Digital Assets: How SMEs and investors can benefit

SMEs are the backbone of Switzerland. They account for 99% of all Swiss companies and two-thirds of all jobs. Their importance to the Swiss economy is enormous.

But the pressure on these companies is unlikely to ease in the future. Difficult legal frameworks, a succession crisis, a shortage of skilled workers, macroeconomic and geopolitical tensions, as well as issues such as cyber-attacks and competitive pressure from AI due to advancing digitalization, are all challenges for SMEs. This is shown by various SME barometer surveys.

Financing SMEs: often a Herculean task

With all these challenges to overcome, SMEs need capital and financing solutions. When SMEs look for funding, banks are often the first and most obvious port of call. However, they are often reluctant to provide larger project and growth financing without collateral, such as a commercial property.

Research conducted by Professor Andreas Dietrich in 2017 and 2021 shows that many SMEs in need of financing do not even go to the bank, as they assume they will not be approved for a loan. They are also put off by cumbersome processes and high collateral requirements.

Capital markets are another important source of finance, especially for equity and growth financing. However, these are hardly used by SMEs today. Of the more than 500,000 Swiss companies, only 500 are publicly traded on stock exchanges and over-the-counter markets.

The main reason for this is the high cost and complicated procedures involved. This leaves many SMEs with the arduous task of raising the necessary funds from their own cash flow or through their own network. As a result, the financing of an SME often becomes an issue for the boss, which it should not be, as a CEO should be more concerned with the operational development of the business and not with the search for financing.

Benefits of tokenization for SMEs

So how do these companies raise capital and become investable to the public? Trials of tokenization of SME shares show a potentially viable route. Tokenization of company shares is a means to an end. With tokenization, the above challenges can be solved ‘at the touch of a button’. It makes it possible to float a company’s shares with minimal effort and virtually no intermediaries.

In addition to the general possibility of raising capital, tokenization can also provide concrete relief for at least two of the challenges for SMEs mentioned at the beginning. For example, as part of a succession solution, succession could be funded by external investors filling the funding gap that the successors cannot provide themselves. Tokenization offers smaller companies a modern and efficient way to digitize and manage shares.

At the same time, issuing a digital share token is a new way to address skills shortages by incentivising capable employees with easier to use and potentially more liquid investment opportunities. Because new digital shares can be issued at the touch of a button, employee share ownership programmes are more efficient and therefore more cost-effective than traditional methods.

Administrative tasks, share register management and various corporate actions are greatly simplified. For example, general meetings can be held digitally and invitations sent out automatically. Proxies can also be easily recorded and voting can even take place in real time.

Efficiency also comes from the fact that tokenization theoretically eliminates the need for a bank, central securities depository or paying agent to issue shares. The number of lawyers required is also reduced. A lawyer may still be needed to amend the articles of association, but the lawyer managing the subscription certificates is no longer needed. Thanks to the platforms now specializing in share tokenization, the registration agreements are automated.

Benefits for investors

There are also several benefits from an investor perspective. Most importantly, the investable investment universe becomes larger. Tokenization increases access to young growth companies and SMEs. And just as a company can raise money at the touch of a button, an investor can invest at the touch of a button. It is the step from social media to a kind of investor media. Trading all kinds of assets will become more and more commonplace thanks to digitalization, but there are also risks that everyone needs to assess for themselves.

What does this future look like? If I am an early investor in a company, I can easily participate in capital increases at the touch of a button. And when I want to sell these shares, I don't sell them directly back to the company, but to other investors. In the foreseeable future, new pools of liquidity will emerge - start-ups from all over the world will be able to apply, creating a global start-up market. We explained where and how this liquidity will be created in this previous article.

Digital shares offer new opportunities for shareholders to engage directly with the company. As part of modern 'Investor Relations 2.0', investors can be more closely involved in the development of the company from the outset. Innovative community management and digitalization create a platform for more intensive, transparent and direct interaction - real added value for both sides.

Another major benefit from an investor's perspective will be the further reduction of transaction fees. Digitalization has already brought them down significantly in recent years. Driven by FinTech’s, banks are also increasingly offering cheaper trading options. In the future, trading will cost even less, thanks to the growing acceptance of blockchain technology.

Until now, trading shares has required a custody account, which comes with fees. With tokenized shares, you can still open a custody account with a bank or fintech, but it is not mandatory. Instead, you can now hold digital shares directly in your own wallet or trade them peer-to-peer with other shareholders.

Last but not least, tokenization offers the opportunity to make SME shares tradable with daily liquidity on a digital marketplace like the one BX Digital will create. This creates many benefits for both the company and its investors.

RealUnit case study

One of the SMEs that tokenized its shares more than two years ago is RealUnit AG. This is an investment company that, unlike other SMEs, has already issued its shares in the traditional way. In addition to traditional shares, RealUnit also issued digital shares. The main aim of issuing digital shares was to attract new investors, especially younger ones.

A digital share token is also a good fit for RealUnit AG because it enables self-custody. This means that every holder of a digital share token can hold it themselves if they wish. This aspect of blockchain and share tokens ultimately reinforces RealUnit AG's promise to hold assets outside of traditional financial infrastructures wherever possible.

In Real Unit's case, the strategy has worked so far. Within the first year, the company was able to increase its share capital by 10% using tokens. The CS fiasco of 2024 was clear evidence that investors understood the purpose that RealUnit has consistently emphasised. During this time, demand for the RealUnit share token was almost double that of the traditional share.

Generational change is underway

The need for this new way of raising capital and interacting with investors already exists on the part of SMEs. The benefits for investors are already evident. But a generational change is needed for the big breakthrough. This is probably already happening. As is so often the case in the history of change, this is no different: The potential of tokenization is overestimated in the short term, but clearly underestimated in the long term.

Thanks to progressive regulation, a growing ecosystem of tokenization platforms is developing in Switzerland, such as Tokengate, daura, Aktionariat, Taurus and Mt Pelerin, which are resolutely implementing their vision of a new digital capital market. The development of a Swiss trading hub for digital assets is also underway, with BX Digital playing a leading role. BX Digital aims to set new standards in capital market efficiency and access to digital assets such as SME equities. To this end, the company is aiming to become the first DLT trading system to be authorized under the Swiss Financial Market Infrastructure Act.

And investor curiosity about tokenization and its possibilities is unlikely to wane. After all, who wouldn't want to be invested in a major Swiss company like Sika, Holcim or Geberit right from the start?