Security Token Offerings enable startups to raise money faster and probably more efficient in the long run. STOs like tzero that raised 134 million US-Dollars prove that there is a broad access to capital. However, investors of any type can also massively leverage the benefits of tokenized assets.
Investing in a startup VS. investing in a tokenized startup
First of all, tokens are much easier to transfer and handle than equity that requires a notary appointment whenever shares are moved between shareholders.
What holds back many investors most, though, is the fact that they simply can not freely access their investments. May it be to transfer them or to sell them. Both requires a lot of effort. Once the investment is done, the capital is bound. It can’t be accessed, it can’t be reinvested, it can’t be spent.
This is different with security tokens. Assuming that the investor posseses an equity-like token, he could move it at any time. The transaction costs are so small that they are even neglectable.
But what is most important is the fact that this asset is liquid at all. This drastically changes the liquidity of the investor if he can exit way before than he could with a classical company. Statistics say that the median time till an exit usually takes 8.2 years. Oftentimes, VCs are bound over that time and have to hold their shares. If a better investment opportunity comes up and the VC does not have enough liquidity to buy in, he simply misses the opportunity.
In the case of security tokens, the asset can easily be liquidated and the capital can be used elsewhere. This has a positive impact on the flexibility of decisions when it comes to investments. Instead of selling the shares in the next round, investors can adjust their positions according to their strategy.
Clearly speaking, tokenized equity or equity-like models are very new to the market. Given that, the amount of startups, and specifically promising startups, is small. However, there are a few success stories that were already made of STOs and more projects are ramping up for their token sale.