense benefits obtained through the merger. He explained that the new platform brings the partnership to the world. Additionally, this new level of market confidence will help to further security token adoption globally. He ended his interview discussing the importance of job creation in the markets the firm intends to expand into first. These markets include “Argentina, Brazil, and beyond.”
A Company on the Move
The MEDsis payments ecosystem gained strong positioning in its perspective markets with this latest maneuver. The decision by company executives to focus on the underserved Latin American markets could prove to be pivotal in the space. For now, MEDsis prepares to see their products and services go global as the firm’s STO is set for a May 1, 2020 launch date.