Launching an ICO is a complicated process, but launching an STO is even more perplexing. The reason is due to the additional legal compliance that is required, and the necessity to complete proper ongoing KYC and AML on investors.
Businesses, and start-ups should be focusing on what’s important, and that is the success of their business. Learning all of the ins and outs of launching an STO should not be the role that you play. It’s too complicated of a marketplace for beginners, and any accidental error or omission could end up costing the company far more in the future then had things just been done properly.
Below are some of the problems that you will encounter if your STO is not performed according to code.
- Exchanges will not list any STO which has potential legal issues. Even the loss of one exchange can dilute the future liquidity and value of your brand.
- The SEC or other government bodies can either slap you with a penalty or in a worst case scenario shut down your operations.
- Failure to KYC or AML properly could jeopardize future banking relationships, and could result in the confiscation of funds.
- You could appear to be unprofessional to those in the space.
- De-optimization of the potential raise amount.
These are a sample of the legal and financial reasons why you should outsource as much as possible. This is not factoring in the lost opportunity cost, of having your staff focusing on the technology of an STO versus running a business. Specialize in what you are good in, which is running your business, and outsource the rest.
It can be difficult to know where to start. The natural inclination is to seek out an advisor. The wrong approach to finding an advisor is by searching for “STO Advisor” on Google and using the first service that you find. This does not make someone an STO Advisor, it simply makes them someone who is good at search engine optimization.
You should become familiar with the tokenized securities industry. Learn who you can trust in the industry, and who is simply out to benefit themselves. Attend a few Security Token Conferences if you can. Mingle, network, but most importantly learn.
The crypto industry is full of conmen, but what’s more shocking is the high number of people who simply lack any type of business sense. Make sure that whoever you hire as an advisor has experience and is a credible name.
A valuable STO advisor will only sign on with your company if they believe in the project. You do not want an advisor who blindly advises anyone who contacts them. The reason for this is that the most valuable role of the advisor is as someone who introduces you to the right contacts. If an STO advisor attempts to connect junk projects with his existing network, that network will quickly learn to ignore the advisor. This is why the best advisors are very selective on who they work with.
The second most important role of an advisor is as a sounding board. Are you unsure on how the market will react to your business idea? If so, the advisor can be someone that you consult with. A good advisor will be honest with you if they feel that something will backfire and damage your reputation.
An advisor can also perform the following:
- Introduction to proper legal council
- Introduction to token issuers
- Introduction to potential investors
- Recommendations on jurisdictions to incorporate
- Optimization of whitepaper/business plan.
- Connecting at events to discuss project.
- Recommending changes to planned corporate structure.
How do you compensate an advisor? This can take the form of equity or tokens. It is important that the advisor is actually involved, and is simply not compensated for having his profile on the STOs website. Compensation can be as high as 3%, but this is a little high and it depends on the value of the project, it’s potential to scale, etc. If someone believes in your project they should be willing to be an advisor for 1 to 1.5% in equity or tokens.
What’s important is that you use someone who becomes a business partner. They have your success in mind, and due to this they will do their best in order to ensure your success. We also have a list of Security Token Advisors.
Additional Commentary: As a Co-Founder of Securities.io and BlockVentures I am occasionally approached regarding STO advising/consulting. I will only consider this after meeting with the founders, and being comfortable in the project.