Why You Need an STO Advisory and How to Find a Really Good One

Different countries have varying and complex STO regulations. For example, in the US, you have to file an STO under the strict security SEC regulations A+, D or S. Only the financial instruments passing the Howey Test can be offered as security tokens.

Recently, the SEC issued cease-and-desist orders against Paragon and CarrierEQ Inc (Airfox) for launching an ICO even though each company’s token was a security, and for failing to register with the SEC and not qualifying for an exemption.

You need in-depth knowledge of the current regulatory framework to avoid such legal action. Plus, legal compliance needs to be a part of your STO project from the start, including the whitepaper and marketing strategy. An advisory makes sure you cover every aspect of the law, protecting you from potential legal issues.

Owing to their skills, knowledge, and professionalism, an advisory will bring temporary expertise to your table. Usually, they consist of experienced professionals from various backgrounds who can provide advice and develop innovative strategies.

Their temporary expertise can help you get accurate legal counsel and optimize the whitepaper and business plan. They can also help you understand the tokenization process completely, get acquainted with your potential investors, and provide recommendations on the jurisdictions to be incorporated in your offering.

Apart from their professional expertise, the advisors also bring objectivity to your project. They are essentially an outsider with a different perspective. As a result, they are not as emotionally involved in your STO project as you are, allowing them to offer a more objective review of your project. They will make sure every decision you make is in the best interest of your project, investors, and customers.

The objectivity also helps you make sure your STO project stays in line with your business goals and mission. They will have the required legal compliance intertwined in your marketing strategy, make sure your developers are using the right token standard, and your marketing team is soliciting the right target audience. They will not allow you to be swayed by cool technology or take a legal shortcut to save money or time.

A distinguished advisory has a solid grasp of the current regulatory framework, venture capital investment market, and the latest developments in blockchain technology. So, while sharing their advice, they are also educating your team members about the current STO ecosystem.

This is particularly useful for startups from non-tech backgrounds. For example, a healthcare startup is less likely to know about the tokenization process. However, when their staff interacts with the advisory, they can acquire the STO knowledge necessary to do a better job in their current position as well as prepare for future responsibilities. It also makes your staff more versatile.

Now that you have understood why you need to hire an advisory, let’s learn about what to look for in a good advisory providing security token offering services.

The ultimate goal of your STO is to raise money for your organization. However, most regulations will prevent you from selling your tokens to the public in general. For example, Reg D in the US exempts your STO from full SEC registration requirement but restricts you to solicit only accredited investors.

So, the first thing you need to know is how big the advisory’s network of investors (individual and institutional) is. They should be able to connect you directly with potential investors through their network. Besides, an STO development company with a large investor network can take a closer look at your STO proposal and make it as foolproof as possible. Not having a network of investors should be treated as a red flag.

Almost every consultancy firm claims to manage all aspects of security token offering services. However, not many can live up to their claim. For example, a small consultancy firm comprising only a couple of dozen employees claiming to provide all STO related services is bound to raise a few doubts.

In other words, with a few exceptions, most advisory firms will have developed a core forte in security token offering services. Thus, you are better off handling two or three independent consultants with different areas of focus rather than putting your stock in one small firm with virtually no specialization.

In an ever-evolving STO ecosystem, the advisory firm has to make quick, but well-informed decisions for you. The decisions must also be based on an unbiased assessment of the given situation. You should find out if your potential advisory has proven problem-solving skills.

Perhaps, the only way to know more about this is to check their track record. Talking to old clients about when and how the firm demonstrated their creative problem-solving skills is a good idea.

However, you may not find many consultants with extensive experience in this field as the STO market is still young. In such a case, find out about their relevant problem-solving skills. For example, when it comes to their financial expertise, you can find out more about problem-solving skills in venture capital or corporate finance instead of STO finance.

In-depth legal knowledge is the foundation of a successful STO. Given the diverse nature of the regulatory framework, finding out your legal requirements depending on where you plan on selling your offering is going to be a challenge.

Make sure the advisory organization has lawyers and legal advisors on their payroll. They should also have comprehensive knowledge of every jurisdiction where you would like to launch your STO. If required, you can also hire a firm specializing in STO regulations in your jurisdictions.

As you can see, hiring an advisory is in the best interest of your STO project. They can protect you from potential legal issues, bring temporary expertise to your organization, review your project objectively, and educate your team members. However, you can enjoy these benefits provided the consultancy firm has a large network of investors, focuses on a particular area of STO services, has excellent problem-solving skills, and in-depth legal knowledge. Hopefully, these pointers should help you get your search underway. If you still have doubts, feel free to share them through your comments.