April 17, 2020

Key Takeaways

  • Small and medium enterprises (SMEs) often need more money to grow than their revenue allows

  • They now have an alternative to traditional investment, bootstrapping, and crowdfunding: the Tokenized Private Placement

  • Built on the same technology that fuelled the 2017 ICO boom and conducted in compliance with regulations, Tokenized Private Placements make it faster, easier and less expensive to get a lucrative term sheet

  • Sign up to receive updates about the Blockstation Tokenized Private Placement Accelerator when it launches later this year

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By: Jai Waterman, Co-Founder and Chief Enterprise Architect

Small and medium enterprises (SMEs) need money to grow, often more than their revenue allows, which means they need to raise capital. Traditional options include long-term business loans, the right verified accredited investors, and more recently, crowdfunding options.

Each has its pros and cons, which is why SMEs may want to look at the newest method available: the Tokenized Private Placement, which leverages the same blockchain technology that fueled the ICO boom of 2017 but works with the traditional investment financing ecosystem to ensure trustworthiness and regulatory compliance.

The Blockstation Tokenized Private Placement Accelerator, available later this year, offers end-to-end support for:

  • connecting with the right brokers and accredited investors

  • conducting and managing your offering

  • reports and auditing

  • security (smart contracts and asset custodianship)

Whichever option you pick, it’s important to make sure you understand the pros and cons of each.

Bootstrapping for SMEs

Bootstrapping is a very DIY approach, meaning you fund growth and expansion out of your own pocket:

Pros Cons

  • Keep your equity

  • Maintain control

  • Sense of ownership and pride

  • Limited to your own assets and earnings

  • Risk of long timelines, insufficient funds, and ground lost to better-capitalized competitors

  • Significant personal exposure

Crowdfunding for SMEs

Crowdfunding sites like IndieGoGo are popular ways for SMEs to get the funds they need directly from their most likely customers. But how does crowdfunding work, and why might it (not) fit your needs ?

Pros Cons

  • Centralized communications with investors

  • Option to keep equity and control

  • Simultaneous fundraising and market testing/publicity

  • Significant marketing required

  • Crowdfunding scams make many potential investors nervous

  • Sets an artificial schedule, where if you don’t raise enough money before your campaign ends, you don’t keep any of the money you raised

Bank Loans for SMEs

Bank loans are a longstanding and reliable way to access capital, but not without drawbacks:

Pros Cons

  • Easily accessible

  • Often available with long terms and low interest rates

  • Retain equity

  • Difficult to qualify

  • Exhaustive application process

  • May need to provide collateral

Traditional Investment Fundraising (Private Placements) for SMEs

This could include anything from borrowing money from friends and family to entering the high-pressure world of accredited investors, angel investors, brokers, and venture capitalists:

Pros Cons

  • Additional capital can significantly speed growth

  • Expansion of your network and contact list

  • Publicity from the backing of high-profile investors

  • Capital often comes in exchange for equity and board influence

  • Length of time to establish the right connections and secure term sheets

  • Reputational risk should high-profile investors walk away

Tokenized Private Placements through Blockstation for SMEs

New platform combines the speed, flexibility and low cost of ICOs with the strengths of traditional investment fundraising for SMEs, essentially rewriting the traditional term sheet templates:

Pros Cons

  • Fast, accurate matches with brokers who have the right investment profile for your offering

  • Instant access to a deep pool of accredited investors 

  • Accredited investor verification

  • Private placement memorandum tool for fast, easy disclosure documentation

  • End-to-end support including smart memorandum tool, offering management, reporting, and corporate actions

  • Centralized communication with investors
  • Capital often comes in exchange for equity and board influence

Tokenization is the Future of Fundraising for SMEs

Blockchain technology has come a long way from the Wild West of 2009 when Bitcoin burst onto the scene. It’s now ushering in a new era of financing options for investment brokers and SMEs.

Do you agree that tokenized Private Placements are an attractive new vehicle to raise funds for SMEs? Let us know on social media!

The Blockstation Tokenized Private Placement Accelerator will launch later this year. Be first in line to take advantage and subscribe to our mailing list for updates as we move forward with this exciting new tool.

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