How to Conduct a Successful Offering of Tokenized Equity in the EU: Sharing Our Personal Experience

January 28, 2020 STO

Choosing the right way to raise capital might become a tricky task for a company in 2020, It’s like a tightrope walking with a pit full of poisonous snakes waiting for you at the bottom. In the ideal outcome, on the early stages, you don’t want to attract funds from your family and friends (and you’ve probably done that already); you don’t want to pay 10% of collected funds to the platform that hosted your campaign (equity crowdfunding). Or if you’ve managed to progress even further with your business, you don’t want to spend half a year on excessive paperwork (IPO); you also don’t want to hand over all power to some random suits (VC) or obtain a loan from the bank.

So what will be your weapon of choice is just a matter of finding the balance between all pitfalls and benefits. From a conceptual perspective, Security Token Offering looks like a win-win for both companies and investors, however, since the early rise of STO as a paradigm in 2017, there was little to no development to the concept. Mostly due to legal uncertainty and the fact that STO-pioneers just disguised ICOs under the new abbreviation.

In this article, we would like to share our experience in conducting a legally compliant offering of tokenized instruments in Estonia.

What’s an STO and Why We Have Opted to go With the Offering of Tokenized Equity

In the current form, STO is the offering of traditional security in the form of a token. It opens an opportunity for businesses to raise funds by offering digital security to investors in a regulatory-compliant manner.

The advantages exist for both the investor and the issuer. As for the issuer, the process is much cheaper than IPO or Equity Crowdfunding and the legal setup is faster than with traditional methods, along with that, all compliance features are already built-in in the code. For investors, this fundraising method lowers entry barriers and opens secondary trading of purchased assets, while keeping investor protection mechanisms in place. Just like any existing traditional market instruments, tokenized securities may grant rights in: virtual or physical assets ownership; profit-sharing; financial commitments.

With tokenized equity, everything is exactly the same, it’s only the instrument to be tokenized that changes.

So, what were the key points for Tokenomica to go with the ETO?

First and foremost, we wanted to test our platform personally. Our platform combines automated issuance of any tokenized security with the legal structuring in the chosen jurisdiction, along with the opportunity to offer the issued instruments on our Marketplace.

Secondly, we wanted to offer our users an opportunity to become part of our company by becoming full-fledged shareholders of the platform.

And of course, we wanted to showcase that the paradigm of the STO with all benefits in place is already a competitive alternative to traditional fundraising methods.

Considering all the reasons mentioned above, we have started the preparation for our campaign in August 2019, with the start of offering scheduled in November. Considering, that we didn’t have much time for preparation, marketing campaign and that our platform was still in the early stages of development, we have decided to limit the campaign with 30 BTC (about $250 000).

Now, let’s dive deeper into the process.

Why We Have Chosen Estonia for the Offering of Tokenized Instruments?

First of all, Estonia provides comfortable tax law which is a massive benefit if you plan to conduct a campaign. Additionally to that, it is a crypto-friendly and technologically advanced jurisdiction. Almost every action can be performed online without hassle. It is also the first country to offer e-Residency, a government-issued digital ID available to anyone in the world. E-Residency offers the freedom to easily start and run a location-independent business online using the convenient digital business services of Estonia.

With that in mind, we have started the legal preparation for our campaign which included the registration of the special purpose vehicle (SPV) in Estonia, tokenization of preferred shares of Nominee TKN OÜ, a private limited company established under the laws of Estonia and the creation of the subscription agreement between Nominee TKN OÜ and investors.

But there are a few things that we have noted from our personal experience that all companies must keep in mind:

Since all documents should be submitted in Estonian, it is better to have Estonian lawyers to support the process. Mistakes made in respect of used legal terms may trigger negative ruling from the Registration Department.

Estonian e-residency makes it easier to electronically sign and submit the documents but the options for the payment of state fees are limited. However, instant payments are allowed from the accounts opened in major Estonian banks but if the applicant has no account opened in Estonia the state fee should be transferred in accordance with payment instruction. This process might be time-consuming. Late payment of the state fee might be treated as a deficiency, so the applicant should make the payment as soon as possible and send the confirmation to the Registration Department.

After the SPV was registered and all the paperwork was completed, we have started the campaign which lasted for over a month.

Overall setup costs in Estonia will total to €5 000 - €10 000 (in case you already know every step of the process, otherwise, don’t hesitate to ask us).

Outside of that, there will, of course, be marketing costs that depend solely on the size of your campaign, a number of your customers and the current market situation. Marketing is a complex step in the lifecycle of your campaign and should be described separately. From our experience, we can only advise you to plan your campaign in advance and to start attracting first investors at least 2-3 months before the start of the campaign. Whether you would like to promote your campaign using your in-house or will work with the agency is solely up to you.

But there is also one significant legal procedure to complete after the funds are raised — the increase in the share capital of the company.

According to the Estonian law, in order to complete the offering and distribute shares among investors, corporate actions such as share capital increase should be approved by the Registration Department of Tartu County Court in Estonia. The issuer should submit a set of documents which among others include the resolution of shareholders, act of acceptance, valuation act, etc. All of these documents should be signed by shareholders and/or board members.

Since we have attracted funds for our campaign in BTC, the investment must have been recognized by the Estonian Court in BTC as well which might be challenging, even is such a crypto-friendly jurisdiction like Estonia. Along with that, we had to avoid excessive paperwork, for the obvious reason  — we had investors from 3 continents and it might have been problematic to physically co-sign any documents with them.  

As everything with crypto, you don’t know what to expect. Judges and judge associates may have different opinions on the same matters. It is hard to predict the results of your application, the negative ruling might be based on minor procedural inconsistencies or on the discretion of a particular judge who interprets the law differently. It is a quite common situation for Estonia

As we knew, that it might take more than one try to get an approval of the increase in the capital share in the company, the subscription agreement identified that the maximum timeframe for completing these steps is 6 months. But it has taken us only one try to receive the necessary approval.

On January 16th, 2020 the Registration Department of Tartu County Court has registered the increase in the share capital of Nominee TKN OÜ in cryptocurrency, by indicating the invested BTC as a non-cash consideration for the allotted tokenized shares. Therefore making token holders full-fledged shareholders.

After the registration process is finished, tokenized equity can be allocated to investors and they will be able to receive dividends. Right now, there is only one downfall — lack of secondary trading, it is, as well a separate problem and we have previously covered it in our blog. Long story short, it is the problem of the whole market. We are working on launching a secondary trading facility on our platform and plan to enable the secondary trading of our assets but it is a new and separate journey that we have already started.


Even in the early stages of development,  the offering of tokenized instruments is already a working solution for businesses that seek funding. Promised advantages, such as programmable compliance, decreased issuance and set-up costs along with more control over your business are already here to take. However, there is no magic wand to cast you gigantic sacks of cash or brand new Ledger Nano-S with access to all the BTC in the world, please keep in mind 5 significant things in mind:

  1. Conduct the offering of tokenized instruments if you would like to provide an opportunity for your customers to become partial owners of your business (not some shady nominee/useless coin scheme). Or if you would like to benefit from a long-lasting list of advantages provided by the programmable compliance feature.
  2. Keep in mind that it will take you from €5 000 to €10 000 and 1 to 3 months to complete all legal procedures.
  3. Be prepared to allocate from 5% to 10% of the target sum on marketing. Along with that, start the marketing campaign 2-3 months before the start of the campaign in order to determine the right channels for promotion. The era of dumb crypto investments is long gone.
  4. Explain all details, terms and (if there are any) nuances to your potential investors. People will need to know which rights they will be granted, which protection mechanisms will be in place. Be exact, there will be enough of legal mumbo jumbo in subscription (investment) agreement.  
  5. Don’t hesitate to ask. As we have already completed the journey through the long and winding road of developing legal landscape, we have used our personal experience and implemented our knowledge on the platform, creating the automated framework for offerings of tokenized instruments and we are eager to provide our solution or helping hand to all companies seeking funding.