The legal process:
1) Deciding on jurisdiction for the STO. STOs fall under standard securities regulation and are as such indirectly supported in many countries. However, many countries do not support the full digitization of securities such as shares and bonds due to requirements for notarized transfers, paper-based ownership certificates, etc. Other countries are unclear on regulations so far. DigiShares and our legal partners keep track of regulatory developments and can at any time recommend best options, optimizing cost and regulatory complexity, while at the same time catering to investors in one of the three main STO regions (USA, Europe and Asia). We will be able to provide a recommendation for countries that support tokenized securities – or in case these are not supported, simplified types of securities such as profit-sharing rights that may more easily be tokenized.
2) Once a jurisdiction has been selected, the legal unit (the SPV = Special Purpose Vehicle) should be created and a bank account obtained. For crypto- or blockchain-related STOs it may be quite expensive and difficult to obtain a bank account in some jurisdictions.
3) Designing the fund-raise itself, based on amount to be raised and type of investors that are targeted. Together with our legal partners we can give recommendations on this. In the US, if the amount is above 1 M USD (as is almost always the case), it is relatively straightforward to conduct an STO under the reg D exemption where only accredited investors can be targeted. In Europe, there are more choices. If less than 5-8 M euro is raised, it is possible to make a public offering towards retail investors in many European countries. If the amount is above 5-8 M euro, it is normally necessary to get a prospectus approved which is a more costly and time-consuming process. For more insight, please see: https://digishares.io/stomarketdevelopment
4) Design the security to be tokenized. For real estate this is typically a share in the company owning and administrating the property, but it can also be a tokenized loan, profit-sharing right, dividend-distribution right, etc.
5) Designing the KYC (Know Your Customer) process for on-boarding investors. Together with the legal advisor, it is necessary to determine what information must be provided by investors in order to document their ID and address, for retail and accredited investors, and for consumer and business investors. Verifying the ultimate beneficial owner for a company may be quite complicated and time-consuming, so it is best to require of the investor to provide all relevant information when registering.
6) Reviewing and determining what kind of reports and updates have to be made to public transfer agencies, CSDs, etc. These can easily be generated as custom reports from the platform.
7) Depending on the type of raise, different types of legal documents need to be produced, such as either a private placement memorandum, a public offering memorandum, a regulation D filing form, a US or EU prospectus, etc.
The technical process:
1) Customizing the KYC process based on the input from the legal process.
2) Customizing the contract workflow deciding which contracts need to be used for the signing up of investors and subsequent token purchase, such as subscription forms, purchase receipts, shareholder agreements, etc. The goal is to automate the contract workflow as much as possible.
3) Customizing the content and information available to attractively present the property, including photos, financials, etc.
4) Customizing payment options including credit card payment, bank transfer and crypto payment. Again, the goal is full automation but this may require banking integration which can be time-consuming and expensive.
5) Customizing custody options – either with integrated custody partners or just by setting up agreements to custody investor tokens, paid and managed by either the issuer or the investors on their own.
6) Installing and customizing server software and training the issuer administrators in using the software platform.
7) Testing that everything is ready for STO launch.
8) Pushing the "start" button and launching the STO.
9) A normal STO will typically last for 2-3 months.
In addition to the above workflows, there are also workflows relating to marketing and investor relations that DigiShares can also support. DigiShares is connected to both marketing agencies and investor relations services providers world-wide that are experienced in assisting with fund-raising for real estate projects.
If you are interested in more information or getting a demonstration, please contact DigiShares.
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