Thousands of start-ups and ventures are desperately looking for capital to finance and scale their ambitious growth plans yet can’t seem to get the funds from classical avenues like venture capital funds, incubators and family offices.
Meanwhile, millions of interested investors are looking for promising investment opportunities outside of the classical stock and financial markets. They want to invest directly into interesting startups, but traditionally had no way of finding and funding these projects.
At the intersection of these needs, major trends and developments arose in the financial markets over the past five to ten years. Crowdfunding with platforms like Kickstarter and Indiegogo democratized startup funding.
Then, with the advent of cryptocurrencies, Initial Coin Offerings (ICOs) developed and allowed the efficient, cheap fundraising of millions of US dollars. Yet, their unregulated nature, an extraordinary hype and lack of transparency caused thousands of users to be scammed and deceived and millions of dollars to be stolen by ruthless criminals.
Crowdfunding and ICOs have serious downsides and yet, they may have paved the way for the real revolution – the future of fundraising – Security Token Offerings (STOs).
In this article, we will look into why more and more people consider STOs to be the big revolution in fundraising.
Yet, before we do so, let’s look at current options for fundraising and how they proved to be less than optimal solutions.
Crowdfunding and its shortcomings
The rise of crowdfunding at the beginning of the last decade was heralded by many as the “democratization of fundraising”. And while it is true that it allowed for the first-time retail investors to fund start-ups with very small amounts of capital, they did not make them investors. Donors are restricted to small gifts, yet don’t become investors to profit from the appreciation and value and growth of the very project.
Meanwhile, projects could sometimes raise considerable amounts of money but were challenged by a lack of trust in their projects or their chosen crowdfunding platform. Moreover, copyright, compliance and accounting issues were encountered by some.
Overall, crowdfunding has not proven to be an attractive option for projects and ventures looking for reliable investment to scaling fast.
Initial coin offerings and their downsides
Then, the advent of cryptocurrencies gave rise to a new form of financing that quickly took over the crypto-scene and spilt over into the entire world of start-up-financing. While the first Initial Coin Offering (ICO) was held in 2013 (by a project by the name of Mastercoin), it was in 2017 along with skyrocketing cryptocurrency prices delivering 1000%+ growth rates where ICOs really took off at a massive scale.
However, ICOs are highly problematic as unregulated, unlicensed sales of tokens that basically liken a coupon to be used exclusively on the project’s platform. Questionable white papers were published, intended to convince naive investors to put their money into vague business ideas. Often they were portrayed to promise high returns on investment while claiming strongly not to issue securities – to avoid legal issues and requirements tied to such issuance.
Well, the ICO bubble burst in early 2019 alongside plummeting cryptocurrency prices and left thousands of investors with nothing but headache and hangover.
Serial entrepreneur and STO Pioneer Marvin Steinberg, the founder of CPI Technologies – a company specializing in the launching and promotion of STOs – explains the serious shortcomings of ICOs: “2017 and 2018 turned blockchain technology into buzzwords and everyone wanted a piece of the action. Far too much money flew in the sector without sufficient rationale to back up the investments. A handful of projects seized people’s irrationality as an opportunity to make astonishing figures. Key examples are token sales like Filecoin, which held an ICO in January 2018, raising more than $250 million.
Sadly, there were many risks associated with the lack of regulations around ICOs. Most ICO-funded projects have either gone defunct or were simply scams. It is my belief that the ICO model is broken and that STOs are the future as they mandate greater investor security and more transparency from the issuers.”
IEOs follow to replace the failed ICOs
When it was evident that ICOs had failed, the so-called Initial Exchange Offerings (IEOs) arose. Crypto-exchanges were smart enough to realize a market need and their ability to use their established trust and existing user base in the crypto-community to offer a more transparent, exchange-vetted and “audited” selection of projects issuing utility tokens (= coupon-similar).
However, these IEOs have their own unique, massive downsides, as Marvin Steinberg details “It’s just another bubble waiting to explode. While the initial exchange offering fundraising model claims to be better than ICOs, its underlying features are the same. Many Crypto exchanges’ data is actually falsified as they use wash trading to construct a liquidity illusion. If the IEO offered is a fraud, most exchanges could not care less as their main focus is to promote their platform, and even if a scammy IEO is willing to offer funds for marketing, exchanges are unbothered.
Regulations and laws for IEOs are even more unclear and ambiguous. Market manipulation is a high risk for IEOs as most of the tokens offered are pre-minted. It is possible for the exchange to keep a large number of tokens for itself and manipulate the price later. Legitimate companies looking out for a sustainable long-term success should steer away from IEOs. “.
The failure of ICOs and IEOs left a void…
As ICOs and IEOs have clearly failed to deliver on their promises and more and more financial regulators came up with a legal classification of tokens – while start-ups and investors still have their needs unmet – the scene is set for a new, legally-compliant, Blockchain-based, efficient process of issuing tokens that actually represent legal ownership in an asset (or a part thereof) while providing legal clarity for companies and financial protection and transparency for investors.
We are talking about the future of fundraising – security token offerings. As the name suggests, STOs are public or private sales of security tokens – a form of tokens representing legal ownership of (or part of) a physical, an underlying real-world asset such as real estate, derivatives, private-equity, commodities, etc.
Marvin Steinberg of CPI Technologies may be the most prominent name and the biggest pioneer in this quickly evolving field of finance. He is convinced that STOs are so powerful, they will one day even outperform Initial Public Offerings (IPOs). Therefore, let’s see and compare STOs and IPOs.
How STOs liken yet are superior to IPOs
We have covered how STOs are superior to ICOs and IEOs, but what about IPOs? For Steinberg, the issue is clear “While STOs have all the pros of an IPO, they come without the cons.”
What does that mean specifically? Both IPOs and STOs are licensed, regulated offerings of securities, hence giving legal clarity, transparency and financial protection to investors. Yet, while IPOs are organized by underwriting banks that charge large amounts of money for their risks and services, security tokens are issued via blockchain-based smart contracts. These small programs follow an If- Then-logic and allow efficient, low-cost issuing of security tokens. This makes STOs accessible to any project or venture looking to raise more than 1 million euros.
Minimum investment amounts can be relatively low which allows companies to address a larger group of retail investors which finally gets an easy and affordable way of investing into promising start-up companies.
What CPI Technologies Can Do For Your Business
If STOs are the future of fundraising, the question naturally arises: how can you make use of this opportunity? This is where Steinbergs CPI Technologies comes in as a “Blockchain Growth Promoter and Business Facilitator”. The company helps its client in both the launch and the promotion of a professional STO.
CPI Technologies offers white label solutions for security token offerings. Steinberg and his company have already organised more than 40 successful projects. In the course of these security token offerings, he was able to generate the following impressive results for himself and his clients:
- 124% average annual sales increase through tailored marketing campaigns
- 23+ Successfully completed high-quality projects in the last year alone
- 420% average increase of visitors for advertising campaigns
- $100k+/month average profit increase for its customers
Currently they are working on their Flagship Venture called “Times Square Token” – an ambitious 700 million US dollars are to be raised and then to be invested into the tokenizations of the Times Square and real estate in that part of New York.
Steinberg sees two reasons for the quick success of his company and its services. The first reason is that CPI Tech as a blockchain provider not only builds solid software with great UX experience, but it also focuses strongly on profit optimization and hitting break-even within the first 3 months or even quicker.
Even more important, however, may be the company’s strict emphasis on only working with professional, vetted projects that really seek to make an impact and difference in the world. This guarantees the integrity of both CPI Tech and its clients and ensures that end consumers will be happy to invest into the organized STOs.
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