We suggest you consider to sell revenue participation notes (RPNs) issued in accordance with European Union crowdfunding regulations.
The essence of a typical proposal to investors is as follows: "the company will pay the investor 5% of the turnover annually until the investor gets 130% of the amount that was provided as a loan." There are no restrictions on the choice of parameters (percentages, terms).
Payout formulas can vary depending on relevant parameters such as cumulative turnover and how long it takes to achieve it.
The regulatory landscape for crowdfunding in Europe is motley. Paradoxically, the fact that the EU market for crowdfunding seem to be underdeveloped as compared to other major world economies opens up a temporary window of opportunity. By applying some crowdfunding aggregation techniques, one can actually take advantage of the lack of common rules across the EU. The fact that cross-border compliance and operational costs are high prevents crowdfunding platforms from expanding and taking monopolistic positions, so a clever fundraiser has some room to maneuver.
The main factor of attractiveness for investors is the ability to directly enjoy the inflow of money into the firm. Expenses and potential manipulations may only happen after this important gate the investor is standing at to collect his payout.
Fundraising can be conducted in a comparatively simple regulatory regime — crowdfunding.
— Convenient, perfectly legal tool to attract investors from all around the world, including non-accredited ones.
— Deliberate target capital setting, without the need for audit and due diligence.
— Almost no limitations in promotion.
RPN is a reasonable and very flexible hybrid of equity and debt.
First, your company's shares remain intact. There is no dilution.
Second, since payouts only occur when the company has revenue, you endure only feasible debt obligations. As a bonus, you provide no collateral.
Third, investors have a direct incentive to promote your project, as the increased turnover immediately affects their payouts. Noteworthy here, one very handy part of the rapidly cooling off blockchain hype heritage is community building tools. You can leverage it even more by giving it a legal foundation with a peculiar byproduct of some jurisdictions legalising ICOs recently — the programmable legal entity.
European Commission proposal on crowdfunding
A typical alternative, private equity placement, is expensive and time consuming. It can also lead to a loss of control. Public offering is even more expensive and complicated, while the circulation of your company's shares on an open market can entail many difficult-to-predict consequences.
From the investor’s point of view, the formal ownership and voting rights that a stock gives are mostly just a formality, almost virtuality, while the manipulation on dividends is always quite real. This view may seem a bit radical, but it is certainly not a lie and its marketing potence is growing year after year.
From the fundraiser's' perspective, ICOs are not effective any longer. Moreover, the incorporation of the so-called utility token into the fabric of your operations will affect the business adversely. There are many examples to prove that. Most importantly, ICO is fraught with severe legal consequences.
From the investor’s point of view, ICO is merely a speculation opportunity. However, the myth that tokens have some of the key properties of bitcoins has already dissipated. Without it, no pumping, the single real source of ICO “value”, will ever work.
STO, i.e. issuing of so-called security tokens is a pure simulacrum, a kind of a myth from the future. In any case, this year, and next year, and the year after that, and probably for many years more, you will have to fully carry out one of the forms of traditional placement. STO offers no way to save time or money. The STO approach will not create any additional demand for your investment instruments.
The magic liquidity promised by STO promoters is years and years away. Moreover, when and if it emerges, it will be all available to you, whether or not you undertake the tokenization efforts now (not free, $50k+). Please read more about this in the dedicated blog post.
From the fundraiser’s perspective, a debt with fixed payments complicates business planning. In the case of selling RPNs, you simply get less turnover, as if less customers come to you per unit of time. In the case of an ordinary debt, you are obliged to pay on time, no matter what.
From the investor’s point of view, traditional debt is not that perfect either, at least emotionally. It is not intriguing since it has no upside. Unlike that, RPNs can be paid faster than expected. You can also cook RPN formulas with various bonuses.