Raising capital: token financing or sale of company shares?

The mega-trend of the “tokenisation of everything” inevitably leads to the possibility of tokenising a company’s fundraising. This can be done with regard to a specific project, i.e. the tokenisation of a project or asset financing. Alternatively, the tokenisation of a company’s financing can also be considered.

The granting of participation and property rights can be designed flexibly because a token can represent company shares, allow use, represent participation and property rights, or can be used as a means of payment. Why? Because a token is a digital unit that can stand on its own (then mostly as a means of payment), or the token represents whatever the issuer of the token promises as a right of the token holder. And in principle, this can be anything or any combination of everything.

In the concrete design of the token, one should look holistically at the decision-making situation:

1. Who is the target group for the financing? Is it a selected group of financial investors and/or strategic investors? Is it a so-called private placement, approached via a sales partner? Or should retail investors be addressed via a broad public offering?
2. What exactly do you want to promise the investors, a participation under company law with the associated membership rights or a profit participation right with a share in profits, turnover or another target figure? What asset or co-determination rights, if any, are to be granted?
3. Do you want to use the financing round primarily or in any case also as a marketing instrument, in that certain rights of use are associated with the token that motivate market participants to buy the token and thus (also) to use the business concept or an ecosystem?
4. Should the investors be granted (graduated) exit options, for example by listing the token on a “decentralised finance” platform (DeFi platform) or via other exit instruments?

There are usually no easy answers to this. But what is available are suddenly completely different financing options compared to classic equity financing. Especially via the possibility of listing on DeFi platforms as well as the use of (prospectus-free) usage tokens (utility tokens), which simultaneously fuel the business model. At the very least, this should be looked at for a moment before going down the classic financing route.

Contact our specialised team of DeFi and blockchain experts here. From our highly topical advisory practice, we can provide concrete help.