STO marketing poses new challenges as the crowdfunding method becomes more popular. But with those challenges, there are also big opportunities. I spoke to STO marketing expert German Ramirez co-founder of Zurich-based consultancy The Relevance House to get his take on the current climate.
Espeo Blockchain and The Relevance House are part of the Blockchain Propulsion accelerator project. This network of blockchain professionals provides development, legal, and investment STO consulting to help startups launch successful blockchain businesses.
Marketing ICOs at the height of the crypto craze was easy. Maybe too easy. Those good times encouraged some worst practices from shoddy tech to outright scams. The goal now is to put faith back in cryptocurrency fundraising. I’m interested in the way the strategy has changed. In an effort to shed the stigma, several blockchain projects have launched AML and KYC compliant STOs. However, this is only part of STO marketing campaigns.
STO marketing targets a totally different clientele — one that needs to see a strong business base and a solid team. Accredited investors need substance. Even though STOs and ICOs are not that different from a tech perspective, STO marketing takes a bit more effort. So what new challenges do startups face as they launch and sell security tokens?
Hi German, thanks for speaking with me today. In your view, what are the biggest opportunities and challenges involved in STO marketing currently?
One of the biggest opportunities right now is that there are significantly fewer projects out there competing for investors’ attention and funding. That makes it much easier to cut through the noise than it was in 2017 and early 2018 when everyone was launching an ICO.
Another opportunity is being able to earn investors’ confidence based on the fact that you’re launching a security token backed by an asset or that entitles you to a dividend or voting rights. You’re not buying a ticket for a future rollercoaster that hasn’t been built. You’re buying something you can own.
Of course, it needs to gain value for it to be worthwhile. But at least you have something more tangible. Those are two major advantages to startups — you have something to offer and there are fewer offering it.
In terms of challenges, of course, there is the obvious massive crypto-winter elephant in the room challenge where so many scams and so many projects have gone wrong. You need a lot of effort to convince investors of what you have. A lot of good faith has been burned. A major challenge is to rebuild that faith.
Basically what we’re experiencing now is a market where fewer startups are competing, however, they need significantly more substance and a more robust team. Their vision, financials, technology, communication — everything needs to be more robust to be successful. It takes longer, it takes more effort, but at the end of the day, it’s built on a solid base.
You mention the trust aspect and that a lot of confidence in ICOs and STOs is not there. Could you be more specific about how you build that trust back in STO marketing campaigns?
First of all, you need a substance to show. Before you even start announcing your token sale or release your whitepaper, you need to have a proper team and all in place. All those elements might not have been necessary in the past. Do you have an MVP? A beta? Paying customers? Do you have a contract or a letter of intent from some major potential buyers? What is it that you have to show?
You have to be very well prepared in advance. If you have smoke and mirrors to sell, you won’t be able to sell them anymore. That’s the first prerequisite in order to build trust. To put it in even simpler terms — if you’re not trustworthy, you’re not going to build trust. What makes you trustworthy is the substance behind your project, your people, your technology, your market, and your market knowledge, of course.
Once you have that, what you need is the patience to build that [trust] slowly and organically. The idea of going out and buying 20,000 Telegram followers and paying some super Youtube influencer who will scream at people to buy your token is not going to take you far.
What you need is to start educating the target group about the problem you’re trying to solve and how you’re going to solve that problem better than whatever is currently in place.
In order to do that, you need to be present. You need to be visible, tangible, and active on different channels. Don’t scream about a token sale because that is not what people want to hear.
Share your vision — say what the problem you’re addressing is, why you’re better than others, and why the world should care. Be patient and do it organically.
In other words, people now talk about crypto-winter. But what I think we experienced before was crypto-summer. Back then, you could pack a tent and two slices of bread and sleep outside because you would be able to raise funds with a little ground and nothing else.
Now if you know you’re going to stand in the middle of a mountain covered in snow for at least six months, you will not survive in a tent with two slices of bread. So you need to build a solid foundation and a solid house and be able to live in that house for a while and keep people happy. Otherwise, you won’t make it.
That was what was so attractive about the ICO wasn’t it? That it was very easy to crowdfund, whereas the STO is a much more intensive process. What real benefits do startups now have to create and launch an STO over traditional seed funding, for example?
It is your prerogative to be able to try and raise money through classic seed rounds and A, B, and C venture capital rounds — that’s still possible and a valid option versus running a security token offering.
The key advantage I see behind an STO versus the classic rounds of funding is that if you’re able to convey the value behind your token and secure all of the funding that you need to successfully get your company flying, then you won’t have the challenge that many startups usually face. Startups get dragged from one investor round to the next over years and years until they finally know they’ll be able to make it.
It’s an accelerated form similar to the ICO just not on steroids. Instead, it’s based on more substance. It’s a faster way to secure all the funding required to get your company off the ground as opposed to dragging through many years of VC rounds.
Jurisdiction is one concern a lot of people raise — I know in the US there are pretty strict KYC and AML laws. How do you navigate all the different legal systems in STO marketing?
Regulations toward STOs vary a lot from being quite friendly to mostly easy-going to completely hostile. The easiest jurisdictions to set one up is probably the Cayman Islands or Malta. They tend to be more accommodating, though they do still carry less credibility as a jurisdiction versus Switzerland. Switzerland traditionally carries a whole lot of quality as a jurisdiction. The Swiss balance trustworthiness, reliability, and the history behind it while still being open to crypto.
Choosing a jurisdiction is a very important first step and along with that, make sure there are regulations in place that allow you to conduct your STO on solid legal grounds. Because the last thing you want is to finish an STO and then a year down the line, have intense regulation and all of a sudden you are doomed to follow a different set of rules than originally planned. This is a surprise that nobody is interested and probably something that no serious investor would sign up for.
How does this uncertainty over jurisdiction affect investor behavior?
There are many reasons why investors might refrain. One is about the fact that it’s a relatively new ballgame in general. People were not very cautious before and now they’re being overly cautious. We have to provide education and clarity to investors. That’s something that you can compensate for and achieve by working with serious law firms and expert partners with good reputations in their markets.
If you have one major global law and audit or consulting firm helping you navigate, you should be safe. If you’re operating in a market where there is no regulation in place, then my assumption is that no serious investor will follow your lead because you’re on uncertain grounds. That’s why you need to go to a jurisdiction where that clarity is in place and you know if you build a house there, it will be acceptable.
In a Relevance House blog post on STO marketing you mention that in order for someone to buy something, they need to “see it, want it, and trust it.” You’ve covered the trust aspect, but what are some strategies for driving visibility and demand?
Basically, be present. Being present is a prerequisite for visibility. But that is something that was already happening with ICOs. Be on different platforms where people are present. Use Linkedin, Medium, Reddit, Telegram, Twitter, Instagram, Facebook, Bitcointalk — this depends on the target group, of course.
Go to conferences and events, conduct ask me anything sessions (AMAs). Speak to the press in the crypto space and outside it. You have to be present and visible on all the main channels in all the main formats where people gain their information about these types of projects — that’s how you generate visibility.
You also have to have transparent documentation available for everyone and you’re providing them with access and visibility to all your messaging. The value is talking about why the world needs what it is that you’re doing.
We saw a lot of discussions in the past about the token, the token sales, the token price, the bounty program, the airdrop, the discount, the pre-sale — all of those things related to buying tokens. That’s all secondary now. What’s really central is to explain to people why the world needs what it is that you’re doing.
What problem are you solving? Who is behind this project? What evidence do you have that you can address your problem? How is the technology different from what is already out there? Answer the main questions starting with why.
That’s how you provide value as opposed to just trying to sell your token. You want to explain to investors why the world needs what you’re building for them to want to buy your token as opposed to trying to sell them your token for a problem you haven’t identified yourself.
In your view, what are some promising STOs currently? Which do you think have achieved this?
One example is a project we’re currently working on called Initium Group. It’s a project that announced last week in Zurich that will be conducting an STO. They’re building a new bank focused specifically on fintech, blockchain, cryptocurrencies, and new disruptive technologies that are currently unbanked.
There is a relevant problem — new companies with disruptive technologies are having difficulties finding banking partners. That’s a clear value proposition — a new banking group looking to secure banking licenses in different jurisdictions around the world to provide services to underbanked companies.
So that’s a problem and a clear value proposition. Behind that group, there is someone who has already built successful banking operations in the past. That’s a good ground to build an STO.
STO marketing requires a bit of creative problem-solving and tailoring your message to regain investor confidence. A strong business idea coupled with transparent messaging will set your STO apart in a largely empty niche. An STO marketing campaign doesn’t have to be difficult. The flood of ICO projects has fallen away giving startups an opportunity to raise capital without the hassle of VC rounds. With a little patience, determination, and STO consulting your STO can help launch your brand.