What are the arguments in favour of raising capital via token financing through a profit participation right instead of via a traditional equity investment?
Every investor is familiar with equity participation, be it in a GmbH, AG, Limited or whatever the respective legal form is. There is a general understanding about participation rights, about the agreement of transactions requiring consent, about the basic exit possibilities from the investment. An exit via a listing on a (traditional) stock exchange is a fine prospect, but if that is a concretely realisable possibility, then the investment is already a great success. In the start-up or scale-up phase of a company, this is probably not (yet) the case.
With a profit participation right, on the other hand, there is any freedom of design as to what the investor receives:
The list could be continued indefinitely. This advantage of flexibility is at the same time a disadvantage: because for investors this is often uncharted territory and therefore there are reservations about venturing into the unknown.
But the unknown has immediately visible advantages: I can find investors for parts of the business in a differentiated way, I can provide this with a cross-border usable token structure, and I can give investors a quick way of liquidity via a DeFi listing, unlike traditional equity financing. It’s worth taking a moment to think about this alternative.
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