For an SEC Compliant STO, these are the best methods for using Reg A+
A key challenge when using
Reg A+ for an STO is that in most cases, the tokens have not yet been developed, so accepting payments from investors to buy the tokens directly is impossible because they cannot be delivered. Imagine selling stock in a company when you don't have any shares to sell - rather challenging!
These are the methods that I recommend STO CEOs consider for this situation:
1) Sell warrants that convert into the Tokens when they are ready. Full liquidity of the token owner's results, once issued, courtesy of the Reg A+. It is possible to provide discounts to early investors but once the price has increased by 20%, the next increase may require a more lengthy SEC review (all price changes require SEC review, but small adjustments are likely to be Qualified quickly).
2) Raise capital via a convertible note that feeds into a Reg D*. When the tokens are ready, convert the note holders to token owners. Having started a Reg A+ earlier because of its longer lead time, when it is Qualified by the SEC (and the tokens have been issued via the Reg D*), raise even more capital via sale of previously reserved tokens via the Reg A+. The Reg A+ investors will be able to sell their tokens to people of any wealth level immediately after the Reg A+. This approach allows you to raise more than the annual $75 mill limit in Reg A+, and early investors via the convertible note can easily be given deep discounts to reward them for taking more risk.
3) Raise capital into a special form of convertible note, tied to a Reg A+ that takes place when the tokens are available and after SEC Qualification of the Reg A+. Early investors via the convertible note can be given deep discounts to reward them for taking more risk. This is limited to the $75 mill Reg A+ annual cap. Excellent liquidity.
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* Note that Reg D can be paired with Reg S for non-US investors. A significant advantage of Reg S is that investors are not required to be accredited. Reg S and Reg D offering documents are very similar and will usually be written by your attorney for a low cost.
Services that we provide for STOs
Cost guide for a Security Token Offering
Timeline Schedule for a Reg A+ STO
Note that I am not a securities attorney, I recommend that you consult yours. We will introduce you to attorneys that specialize in this field if you request and as part of our service when you make your compliant STO offering with us.
Written by Rod Turner