Many companies have walked into our offices looking for assistance with their ICO’s, STO’s and other Reg D offerings. While we of course discuss all of the supportive advisory services we can provide, things always boil down to one thing — can they raise money.
Like most conversations about raising money, it begins with what is being offered and under what terms. But ultimately, every investor wants to know and understand the path to liquidity. In fact, the singular most important factor in this conversation comes down to that — when and how liquidity is created and sustained.
Every company — public, private, blockchain, etc — when they need capital, is on a mission. None of their entrepreneurial dreams and visions can be achieved without capital. So, whilst on that mission, attention to other, less urgent, but still critical, factors, may be lacking.
This leads me back to the topic of the path to liquidity.
The great majority of companies doing STO’s and Reg-D offerings I have met with and worked with consider themselves private companies. Technically that is correct — at least for now. They are soliciting highly sophisticated and accredited investors. They are doing “private sales” and many are planning to avoid any public type of selling. They all acknowledge that there will be a 12 month holding period in accordance with US securities laws. They all talk about being listed on a regulated U.S. token exchange like Tzero or Templum.
But this begs the big question: If you are a “private company” but selling the vision of liquidity on an exchange, how do you plan to create such liquidity amongst a very narrow group of accredited investors?
Liquidity comes from scaled participation. It comes from awareness amongst a large group of participants. It comes from building up trust in the marketplace. That only comes with independent financial audits, proper corporate governance, public communications and full and fair disclosure, all of which investors have come to expect.
So here is the dilemma — unless you properly plan to be a public company, you will either be illiquid, or you will become public by default rather than design. We recommend a path “as if” you will be a fully-reporting public company and fully following relevant “best practices.” At its core, this speaks to your corporate reputation and credibility and lets you maintain control of your narrative. In this way, following best practices will serve to put your company in the best possible position to create and sustain secondary market liquidity — an essential goal for sure.
If you are interested in learning more about best practices and the path to building liquidity, we will be posting more articles with ideas and suggestions, and of course, a guide to industry best practices.