WhiteDec k Fundamentals Tokenomics - An industry endorsed framework to clearly articulate a security token offering - Security Token Network
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Security
Token
Network
Fundamentals
Wh ite D e ck Tokenomics
An industry endorsed framework to clearly articulate a security token offering.
Version 1.0 | 14th January, 2019 | token.security/whitedeckSecurity
Token
Contents
Network
Why? 3 Type of Security Tokens 22
Expert Insights 4 Token Mechanics 23
The STO Journey 5 Legal Considerations 24
Token Compliance 25
Fundamentals 6
Token Allocation 26
Pitch Your STO 7
Token Issuance 27
Problem 8
Token Sale 28
Solution 9
Token Exchange 29
Product 10
Market Making 30
Market 11
Business Model 12 Financials 31
Competition 13 Expert Insights 32
Traction 14 Financial Overview 33
Customer Acquisition 15 Financial Forecast 34
Team 16 Valuation 35
Partners 17 Usage of Funds 36
Investors 18 Ask 37
Roadmap 19 Tips 38
Contributors 39
Tokenomics 20
Legal Disclaimer 41
Expert Insights 21Security
Token
Network
Companies need a unified way to The WhiteDeck combines the proven
communicate STO fundamentals VC investment deck with token
WHY?
to investors and key stakeholders. elements of the ICO whitepaper.
Investment Deck ICO Whitepaper STO WhiteDeck
Business
Fundamentals
Tokenomics
Industry Endorsed
FrameworkSecurity
Token
Expert Insights Network
In an STO, compliance is enforced and automated through ICOs began to redefine innovation funding and capital
the use of smart contracts. This results in a reduced number markets. But with scams and frauds all over the place, we
of middlemen taking their fees and slowing the process now need to regain market trust with higher standards and
down. As a direct consequence of less middlemen, the issuer the markets embracing regulatory compliance and Digital
can form a direct relationship with the investor and ensure Securities offerings. The Whitedeck is a great contribution to
these important connections are managed effectively. achieve data transparency about digital assets.
Luc Falempin | CEO, Tokeny Philipp Pieper | CEO, SWARM
As the first French self-regulated agency in the crypto The bridge between the old and new economy was initiated
industry and being at the origin of the first European charter by the ICO's movement. Now, that bridge is being
of best practices for token sales, I sincerely believe that the strengthened by STOs, a new class of crypto-assets that
WhiteDeck initiative is essential in order for the market to cements this fabulous and promising technology with
mature and develop further. old-school institutional finance. It is essential to have proper
Laurent Leloup's | CEO, Chaineum Capital Partners guidance from the most renowned entities of the industry.
Gilbert Réveillon | President CNCEF & CEO Mobile LOOVSecurity
Token
The STO Journey Network
Robust company IT security Legal & custodial Bank arrangements Ramp up marketing
STO scope, timeline, Engage with STO
policies and systems work completed and KYC approved on proven channels
resourcing, and costs consultancy
Pitch deck to investors for Private sale started, OTC Brokerage
Assess business Assess STO
early-stage feedback broker-dealer (crypto-to-fiat)
fundamentals and suitability
engaged solution
fundraising readiness
Token governance
framework completed
Week 1-3 Week 4-6 Week 7-9 Week 10-12 Week 13-15 Week 16-18 Week 19-21 Week 22-24+
Engage with STO Engage with token Ensure bank supports
Crowdsale (depending Select liquidity Liquidate funds if Token issued and
ecosystem key players issuance platform deposits raised from STO
on exemption) provider raised in crypto wallets enabled
Token economics and Marketing and Begin execution and
Crowdsale whitelist and Close sale: governance,
mechanics defined distribution plan marketing experiments
contribution platform reporting, audits, accounts
Application with securities Review existing Fundraising strategy defined
Select Security Token Initiate on-going
agencies (regulators) for investment and network engaged
Exchange management processes
registration / exemption in contracts
relevant jurisdictions
The WhiteDeck is supported by:
Los Angeles Taipei Hong Kong
HELIOSSecurity
Token
Network
Fun dam entalsSecurity
Token
Network
You should be able to hook
investors in 30 seconds, pitch for
six minutes, and be prepared for
difficult questions.Security
Problem
Token
Network
Investors will filter for potential investment op-
portunities by asking themselves: “Do I believe
Slow Opaque
this solves a real and big enough problem?” Inaccessible Excessive
Thus, if the problem is not convincing, it does
not matter how well your solution to the prob- Untrustworthy Conflict of Interest Wasteful
lem performs. So how do we communicate, the
size, depth, and intensity of the problem in a
slide?
Complicated Manual Expensive Inconvenient
Insecure
Checklist Unstable
Unreliable
Explain the nature of the pain your cus- Legal Challenges Impersonal
Risky
tomer faces and how it arises.
Explain what demographic tends to ex-
perience this pain.
Explain how severe and intense this pain
is. What are all the ways it affects the cus- The problem must be achievable, i.e. global
tomer? clean water vs. local dirty wells. The problem, solution, and product slides are
Explain how often the customer feels this geared towards technology companies. If
pain. Don’t be too niche, i.e. crypto wallets for South
Korean Dash users. there are very low barriers to entry. You should
Explain how alternatives to your solution
solve these problems, and how their solu- focus on your story. For example, whilst there
tions are not satisfactory.
Indicate the size of the problem, how many
people are affected, and how often they expe- are minimal barriers to entry for producing
Examine why this problem has not yet rience it, sub stantiated by data. and selling cakes, your captive story is what ini-
been solved before your solution.
tially grabs attention.
Force investors to see the problem from the
customer’s perspective.Security
Solution
Token
Network
Investors want to know that your solution is
extraordinary, innovative, and disruptive.
Cheap
Having these qualities means your solution Stable
works, is difficult to copy, and is hard to com Secure Streamlined
pete against. This is part of the recipe for
building a successful business.
Accessible Efficient
Compliant
Checklist
Explain how you solve the customer’s Personalized De-risked
problems. Transparent
Aligned
Explain why your solution is unique, and
demonstrate your customer insights. Convenient Reliable
Automated
Explain why your solution is better than
the alternatives. How are you not only Trustworthy
unique, but better?
Cost-saving
Describe your unfair advantage. What do
you have that your competitors struggle
to recreate?
Network effect: community
Rich proprietary data
Partnerships Mention how your solution addresses each of
Higher margins the problems you’ve listed. The solution should be your special
Brand awareness
Strategic investors Why your solution is different and better than sauce. You need to communicate
Regulatory advantage
what currently exists on the market?
Government support that you’re special, not just another
Do not overstate your solution. Your traction lemonade stand.
and customers is the proof that it works.Security
Product
Token
Network
Investors want to know if the product you have Daily Physical
built actually delivers the solution that you
claim. They want to know how your customer
uses your product and how you make money.
Seasonal SaaS
Checklist
Explain how your customer find out
about your solution. How often What is
Do you have a scalable way of reach-
is it used? the product?
ing new customers? Realtime FMCG
Demonstrate how the customer uses
your product.
Break it down into simple steps. Your
Product
Reveal the step at which your company
gets paid. Defensible
How much? User
How does this cost compare to alter- Is it Journey
How does
natives? scalable?
it work?
Indicate when the customer uses your Automated
product again.
Does the customer come back again
and again? External
Secure Dependencies
Repeatable
A professionally edited video demonstration Payment
Geographic
of your product that is no longer than 45
Reach
seconds is the best way to explain how it
works, and this can be used in a live pitch.Security
Market
Token
Network
Investors will also evaluate a company by
considering whether its target market is big
enough.
How large your market is does not just refer to
the market you are currently serving.
Market size can refer to the set of customers
TAM SAM SOM
you are targeting to serve as your product
scales.
Consider showing market growth and
forecasts in your sector, especially for new
markets. Also, market status and recent
developments.
Checklist
Substantiate your TAM / SAM / SOM
figures. The total value of every conceivable The total value of every customer You have competitors and con-
customer, e.g. everyone in the word you could reach, for example in straints. If you serve all the cus-
Ensure the figures align with your who eats pizza ($128bn) your country ($44bn in USA) tomers you can reach, how much
financial model and forecasts. money would you make? E.g. 2%
market share is roughly $1bn
TAM — Total Addressable Market If the market size is not significant, then it
SAM — Serviceable Available Market becomes a ceiling which will restrict your
SOM — Serviceable Obtainable Market growth potential.Affiliate Program Freemium Reverse Auction
Business Model
Receive royalties for the right to sell a product. Free basic services, chargeable premium service. Set ceiling price with participants bidding as price
(ShareASale) (LinkedIn) drops. (UpWork)
Marketplace Leasing Standardization
Connect buyers and sellers, per-transaction fee. Rent, rather than sell, high-margin, high-priced Standardize previously personalized service to
Business models are repeatable, scalable, and (Binance) products. (Hertz) lower costs. (MinuteClinic)
Business Model
resilient to changes in the market. You must Bundling Razor Blades Subscription
demonstrate that your business has an estab- Package related goods and services. (Fast-Food Offer high-margin razors below cost of increase Charge subscription fee for access to a service.
value Meals) sales of the high-margin razor blades. (Gillette) (Netflix)
lished and reliable way of making money, i.e. a
revenue model. SaaS Negative Op Cycle User Communities
Flexible charging based on service level. (HubSpot) Lower prices by receiving payment before deliver- Charging both membership fees and advertising
ing. (Amazon) to members. (Angie’s List)
Without a business model, you will never know
whether you can put food on the table tomor- Crowdsourcing Pay-as-You-Go Low-Touch
Large group contribute content in exchange for Charge for actual, metered usage. (Utility Compa- Lower prices by decreasing service. (Walmart)
row or the day after. You will always be at the
access to other content. (YouTube) nies)
mercy of the markets, with little control over
your fate. Disintermediation Product to Service Fractionalization
Sell directly, sidestepping traditional middlemen. Sell the service the product performs, not the Sell partial use of something. (NetJets)
(WebMD) product. (ZipCar)
Checklist
Business Model Lean Canvas - tZero Case Study
Identify if you are a B2C or B2B business.
Problem Solution Unique Value Prop. Unfair Advantage Customer Segments
Describe how you leverage your business
Following an STO, tokens tZero provides a secondary Digital Locate Receipt (DLR) Significant fundraising make 1. Investors in STO who want
model to make money.
need to be listed on an trading platform. is intended to "automate acquisitions and obtain the to sell their tokens post
exchange for liquidity. traditional REG SHO locate appropriate trading licenses. lock-up to other investors.
Discuss your market insights.
process to meet operational 2. Traders who want to profit
“Our business model will remain and regulatory require- from security token volatility
relevant because this key market ments." on the secondary markets.
trend will continue to persist.”
Discuss the potential for your business
Existing Alternatives Key Metrics Channels Early Adopters
model to evolve with:
1. Number of trading accounts 1. Security token or crypto 1. Early STO investors in 2019.
Higher margins registered. media. 2. Market makers integrating
More customers 2. Number of daily active users. 2. Partnerships with token services into the exchange
Cutting out middlemen 3. Average volume of trades issuance platforms. to provide early liquidity and
per active user per day. 3. Influencer marketing test out market dynamics.
channels.
Security
Token Cost 1. Infrastructure maintenance and expansion. Revenue 1. Fee on a per transaction basis.
Network Structure 2. Regulatory compliance. Streams 2. Listing fees for tokens.
3. KYC/AML on accounts. 3. Collocation services for high frequency trading houses.Security
Competition
Token
Network
Investors will always think about your
competitors, especially if those competitors
Fast
are massive industry players.
Address investor concerns about your
Comp. #1
competitive edge before they vocalize them Your
in order to instill confidence. Project
Checklist
Identify two ways that your product
outperforms your competitors. Comp. #5
Comp. #4
List one of these performance measures on
the horizontal axis, the other on the
vertical axis Non-user friendly User friendly
Always position your product in the top
right corner.
Position your competitor’s logos
in other quadrants to signify that they
underperform compared to you.
Comp. #2
Comp. #3 Why should I not invest in one of
your competitors? How are you
better for your customers?
SlowSecurity
Traction
Token
Network
B2B Key Metrics B2C Key Metrics
You can talk the talk, but can you walk the
walk?
Revenue: How much money you are making. Revenue: How much money you are making.
Investors will ask for cold, hard proof that what Major Customers: Recognizable brands that User Growth and Community: Number of users
you are claiming is true. Prove your business have purchased your product that demonstrate purchasing or supporting your product.
with the traction slide. validation. Conversion: The percentage of your traffic that
If you do not yet have revenue, reference other Sales Growth: Shows your ability to convert converts to sale.
traction metrics found on the right hand side. and grow sales. Traffic: The top-line number of users exposed
Customer Commitments: number of MoU, to your product.
Checklist Letter of Intent signed demonstrating the top Marketing Spend: Is marketing efforts effi-
of your sales funnel. cient and scalable? Demonstrate how organic
Identify if you are a B2C or B2B business.
Industry: The industry the project is operating acquisition lowers costs.
B2B vs. B2C metrics or graphs will
look very different. in is an essential piece of the puzzle and is Retention: How often users engage with your
B2B growth is typically more linear. used to give further context to the operational product, and how often then come back (MAU
B2C growth is (ideally) geometric or review. / DAU).
exponential.
Target: The main target audience is evaluated,
Include the key metrics that best describe
including whether they are B2B or B2C. 10000
the balanced growth of your business.
Intellectual property: Particularly for technolo- 9000
Include a graph of most important
metrics, going up and to the right.
gy companies, any patents or unique IP will be 8000
analyzed to find strengths that can be leveraged. 7000
6000
5000
4000
We been using ABC service for six months. It resulted 3000
in a 15% cost reduction, and the team is great.
2000
Very Happy Customer 1000
5
5
05
05
5
05
05
5
5
5
00
00
00
00
00
00
20
20
20
20
/2
/2
/2
1/2
/2
/2
/
/
5/
8/
26
24
29
22
15
19
12
7/
8/
7/
7/
8/
8/
8/
6/
7/
7/Security
Customer Acquisition
Token
Renowned&Co Network
How will you actually sell your product, and Acquisition
how much will it cost? Investors know that it’s
extremely hard to launch and sell a product or
service. Where / how are customers first exposed to your
solution?
User Economics
Ideally, you already have channels that perform
What is your best performing channel (CTR)?
with quantifiable metrics. Is this channel scalable and cost-effective
For an online business:
long-term (CAC)?
“CAC is $7.20 with paid ads.”
“LTV of $400. Given current ad spend an
reach there is 1000x scale on this channel.”
How do you get customers to sign up or engage
For a B2B business:
with your product?
“We have two sales staff who reach out to
25 leads per day.” What is your customer conversion rate?
“We close 5% of deals and are profitable
on the first sale.” Activation Is your customer onboarding process efficient
“We estimate that we’ve contacted 0.01% and does it present the fewest possible
of potential leads in the past year.” barriers?
What percentage of all your customers keep
Brand Marketing & Awareness coming back for more (LTV)?
During your sale, your investors are your
customers, especially if you run a crowdsale. You Retention What methods do you use to retain your
will need to allocate additional resources for customers?
marketing and community management.
You are likely marketing a security, so seek legal
advice. Market fairly, transparently, and comply
with the law.Security
Team
Token
Network
Your mission is to convince investors that you
John Doe
are the best people to develop this company Tom Walt John Doe
and pursue the opportunity. Core Team & Advisors CEO & Founder Core Team & Advisors
What have you achieved and why is it relevant
to the business you are building right now?
What skills have you honed that are going to be
crucial for the success of the company?
What do you know that others do not? What’s
your secret sauce? Can you deliver? Do you have
the passion?
Focus on the tangible before leading into the
abstract. Where you went to school is often Founder Core Team & Advisors
irrelevant.
Headshot photo (should all have similar Headshot photo (should all have similar
You should separate your team and advisors backgrounds) backgrounds)
into different slides.
Name (full legal name, searchable on LinkedIn) Name (full legal name, searchable on LinkedIn)
Title (CEO, COO, CTO) Title (CEO, COO, CTO)
Brief biography focusing on tangible achievements Work History (big logos)
Work history (big logos) For STO (previously ICO) advisors, be cautious when they:
Education (do not emphasize, but include) Actively advise on more than five projects.
To deliver your STO you may need additional re- Make unrealistic claims such as having huge investor
networks.
sources, such as a project manager, lawyer, ac-
countant, tax specialist, web developer, IT securi- Request upfront payments or percentages of your raise.
ty expert, and/or designer. Emphasise their ranking on ICO sites, e.g. “#2 Top Rated
ICO Advisor”.Security
Partners
Token
Network
Partners can be fantastic for the growth and
development of your business.
Additionally they provide a level of validation as
other reputable companies have bought into
what you’re doing. Cross
Marketing
There may be crossover, for example a joint
product development project many result in
co-marketing.
Checklist
Ensure your partner contributes real value. Your
Distribution
How do cross-marketing partners increase Company
brand awareness or sales?
How do distribution partners deliver your
product through their channels?
How do your product development
partners contribute to final development?
Consider a brief company introduction for
your partner, for market size, revenue, and
business metrics.
Product
DevelopmentSecurity
Investors
Token
Seed Network
Often, a traditional investment round has the
following characteristics:
There are lead investors who invest a large
portion of the round and set the terms.
There is a subsequent group of investors
Presentation
that follow the lead. Investment company
The first quarter of the round is the London, United Kingdom
hardest to secure. Under exceptional circumstances you may
include commitments from your current round.
Figure out the needs and interest of smart
For example, past investors following on, or
money, i.e. investors who can bring industry
institutional grants.
USD
expertise, networks, other investors, and
customers.
Outreach to investors:
Year
If you have accomplished investors or Seed
funds already hard committed, then you
Amount
can use them to outreach to other
investors.
Stage (Seed, Series A/B, Crowd)
This is the concept of using a lighthouse:
an entity that you can hold up to attract
other boats to shore. Investor name
Investor logo
Investment company
Shanghai, China
Investor biography (10 words)
USDSecurity
Roadmap
Token
Network
Whilst a roadmap was an essential part of an
ICO whitepaper it does bring downsides.
Unless you have a world-class team with a huge
chance of success, investors won’t invest in Roadmap Example
ideas. Most investors look to grow an existing
business.
Milestone 1
This is more apparent with STOs than ICOs, Milestone 2
where there is a shift from flips of hyped tokens, Milestone 3
to investing in business fundamentals.
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 2018 2018 2018 2019 2019 2019 2019
Checklist Goals 1
Goals 2
Is the item linked to growth that is Goals 3
backed by existing metrics?
Would investors appreciate their money
being spent in this way? I.e. a new
downtown office isn’t a good milestone. Product goals are good, ideally developing on Traction goals, like X number of customers,
an existing working product. X number of sales.
Having over-ambitious milestones could
deter investors or compel them to hold
off until you reach your milestones. The roadmap should compliment your story. Keep it grounded, and for 1-2 years.
Having the milestone “ ” would emphasise that
you are focused on growth, whereas “Hire
development team” will raise red flags.Security
Token
Network
Token omicsSecurity
Token
Expert Insights Network
Companies who are doing an STO need to consider whether Tokenization streamlines the process for SMEs and start-ups
to do it in-house, which introduces custodial, banking, legal, to issue and maintain financial instruments. Programmable
and compliance work. Alternatively, they can select an compliance and increased transparency reduce
issuance platform who have optimised the process. administrative fees, ease regulatory burden and increase
investor confidence. Through tokenization we are bridging
Ulyana Shtybel, Ph.D. | Vice President, High Castle
the gap between private and public markets, opening
previously illiquid assets to a global audience.
Benjamin Hauser | CEO, HyperLink Capital
Securities will be tokenised in the future but there’s still a We view tokenized securities as just another variant of a
lot of processes and infrastructure that needs to be security – is it a paper bond, digital share or tokenized security.
created before they become a reality. There has been a So ask yourself – is your offering compliant with relevant
bit of damage done by errant operators that didn’t care existing securities legislature, and is the secondary trading
about the legality of what they were doing. To make occurring on a regulated stock exchange or equivalent.
things worse, the information provided was usually
Chuan Ji Lim | Senior Manager, Gibraltar Stock
lacking in some major areas.
Exchange Group
Sam Gibb | Managing Partner, Endeavour VenturesSecurity
Types of Security Tokens
Token
Network
Whilst the WhiteDeck generally focuses on an equity STO, there
are many applications and possibilities for security tokens.
Whatever the use case, strong business fundamentals will always
be paramount.
Security Token Use Cases
Equity Tokenization: A new asset class of smaller market cap
Security Token
companies with liquid tokens representing equity brings
transformative effects to the VC industry. Typically characterized
as the most illiquid asset class, VC investments will likely increase
in volume if only investors could offload or onboard risk as
necessary. The companies underlying these tokens are likely to
be Series A startups all the way to family-owned SMEs.
Asset Tokenization: Asset tokens refer to tokens which
denominate ownership of a certain quantity or amount of an
asset. The complexity of implementing such token varies as
underlying assets may range from commodity goods to real
estate, other securities, fine art, or other unique goods. Given that
Asset Equity Security
a high volume, high liquidity commodities contract market
already exists, it is likely that asset tokens will skew towards Represents direct ownership Represents outstanding debt, Value is based on the success
unique goods and real estate. in an asset or through a value is based on interest rate of the underlying asset.
derivative. and creditworthiness.
Bundled Financial Products: As the volume of equity and asset
tokens increase, new asset classes will appear which offer Stocks, futures, options, Bonds, mortgages, loans, Funds, ETFs
broader ranges of exposure. For example, it may be possible to art, property. debentures.
implement a tracker of all European fintech startups or
automotive component manufacturers together with correlated
asset tokens.
Crowdfunding 2.0: A music band could crowdfund their tour
and issue a token that pays dividends to investors or to a charity
of their choosing.Security
Token Mechanics
Token
Network
A big question for utility tokens is whether it's Governance If you plan to have a utility token
actually needed? How does the token integrate efficiencies (in-platform use) it should be completely
Fundraising
dis intermediated from the fundraising or
into your ecosystem and will adoption be high
financing element as investors and users
enough.
are likely to be two very different groups
with conflicting interests. A dual-token
The value of utility tokens (ICO) is driven by
system may be a solution.
factors such as token velocity, whereas security
Rewards How does it
tokens (STO) are bound to an underlying asset.
benefit your Increase
company? community
Depending on your business model and usage of
token, the token mechanics may not be relevant. buy-in
For example, the use case for a Series B startup
using an STO to do an equity round is clear - the
token holder owns part of the company. Discount Why do
models
How does it you need a
The Power of Smart Contracts benefit your
Through smart contracts you can scale and token? Liquidity
customers?
automate complex features. For example, rather
than offering straight equity to investors you
could offer a revenue share, either through Mi
cro
payment distributions or buy back from the Incentives How does it -ow
ne
open market. benefit your rsh
ip
investors?
Checklist
Tr
an
sp
ar
Get expert feedback on your token Customer
en
Go
cy
model. experience
Div
Consider features that you can
ver
leverage blockchain technology
e
Dividend
na
Be prepared for difficult questions as to
r
If your STO is for an equity raise,
payouts
s
for that make your STO more
i
n
fi
why you need to tokenize your equity or there likely won’t be any direct
ce
attractive than a traditional
c ation
asset. customer benefits. equity raise.Security
Token
Legal Considerations Network
What’s the cost of What constitutes an accredited
incorporation? investor in the jurisdictions you
are fundraising in?
What’s the government
Can you open a bank account
stance?
What’s the and what’s the local KYC or
taxation policy? Do you need a AML policy?
legal opinion?
What information can you collect
Crowdsale or private sale, accredited
Do you need to consider about your investors and where will
investors, any exemptions? Exemptions
DLT regulation? What is the type of asset it be stored? Data privacy or GDPR.
or accredited investor requirements for
(equity, debt, or security)?
a crowdsale or private sale?
How much are you
raising?
Ensure all your suppliers are suitably licensed and understand all
legal implications (which vary based on jurisdiction):
Is the jurisdiction likely to
change their regulatory Anyone handling your token such as issuers, exchanges, liquidity
stance on DLT? providers, and custodians will need to be regulated.
Media companies may not be able to rate and rank financial
securities. For example, listing sites scoring your project.
Marketing agencies may need to be licensed to market
financial products.
Fundraisers may need to be licensed broker or dealers.Security
Token Compliance
Token
Network
An STO requires a host of regulatory and legal
compliance measures. These are determined by
the jurisdiction of the investors’ residency, and
Regulatory
the jurisdiction of the issuer (the company).
Know-Your-Customer (KYC) is a regulatory re- Permitted or Restricted Countries Transfer restrictions may need to be in place for your token.
quirement to prevent money laundering, and
also necessary for on-boarding accredited inves-
tors. Securities Exemptions For example: Reg, A+, Reg. D 506c, and Reg. S.
KYC / KYB / AML Policies PEP, watchlists, sanctions, terrorism, match logic (2+2), GDPR.
Your bank won’t allow you to deposit funds
from your raise if you cannot demonstrate rigor- Accredited Investors Private placements target accredited investors who are
ous KYC procedures, which must be fully audit- classified differently based on the jurisdiction.
able.
ICO projects that held onto their crypto for an
extended period of time have suffered as a
result of price depreciation. This issue has been
somewhat alleviated by stable coins for STO
raises. Legal
However, the complexity of liquidation still per- Supported Currencies for Sale Major cryptocurrencies, stable coins, and fiat.
sists. You must be able to sell your crypto for
fiat, and deposit the fiat into your bank account OTC Brokerage Crypto or stablecoins fiat bank liquidation.
Custodial Provider Bridge traditional share certificates with smart contracts.
Checklist
Bank Account Must be willing to accept crypto-linked deposits, must
Ensure you have very robust whitelisting have audit trail on all crypto transactions.
and KYC processes.
Escrow An escrow provider will hold raised funds until a certain
milestone is reached.Security
Token Issuance
Token
Network
You will need to create your token, configure its
parameters, run your STO, and manage token
holders following the sale.
Selecting a Token Issuer
//Smart contracts. Automate your investment contracts & processes Ensure that your token issuer can
Technical { support all of your legal, regulatory,
The blockchain you choose should be scalable,
“Shareholder Reporting”: “Regular positive communication to governance, technical, exchange, and
tried and tested in a production environment, liquidity requirements.
and have vibrant ecosystem. Most issuers build your investors will help underpin your token price”
on one blockchain. “Share Classes”: “Common / Preferred” Blockchain
“Voting”: “Enabled / Disabled” Ethereum, Stellar.
Standards
“Dividends”: “Paid in USDT”
Your token should adhere to common standards. Token Standard
It should work on different exchanges and crypto “Lockup (for investors)”: “12 months”
T-REX, ST20, R-Token, DS Protocol,
wallets, similar to how TCP/IP allows for seamless “Vesting (for founders/advisors)”: “6m / 12m / 18m / 24m” SRC20, Neufund, ERC1404, TM-01,
global communication on the internet. ERC1450, Atomic DSS, CAT Token, SFT.
“Buy Back”: “Company buy back from investors”
“Pro-Rata”: “Right to a certain % of round” Fee Structure
Governance
An exciting proposition for STO’s is that “Anti-Dilution”: “Enabled / Disabled” Commission, fee, or subscription
traditional, manual, and expensive governance “Drag Along / Tag Along Rights”: “Enabled / Disabled”
API
models can be automated and secured on the
“Liquidation Preference”: “Preferred First” Connect with third-party services such
blockchain. You can introduce attractive,
“Atomic Swap”: “Paper certificate to token” as accounting software, banks, and
never-before-possible features with your token to
analytics.
benefit your company, investors and customers. “Whitelist”: “Classification”
“Transfer Rights”: “Between wallets” UI/UX
Checklist } Your customers must have a great
experience during the KYC and funding
//Security Token Network process.
If you have existing investment contracts are
aligned. Ensure your STO smart contracts are
aligned with your existing smart contracts.
Depending on your token issuance solution, investors may request smart contract security audits. This is to give
Other contracts such as shareholders
them reassurances that funds they contribute and tokens they hold are secure. You also need to consider the
contracts.
liability in the event of smart contract defects.Security
Token Allocation
Token
Network
If you are raising for an existing company, will
you tokenize all your equity? If you choose to
partially tokenize a cap table it may introduce
some complexities: Equity Allocations Token Allocation
How much equity will you tokenize?
Will existing shareholders have an option to
swap their existing equity for tokens? Reserve Pool 7.5%
Will you have multiple share classes?
ESOP 9.1% Liquidity Pool 5.0%
How will new investors perceive this
approach? Token Allocation 22.7% Rewards 5.0%
Angel Investors 7.6% Advisor 7.5%
If you choose to fully tokenize your cap table,
you’ll need to work with your existing Founders 60.6% Partners 5.0%
shareholders to convert the equity. Private Sale 35.0%
Either way, your total token pool should
anticipate future allocations from the reserve
pool.
Common Share Class
Checklist Token Lock-up
Review existing investment contracts and 20% 20% 20% 20% 20%
speak with your existing investors.
Make a list of existing investor rights.
Sale End 6 months 12 months 18 months 24 months 30 months 36 months
Whilst vesting and lockup periods transfer easily
over from the VC world, there are new features
you can implement. For example, your investors
10% 15% 15% 15% 15% 15% 15%
could vote to release funds based on milestones
being achieved. Ordinary Share ClassSecurity
Token Sale
Token
Network
Discount Schedule — Attractive discounts
During 2019, an STO is likely to be more complex can encourage early investors (or lead
Token Class Security
and expensive than a traditional equity raise investors). Be sure that heavy discounts won’t
because it lacks economies of scale and Type Equity impact future token price.
standardization. As adoption increases,
compliance automation and commoditization Raise Amount $10,000,000 Soft Cap — In venture capital, a round will
will drive down costs, ultimately lower than typically close when enough investors have
Pre-Money Valuation $50,000,000 committed. In an STO a soft cap can achieve
traditional fundraising methods.
Post-Money Valuation $60,000,000 this.
In the ICO world a strong tokenomic model Refund — If you have a rolling close, but don’t
Dilution 10%
could be the difference between success and reach your funding target, you need
failure. Is your token (your business) a sound Tokens Issued 1,000,000,000 processes to refund investors.
investment?
Token Price $0.05 Commitments — Commitments are tracked
through a whitelist (KYC portal). For a private
Considerations
Duration 56 days sale expect to convert about 30% and for a
Are you raising enough to justify.
crowdsale less than 10%.
High up front costs
Long time frames Future Raises — If you plan to issue more
Team and resources tokens, you need to strategically plan to issue
Discount Price Per Token Tokens Raise (USD) % of Total Supply more tokens and consider dilutions.
High marketing costs
Presale 15% $0.043 10,000,000 $430,000 1%
Sale Strategy Pre-Sale
Pre-sale (Bridge Round): Can be for a smaller A pre-sale may be used to raise funding to
Tier 1 12.5% $0.044 20,000,000 $880,000 2%
raise amount that can be used to fund the finance the STO, however:
main sale or to achieve milestones to allow for a It should not be too close to the main sale, i.e.
Tier 2 10% $0.045 30,000,000 $1,350,000 3%
larger future raise. six months cap rather than six weeks.
Tier 3 7.5% $0.046 40,000,000 $1,840,000 4% Careful you don't appear too preferential.
Private Sale (Seed Round): Fundraising from
It may be OK to state that investors in your
private and accredited investors. In the VC
Tier 4 5% $0.048 50,000,000 $2,400,000 5% bridge round received a bigger discount as
world this is usually fewer than ten investors.
they took more risk.
Tier 5 2.5% $0.049 60,000,000 $2,940,000 6%
Public Crowdsale: Openly marketing and Cap the amount to avoid creating a markup,
selling to members of the public, subject to i.e. $300k rather than $3m. Big discounts early
Sub Totals 8.75% $0.005 210,000,000 $9,840,000 21.5%
regulatory and legal constraints. on can create a markup for future investors.Security
Token Exchange
Token
Network
You are issuing a token that can be openly
traded on regulated security token exchanges.
Exchange Ticker E.g. Bitcoin is BTC
Investors will look for reassurances that you’ve
considered how to ensure there is a secondary Exchange Listings Regional cover (US, Asia, Europe)
market for your token.
Liquidity Pool of Your Token Usually >$100k per exchange
Fortunately, there are providers who can assist.
You generally won’t publish this publicly as Liquidity Pool of ETH or BTC Usually >$100k per exchange
you’ll be under NDA from your partners.
Pairing Your token + BTC, USDT, ETH
Whilst exchanges provide the most liquidity
your token, licensed broker or dealers can also Listing Date Important for some investors
trade with each other and sell to accredited
investors. This provides a way for investors to
trade.
Selecting the right exchange
Checklist
Trading volumes. If the exchange has low The Exit Strategy
Supports your whitelist and KYC processes.
trading volumes, there is unlikely to be
For example, limits the transfer of stock to The exit strategy slide is commonplace
liquidity for your token.
accredited investor wallets in a specific in pitch decks. How do you plan to give
jurisdiction investors their money back?
Jurisdiction and regulatory compliance.
Liquidity requirements - how much capital Token exchanges enable your token to
and equity you need to provide for market
Can clients buy with fiat? If they can only pay be bought and sold. Depending on
making?
with crypto, they may need to buy crypto on your lock-up periods, investors could
Support for your token technical standard,
another exchange first, increasing friction. sell their equity holding within months
e.g. T-REX. rather than years. It’s the strongest
Support for your liquidity provider (may value proposition for your investors.
Listing fees. Some exchanges charge $50k+
require an API integration).
for listing.Security
Market Making
Token
HELIOS Network
Despite the regulated nature of security tokens,
when your token has a micro-cap in a global
market where 24/7 trading is possible, you need Ensuring liquidity exists for your security
to consider liquidity and price protection. Token Wallet
token is crucial from the moment it can be
traded. Low liquidity assets are more
What is liquidity?
An asset with high liquidity has a large volume susceptible to market manipulation and
of orders in the market, making it possible to can lead to ‘pump and dump’ activities that
Security Token
buy and sell large positions in a short period of Exchange destroy investor confidence.
time. It is very hard to fake liquidity, since capi-
Token Issuance
tal must be tied up on the order book. Your market maker must have adequate
inventory risk and spread management
There are only three things that traders need:
Market Maker systems in place to ensure inward
Transparent, open, and secure markets. Liquidity investment into the token, encourage price
High liquidity, making it possible to trade
large positions in short time periods.
stability and make it desirable to trade.
Organic trading volume and demand on
both sides of the market (buyers and sellers).
Checklist
850K 78M
Do you need this service yet? If you forecast 800K
750K
low trading volumes because you’re busy 700K
62M
building your company, maybe it’s too 650K
early.
600K
Jagged order book, Excellent liquidity, with
550K
500K making it hard to trade at orders posted at every
450K
400K
certain prices. price.
350K
300K
250K
200K
150K
100K
50K
0.0
6326.0 6350.0 6360.0 6380.0 6393.5 6410.0 6461.0
0.00165 0.00170 0.00175 0.00185 0.00190 0.00195Security
Token
Network
Finan cialsSecurity
Financial Overview
Token
Network
The financial overview affords investors a
snapshot into company performance. 2013 2014 2015 2016 2017 2018
The income statement informs the investor as Revenue
to how you operate. It indicates whether you
are operating at a loss, at break-even, or at a
Cost of Goods Sold (COGS)
profit. This will give insights into your growth
sustainability and the amount of risk
accompanying an investment. Gross Profit
These documents should be prepared before Expenses
investor outreach to accelerate deal execution.
Salaries and Benefits
Checklist
Rent and Overhead
Income statement:
Revenue
Gross Profit (revenue - cost of goods Depreciation and Amortization
sold)
Expenses (before Income, Tax, Interest
Appreciation and Amortization =
EBITDA)
Net earnings Total Expenses
Audited company accounts (especially for
Earnings Before Tax
late-stage companies)
Bank statements proving revenue (for
Taxes
investor due diligence)
Net EarningsSecurity
Financial Forecast
Token
Network
Forecasts are more relevant to companies that
have meaningful financial histories.
Year 1 Year 2 Year 3 Year 4 Year 5
Early stage investors place little emphasis on
forecasts and are known to halve the projected Target Market
figures to represent more realistic outcomes.
Users
Nevertheless, they are important as an
expression of the company’s financial situation.
Active Users, After Chum
Ensure that you are able to justify any
assumptions related to company growth.
Market Penetration (Active)
Checklist
Revenue
Financial forecast excel template.
Total Annualized Revenue
Historical data on revenues, gross profit,
expenses, net profit.
Expenses
Assumptions such as tax rate,
non-increasing rent, accelerated sales
growth. Annualized Expenses
If you project higher sales growth in
coming periods, prepare justification. EBITDA
Conservative and an aggressive sets of
financial projections in which you hire Annualized EBITDA
more staff, expend more on marketing,
develop a product faster, and achieve
higher sales. EBITDA MarginSecurity
Valuation
Token
Network
Your
Established companies tend to be valued using Company
their mature financial information, whereas
startups tend to be valued on more of an
instinctual basis. This is also because certain
methods (such as Discounted Cash Flows) use
past financial data to extrapolate the future.
Startup Established
Startups tend not to have as long a financial
history as established companies.
Established Companies
Relative Valuation:
Comparable Analysis: P/E, EV/EBITDA,
EV/Shares
Precedent Transactions: EV/Sales,
EV/EBITDA, EV/EBIT Market
Relative
Intrinsic Valuation: Instinctual Sentiment Intrinsic
Valuation
Discounted Cash Flows: statement of cash Negotiation Valuation
flows
Assumptions: tax rate, discount rate, and
perpetual growth rate
Startups
Return Multiples: Industry
VCs need to obtain a certain multiple on Cost to Comparable Precedent
their RoI in order to return their fund Growth Discounted
Build Analysis Transactions
(taking into account follow-on rounds and Projects Cash Flows
their dilution).
Anything that de-risks the VCs investment
can increase your valuation: promising
sector, ace founding team, functioning
product, solid traction.
Raising from early-stage investors more
Historical Projected Historical Projected
closely resembles a negotiation rather than
a valuation. Cash Flows Cash Flows Cash Flows Cash FlowsSecurity
Token
Usage of Funds Network
Whilst a pie chart gives a quick indication
of how funds will be used, be prepared
16% to provide a detailed cost breakdown.
Operations 26%
Marketing
Presenting usage of funds is more
common in a public crowdsale. Traditional
VCs will usually inspect your financial
model directly.
4%
Crowdsale
Whilst this slide is more relevant to how
54% funds will be spent following an equity
Product raise, it may also apply to asset backed
tokens. For example, a portfolio of physical
assets.Security
Ask
Token
Los Angeles Taipei Hong Kong Network
This is the call-to-action of your entire deck; you
are seeking investment to grow your company.
Smart Money
Investors who can bring mentorship, customers,
partners, and open their network to you want.
Include these elements in your ask.
55%
Committed
Key points:
How much are you raising?
What are you raising this money for?
Contact information (QR code, email,
phone number...)
Checklist
This is a solicitation for investment. Ensure
that you are only sending a deck with this
slide to accredited investors. If you are
sending this deck to unaccredited
investors, remove this slide.
Dear investors.
So many customers love what we do, yet we cannot
serve them all as we’re are at capacity. With your funds
we can scale and address these unserved customers
and generate even more revenue.Security
Tips
Token
Network
Investment rounds have a lead who typically
negotiates the terms, with other investors Goals Content
following. Initial outreach to should include the
WhiteDeck plus any supplemental materials The objective of the WhiteDeck is to grab the An investment deck should contain 15-20 slides,
such as a product demo video. interest of investors and demonstrate to key plus an appendix.
stakeholders that your STO is well planned.
You can connect with investors through warm
introductions, pitch events, LinkedIn,
broker/dealers, and marketing. During your first Investors look at hundreds of deals. If you want It should not take more than five seconds for an
meeting you will have an opportunity to them to spend time reading your deck, it has to be investor to understand the main point of a slide.
introduce your company and STO. Do not clear, concise and straight to the point.
assume that they have thoroughly read anything
you sent. Be prepared for the standard
question that investors ask: “How are you
When filtering deals, investors often ask themselves Images are worth a thousand words. Consistent,
different to you competitors?” “Why should I not invest in this deal?” Attempt to clear, and quality branding is essential.
foresee concerns and constantly adapt your deck in
Checklist response to doubts.
An investment deck is often sent electronically. It is
Always establish the next steps before
meant to be read independently, without
leaving a meeting.
simultaneous feedback or explanation from the
Ideally, schedule the next meeting before company.
the first meeting ends.
Other Documents
Explain how often the customer feels
pain.
Based on regulatory requirements and broader best
Notify them that you will send them an practices be prepared to produce the following documents:
email to follow up on any next steps or intro-
ductions. Business plan
Sale and private terms and conditions
Send an email or group message confirming
next steps and thanking the investor for their Disclosures
time.
Website terms and privacy policySecurity
Token
Contributors Network
Richard Foster Brooks Rao Darren Camas Amy Diez James A. Butler, PhD
Security Token Network, Security Token Network, Security Token Network, DREAM, CFO Sharpe Capital,
Jack of all Trades & CEO Head of Research Senior Advisor at Cardano, Co-Founder & Director
Entrepreneur
Entrepreneur VC Blockchain Financial Modelling Liquidity
Chris Rawlings Luc Falempin Daniel Coheur Eamon Walsh Samuel Katz
22x, Founding Partner Tokeny, CEO Tokeny, Chief Strategy Tokeny, Head of Security Token Lawyers,
Officer Compliance Partner
Entrepreneur Token Issuance Token Issuance Token Issuance Legal
Laurent Leloup Thomas Réveillon Bertrand Theaud Matthieu Bonnici JT Law
Chaineum & France Chaineum, Partner Coinlaw, Founder & Coinlaw, Co-Founder Co-Founder,
Blocktech, CEO Managing Director VerifyInvestor
Advisory Advisory Legal Legal KYC
Nico Konrad Ivan Jelic Dr. Mervyn Maistry Scott McKenzie Alfonso Lopez De
DLT Capital, Managing DLT Capital, Partner Kintaro Capital, Chairman DLT Capital, Legal Castro
Director of Kintaro Capital, CEO of Consultant, PhD Corporate Director,
Konfidio Candidate
Financière d'Uzès
Fund Fund VC Legal Financial Services
Philip Millar Ivan Ripamonti Ulyana Shtybel, PhD Lewis Barber Sam Gibb
HighCastle, CEO Kintaro Capital, HighCastle, Vice President Helios Liquidity, Endeavour Ventures,
Head of Research at Kintaro, and Board Member Co-Founder Managing Partner
Konfidio Accelerator
Token Issuance Advisory Token Issuance Liquidity VCSecurity
Token
Contributors Network
Bernardo Quintão Thiago Paiva Cylus Watson Casey Sparks Gilbert Réveillon
Liquia Digital Assets, Liquia Digital Assets, Pinksky Capital, CEO Pinksky Capital, CNCCEFl, President ICT
Managing Partner Partner Analyst and Digital Economy
VC VC Fund Fund Advisory
Andrew Hogue Lior Goldenberg Early Boykins III Simon Martin Lukas Krigar
Totem, Co-Founder and BITSME, Chief Andra Capital, Director Tokenomos, Tokenomos,
Director of Strategy Operating Officer Venture Director Economist
Developer Accelerator Fund Token Issuer Legal
Yaroslav Writtle Benjamin Hauser Joshua Levitt Philipp Pieper Peter Woodard
Symbol Network, HyperLink Capital, HyperLink Capital, Swarm Fund, CEO DLTMI, Founder and
Engagement Manager CEO Co-Founder and Director and Co-Founder CEO
of Strategic Partnerships
Tokenomics Token Issuance Token Issuance Legal Advisory
Charles Pyo Richard Kim Jackson Ra Yale ReiSoleil Kateryna Lyplyava
Chain Partners, CEO Chain Partners, Chain Partners, IOB, Co-founder, IOB, Business
VP of Blockchain Head of BD Chairman and CEO Development Manager
Group
Advisory Advisory Advisory Trading Trading
Laura Toma Kevin Yu Ed Zabar JL Law Sam Stone
Co-Founder & Partner & Venture Founder and CEO, Verify Investor, Product Manager,
Head of Operations, Builder, BoostX Verif-y Inc. Co-Founder Swarm
Renowned & Co
Marketing Accelerator Token Issuer KYC ProtocolSecurity
Token
Network
D OWNLOA D
the latest version of the WhiteDeck.
token.security/whitedeck
If you have any feedback or if you would like to support the WhiteDeck in the next publication, please email whitedeck@token.security.Security
Token
Legal Disclaimer Network
Ensure you have a clear legal architecture before This WhiteDeck do not contain all material information
regarding the risks associated to the purchase of security
publishing anything about your STO. This includes
tokens. The buying of security tokens involves risks, which you
documents and any social or marketing campaigns. should understand prior to making your decision to buy.
This WhiteDeck is not intended to be an offer to sell, or a Opinions, assumptions, assessments, statements, as same are
solicitation of any offer to buy, any security token or other enclosed in this WhiteDeck, constitute only subjective views,
financial instrument. This WhiteDeck is as of 10th January 2019, beliefs, outlooks, estimations of Security Token Network and
may not be complete or final and is subject to change. Security the contributors, should not be relied on, are subject to change
Token Network does not make any representation or warranty due to a variety of factors, including fluctuating market
as to the accuracy or completeness of the information conditions and economic factors, and involve inherent risks
contained in this WhiteDeck and Security Token Network has and uncertainties, both general and specific, many of which
no obligation to update or keep current any information or cannot be predicted or quantified and are beyond the control
projections contained herein. of Security Token Network.You can also read
