Most STOs include several fundraising rounds, starting with a Private Sale and closing with a Public Sale. Each stage comes with different legal requirements and investor benefits.

At we regularly take a closer look at Security Token Offerings (STOs), especially in Liechtenstein, Switzerland, and Germany. There have not been that many so far, but the number is rising.

When issuing security tokens, businesses need to follow tight rules and regulations. No matter if the STO takes place in Liechtenstein, Switzerland, or Germany, issuers have to comply with the laws of the European Economic Area and the jurisdictions in which the tokens are being sold.

Private Sale, Pre-Public Sale, and Public Sale

Token sales typically start with a Private Sale, followed by a Pre-Public Sale, and then go public. At each stage, issuers have to comply with different legal requirements and investors face different risks and rewards.

Private Sale

During the Private Sale, the token sale is not yet open to the public. In principle, Liechtenstein-based businesses that aim to raise more than CHF 5 million require prospectus approval by the Liechtenstein Financial Market Authority (FMA).

However, issuers can launch the Private Sale before the prospectus has been approved. It is, however, not legal to publicly advertise an STO without FMA approval.

Investors may want to participate in a Private Sale because of larger discounts compared to subsequent rounds. It’s not unusual to get 15-25 percent discount during the private sale, sometimes even more. Thus, investors can buy at the discounted price and then resell the token later when the token trading begins. That said, investors need to pay attention to lock-up periods during which they are not allowed to resell their tokens.

The downside of a private sale is the higher risk due to the unpredictability of the STO’s outcome. There is no guarantee that the STO will hit its soft cap during the subsequent fundraising rounds. Also, at this stage, the product is often not yet fully developed, and as the roadmap is not guaranteed, it can take a long time until the token reaches any liquidity.

During the private sale, issuers usually also set the minimum investments higher than during the public sale. This round is generally only suitable for institutional investors.

Pre-Public Sale

The Pre-Public Sale, as the name suggests, is the phase carried out before the main Public Sale. Depending on how issuers advertise this round, they may or may not need approval by the FMA.

At this stage, issuers still offer a discount on the final token price, although lower compared to the first round. In general, the Pre-Public Sale gives investors a chance to get a discount, while avoiding the risks associated with the Private Sale. 

Public Sale

The Public Sale is usually the most important stage during the entire STO process. As issuers advertise and promote publicly, it requires approval by the FMA.

Minimum investments are typically low, and everyone who passes the KYC and AML checks can participate. The risk for investors is lower compared to previous stages, as the product is usually more developed, and tokens have greater liquidity. However, discounts are low, if any at all, and there possibly is a lower maximum cap per investor.

Businesses that want to launch an STO should discuss the exact procedure with a specialized lawyer, as the particular requirements may differ depending on the token specifications, the jurisdictions in which the tokens will be advertised and the type of investor that is going to participate.

Disclaimer: The content on this website is provided for general information purposes only and does not constitute legal advice.

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