How exactly should you structure your security token offering (STO) to acquire investors?
In the newest episode of Stobox Insights, learn about:
🔸 Economics of debt financing and equity financing;
🔸 Problems of equity financing for new projects;
🔸 Equity financing options for new projects;
🔸 The importance of liquidity.
Request a free 30-minute consultation, if tokenization is an interesting mechanism for you: https://stobox.io/tokenization
Debt financing vs equity financing is the financing model considered the most by startups while getting funding from angel investors, hedge funds, venture capital funds, family offices, or HNWIs. If you’re a business owner in need of funding, you usually have two options: debt or equity financing. Debt financing is borrowing money from a third party and pledging to pay it back with interest at a future date.
When someone invests money or assets in a company in return for a portion of ownership, this is referred to as equity financing. Depending on your requirements, you can go with the advantages of equity financing or switch to debt financing.
Convertible debt is a possible option for startup funding. The convertible debt note earns interest until it reaches its maturity date, just like any other loan. Unlike a conventional promissory note, the convertible note frequently contains a conversion discount, a value cap, and other provisions that are intended to reduce the risk to the investor. Convertible preferred stock is a second possible option. Earnings per share just as price per share are the metrics used to calculate the company’s evaluation within equity financing. Revenue share is a system combining debt vs equity financing.
Similar to dividends, investors receive an income dependent on the company’s success rather than a fixed income. In the meanwhile, the investors are not shareholders and have no rights to any equity, only cash payouts. The right to redeem tokens is sometimes included in revenue sharing.
Liquidity is important for learning how easily a company can pay off its short-term liabilities and debts. All asset classes have varying degrees of liquidity. The easier it is for an asset to turn into cash, the more liquid it is. Stocks and bonds are non-cash assets that can also be most easily converted into cash. The higher the trade volume is for a stock or bond, the more liquid it is.
01:07 – Economics of debt and equity financing
04:31 – Problems of equity financing for new projects
06:00 – Equity financing options for new projects
09:22 – The importance of liquidity
10:24 – Last words
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