How did you first get involved in the blockchain space?
Early 2011 I read about Bitcoin online at a bulletin board with lots of active and interesting members. Pretty soon I was more interested in the underlying technology and started to read on a daily basis about it at various sources (reddit, bitcointalk, etc.). After Ethereum was introduced in 2013, followed by the pre-sale in 2014 and the launch in 2015, I followed the progress and possibilities closely. After the ICO madness, I decided to become active and combine 2 worlds I understand quite well being Real Estate and Blockchain, with a serious approach towards product development and regulation.
You’re currently managing 3 projects, Blockimmo which specializes in tokenizing real estate, STX Swiss which is a decentralized security token exchange, and TokenFactory which is a technology provider for asset digitization. Can you let us know which came first?
Coming from the Real Estate industry I’m rather familiar with the challenges around this illiquid investment class and the high entry barriers. Initially, the company I founded was called “blockimmo”, with the vision to enable anyone to invest in real estate (access) and, in addition, turning this asset into something more liquid. With our 2 fantastic developers (Michael Dietz / Jesse Ngatai) we developed our (primary issuance) platform on the public Ethereum Blockchain, without the introduction of any proprietary standards or useless in-between (utility) tokens. In addition, we conducted several (successful) rulings with the financial regulators of Switzerland and Liechtenstein related to the tokenization of assets. In order to live up to our second promise (liquidity for the secondary market) we initiated STX.SWISS to demonstrate the possibilities of a trustless, peer-to-peer (decentralized) exchange without an operator, for tokenized assets like real estate. Summarized, we built a tokenization solution for both the primary and secondary market. In order to broaden our potential clients and partners we decided to rename the company to Token Factory Switzerland Ltd. The platform (brand) “blockimmo” will naturally still be used for real estate tokenization.
Blockimmo tokenizes real estate, currently all the properties are in Switzerland. Will we be seeing more international real estate options?
Yes, definitely. In fact, the Swiss Real Estate market is, thanks to its attractiveness amongst established players (investors) quite tricky to get started. Currently, we have several projects (both existing properties as well as property development projects) in the pipeline which are located outside of Switzerland and will be announced in due course.
How do you source and select the real estate portfolio that is offered?
This is a good question, which applies to any real estate investment platform (irrespective if you use blockchain technology). Due to my experience in the real estate market (12+ years) and of course due to the fact that we are one of the few platforms that actually already have tokenized real estate with public available smart-contracts for the security tokens issued and traceable transactions of the investments on the public Ethereum blockchain – we gained a lot of attention and receive a lot of requests for future tokenization cases.
Is STX Swiss currently licensed, if not are you in the process of acquiring a license? What jurisdiction will this be licensed in?
STX.SWISS is a decentralized exchange proofing the concept how security tokens can be exchanged on a public Blockchain (Ethereum) without the involvement of any controlling party (operator). This means that no centralized party controls any important element that require a license, for example the wallet (only decentralized access is possible) but also more important elements like the order-book (there is none) or the liquidity providers (only possible through a decentralized process). More information can be found in our blog posts (high-level / more tech focused). We are however in progress of establishing a regulated exchange, with centralized elements (in order to control certain elements which are required by the regulator to be controlled). We do this together with a licensed institute based in Switzerland and hope to announce further details in the near future.
What are the requirements to list a security token on STX Swiss?
We require that the security token is under control of the asset owner (issuer) at any point in time. Simple put, this is what makes our tokenization solution unique, as with blockimmo (TokenFactory) we introduce a smart-contract “whitelist” which is attached to the default ERC20 token smart-contract. Inside the “whitelist” there are the address of identified investors (meaning they went through a compliant KYC/AML on-boarding process). Although we call it a “whitelist” it’s actually a mapping mechanism, so with our solution you don’t lose (transaction) speed no matter if there are one thousand or one million address whitelisted.
Token Factory offers asset digitization services. Could you elaborate on what the different types of services are?
Yes, currently we offer an important puzzle piece for tokenization; being the technical solution that has been multiple times audited and executed before and is available for any other asset. Another important aspect is that this solution is based on the public Ethereum blockchain, open standards and thus is “future proof” for the upcoming Decentralized Finance ecosystem. In addition, we do not make the asset owner (issuer) depended on us, they are in full control and ownership of the smartcontracts representing the tokenized asset. Of course, based on our experiences, we offer consultancy services mainly around the topic of tokenization and financial market requirements and challenges.
What are the white label services that are offered by Token Factory?
There are plenty of niche markets with strong players where tokenization as such brings benefits to the existing solutions. We are open to provide our technical solution as a complete white label service (Software as a Service / SaaS) for those players and are currently actively working on launching such in the near future.
You offer investor management; can you elaborate on what these management services are?
A key puzzle piece related to security tokens is, besides our on-chain whitelist, the way how you onboard the investors and how you manage them actively to stay regulatory compliant. We have built a complete paperless on-boarding solution, integrated with strong KYC and AML providers and offer this to our clients who seek a working technical solution.
Is there anything else that you would like to share with our audience?
Yes, we’re currently very close to partner with a strong, regulatory compliant partner and will then be able to offer a full “one-stop shop” for tokenization. So not only a strong technical solution, but also provide a solution for the legal, regulatory, compliance, distribution and marketing/PR elements. All from one provider with know-how, quality and speed, really understanding true value proposition (liquidity provider) for both the issuer and investor. We’re still at the beginning of the era of tokenization and there are exciting times ahead of us!
Andrew Adcock, CEO of Crowd for Angels – Interview Series
Andrew is the Chief Executive Officer at Crowd for Angels an equity crowdfunding platform. He often attends and speaks at events on Crowdfunding, Alternative Finance and Investment. Previously, he worked at NinetyTen, a web application developer and provider of Private Social Networks, whose clients included Nokia, Channel 4 and Shop Direct
You were one of the original Co-Founders of Crowd for Angels. Can you discuss the inspiration behind launching this business?
I was indeed one of the Founding team at Crowd for Angels, but the inspiration for launching the company comes from our Director Tony de Nazareth, who combined his decades of financial knowledge with the ‘social media’ approach. This was to get the community involved when funding and supporting a business, thereby creating brand advocates that not only financially supported the aspirations of a company but also became a voice and customer of the company.
How much do you involve yourself in the pitch decks and packaging the deals that are found on Crowd for Angels?
I am involved in most companies that seek to list on Crowd for Angels. I take a genuine fascination in the lives of start-ups and companies looking to expand. Each has its own story and passion, which I am enthused by. Having raised funds for my own company and invested in many others, I hope to provide insight for the company.
What type of due diligence is performed on the companies that are listed?
A lot! Crowd for Angels breaks due diligence down into 3 key areas, firstly, we conduct factual checks such as KYC, AML, PEP, Credit Checks on the directors, reviewing accounts produced by the company and verifying facts stated on their pitch. Secondly, we conduct market checks, for instance, is the product available and as described, is there an addressable market, is the valuation reasonable, what legal challenges the company might face and is it ethical. The final check is one of sanity, which is not only tested by Crowd for Angels, but also by our Angels, who will ask the company their own questions.
What are some of the main reasons behind companies being turned down for listing on the platform?
There can be a number of reasons but a few we find most common are as follows:
- The valuation is simply too high in comparison to the companies position
- The company does not provide documentation (business plan, management accounts, incorporation documents)
- The product is too early-stage or not yet developed
- The directors have no ‘Skin in the Game’
What are the biggest benefits of equity crowdfunding?
I personally believe the biggest benefit is the ability to create brand advocates, people who support your business financially and become active customers, drawing in others to check out your brand, whether that is through word of mouth or social media.
Could you give us a success story of a company that raised funds on the Crowd for Angels platform?
One of my favourites is a company called CNPPS. A young entrepreneur, who was studying engineering at university at the time had created a permeable pavement solution that used recycled aggregate. Now that might not sound as fascinating as an app, but our world is covered in roads and pavements. His solution, used 100% recycled aggregate and was carbon negative, furthermore, it allowed water to pass through. Working with the entrepreneur we were able to raise £100,000 for a phase of testing that has now led on to a commercial contract and further funding for the company.
What made it interesting was the ethical approach the company had took to change an old industry, the tenacity the entrepreneur showed never giving up and that a business can truly be grown from the ground up, out of university none-the-less. So far in a 2 year period, the company’s valuation has increased 4 fold, delivering a solid return for the Angels involved.
Crowd for Angels is one of the few crowdfunding platforms that accept bitcoin. How many investors use bitcoin, and where do most of these investors originate from?
Yes, we have been accepting cryptocurrency as a form of payment for investment since early 2016. At that time, we integrated this payment option to allow foreign investors to invest in UK companies without the costs and time associated with international bank transfers. Initially, we saw a number of Australians, Chinese and mainly Asian investors utilise this form of payment. However, as bitcoin and other cryptocurrencies gained in popularity, we did see growth in European investors utilising cryptocurrency. Partly this is due to the gains they might have experienced and I believe the convenience cryptos offered. Now, we have over 14,000 members registered with a cryptocurrency wallet on our platform, with many of them in Europe.
A few years ago, the ANGEL token was released. What are the use cases for this token?
The ANGEL token was released to drive down the user acquisition cost of investors whilst rewarding stakeholders for interacting with our platform. It is hoped that when users interact and share content in the network, say an investment they had just made in a fledgeling company, that they would be rewarded with ANGEL. Crowd for Angels has then committed to buy back and burn ANGEL linked to the revenue generated from our pitches, thus creating a virtuous circle. We hope in the future, our Angels will also be able to use the ANGEL token as a method of payment towards an investment.
Crowdfunding utilises technology to allow the masses to invest small amounts into pitches, but the shares are usually held with a nominee and should you wish to sell them or give them to someone else, it is difficult. Therefore, the integration of digitalised assets should be a no brainer, because it potentially gives the control of the asset back to the investor and follows a set of rules, that can’t be broken. In a utopian world, you would allow investors to purchase, hold and trade any assets that they wish. With the blockchain, you benefit from an immutable ledger that would record these transactions, giving you efficiency and transparency. I believe we are only a stones throw away from some big changes.
Is there anything else that you would like to share about Crowd for Angels?
We are always open to ideas, a conversation can go a long way.
Jim Dowd, Founder & Managing Director of North Capital – Interview Series
James Dowd is Founder and CEO of North Capital Private Securities (NCPS), a registered broker-dealer focused on origination, placement, and clearing of exempt securities; North Capital Investment Technology (NCIT), which provides technology for the exempt securities market; and North Capital Inc., a registered investment advisor. NCPS is the designated broker-dealer for many securities funding platforms in the early stage equity, real estate, private funds, and securities token markets.
North Capital recently completed the membership approval process with FINRA and achieved acceptance of Form ATS Initial Operations Report by the SEC. For those who are unfamiliar with this form, what makes it so important for North Capital and its clients?
Great question. Our customers and many other issuers, investors and intermediaries who are involved in private securities markets want to see more transparency and liquidity in private markets. Investing in private deals has traditionally involved a minimum 7 to 10 year capital commitment, since there is typically no interim liquidity and no definitive exit plan. I have one private investment that has been outstanding for 19 years, another that has been alive for 14 years, not to mention the many investments that did not work out. Once someone makes a private investment, if they have second thoughts or change their opinion, it’s too late. Almost every investor who allocates to private deals knows or should know this, and most would like to have liquidity and real price discovery for the private securities in their portfolios. We hope our ATS will help to realize this vision, at least for the issuers, investors and intermediaries who share it.
The launch of this ATS serves as a natural extension to North Capital’s existing private securities infrastructure, TransactCloud. What is TransactCloud?
TransactCloud is our API-first technology stack that facilitates primary offerings of exempt securities. We work with issuers and professional intermediaries — broker-dealers, RIAs, and funding platforms — to allow the offering, transaction, document processing, escrow, payments and clearing of exempt securities online.
To be clear on this point, we ourselves are not investing in digital assets; we are providing infrastructure to allow trading of digital asset securities through our regulated marketplace, the PPEX ATS. We will not be trading cryptocurrency or utility tokens. The SEC regulations related to alternative trading systems are very clear: ATSs are for the trading of securities only. We also will be listing and trading non-digital exempt securities.
North Capital also offers investment opportunities which are deemed as “frontier alternatives”. Could you share some details on what you would consider frontier alternatives?
“Frontier” in the context of investment management refers to the most emerging of emerging markets. We coined the term “frontier alternative” to convey the same idea ~ some examples would be investments in art, collectibles, fine wine, litigation pools, digital currency, race horses, athletes, etc. I fully expect that in ten years, some of these will have become mainstream alternatives. Private credit is a good example ~ ten years ago, private credit was considered exotic; today there are registered funds that invest in private credit and it’s considered a mainstream alternative asset class.
North Capital has been involved in over 1,000 primary offerings totaling $1.9 billion. What are some of these notable offerings?
It’s difficult to single out specific deals. We have so many great partners who are doing innovative work. Groups like Jamestown, Crowdstreet, RealtyMogul, RichUncles, Securitize, SportBLX, Exponential, Roofstock, Mythic Markets, Otis, Commonwealth, SeedInvest. Quadrant Biosciences has a Reg A+ offering that we’re working on right now ~ our first collaboration with WeFunder. Metaurus is one of our partners, run by a talented team led by Rick Sandulli and Jamie Greenwald, who I worked with 30 years ago at Bankers Trust. They have two listed ETF-style products that are patent-protected and could revolutionize the way equity investors take risk. I know I am leaving somebody out so I’ll apologize in advance.
Could you share some of the Broker/Dealer services that are offered by your firm?
We are a full-service broker-dealer for private and other exempt offerings, along with investment companies such as mutual funds and ETFs. We also are an escrow agent for private offerings including serving as a qualified third party for Reg CF offerings. Compliance support is integral to all of our activities — we help issuers and platforms to comply with securities laws. Last year we were approved to broker EB5 deals, but that market is shuttered for now, given the COVID-19 pandemic.
What type of custody services are offered?
Today we custody cash, private securities, and mutual fund shares. It’s still early days for our custody business, and we have deliberately limited our rollout to allow us to test systems and procedures. But this is a high growth segment of our business.
Could you also share some details regarding the advisory services that are offered?
The advisory part of our business is done through a separate, SEC-registered investment advisor. It’s a technology-enabled financial planning and wealth management business, along with a bespoke, consultative advisory practice for family offices and business owners.
The firm also offers technology-based investment solutions to broker-dealers, banks, fund managers, funding platforms, and private issuers. What are some of these solutions?
On the advisory side, the evisor platform is an online financial planning and wealth management platform. We’re currently working with one bank on a pilot program, and we’re integrating it into our broader advisory and 401k business. On the exempt offerings / broker-dealer side of our business, TransactCloud is a collection of products and services used by issuers and professional intermediaries for online securities offerings.
Thank you for taking the time to answer our questions. Readers who wish to learn more should visit of North Capital Private Securities.
Nick Bhargava, Co-Founder of GROUNDFLOOR – Interview Series
GROUNDFLOOR is an American real estate lending marketplace. It was the first real estate crowdfunding company to achieve SEC qualification utilizing Regulation A+ since the regulation became operable through the JOBS Act. GROUNDFLOOR was purposely built to serve self-directed investors instead of institutional ones
You’re both a director and one of the co-founders of GROUNDFLOOR. What was the inspiration behind launching this crowdfunding platform?
My co-founder, Brian Dally, had years of experience to make telecom services more accessible to everyday individuals. Meanwhile I had a lot of experience in the securities and regulatory industries. We wanted to combine our respective strengths in a way that opened up high yield investment opportunities for everyone, not just the 1 percent. We eventually started with single-family residential housing because most people are familiar with this kind of asset from being homeowners themselves.
When the idea was conceived, we had no idea if there would be a market for it. We needed to first find an accessible regulatory framework that would allow them to test the business concept. We discovered the Invest Georgia Exemption (IGE), created in 2011 to help small businesses access capital. Being an intrastate offering rule, it was only available for Georgia companies, so both of us picked up and moved to Atlanta to launch GROUNDFLOOR. Because of IGE, we were able to fund $2 million in loans in Georgia, clearly demonstrating the demand for GROUNDFLOOR’s platform.
Over time, GROUNDFLOOR has grown considerably and is now open to investors in all 50 states.
Can you explain how GROUNDFLOOR connects investors with real estate developers?
We are focused on providing retail investors with high yield investment opportunities. A real estate borrower, someone who develops real estate for a living, secures a loan through GROUNDFLOOR rather than a traditional bank or a hard money lender to finance a residential real estate project. That borrower submits a loan application, and we vet the individual and the project to determine if we should originate a loan. Our underwriting is based on past experiences, amount of skin in the game and many other factors. If approved, the loan is assigned a loan Grade of A through G and a corresponding rate where Grade A loans are the least risky, with the lowest rate of return and Grade G loans are most risky, with the highest rate of return.
We have filed an offering with the Securities Exchange Commission (SEC) through which we sell securities. The proceeds of these securities are used to fund the loans we originate. The performance of these securities and corresponding rate of return is tied to the underlying loan. Investors can choose which securities, and therefore, which underlying loans, they wish to invest in.
Investors can choose to invest up to $10 increments to fund the loan. Once a loan is fully funded, the borrower draws money according to a draw schedule, and completes the new construction, renovation or rehab project. The property is then typically listed for sale. When the project sells or is refinanced, which is usually 6-12 months from the time the investor invested, the loan is repaid. The investor’s principal investment, plus all accrued interest, is deposited into the investor’s GROUNDFLOOR Investor Account. The cash balance in an individual’s GROUNDFLOOR Investor Account can be withdrawn or reinvested in other projects.
Are there any types of restrictions or quality controls in place to ensure that real estate developers can repay the loans?
When the borrower submits the loan application, our underwriting team works closely to vet the projects and the borrower. We also factor in the local real estate market. We don’t lend in markets we don’t like. When a loan is originated, we stay in regular contact with the borrower to ensure that the project is meeting deadlines, and we share regular updates with investors. Draws are not given out if the borrower is not making sufficient progress or has deviated from plan. If we think there could be delays or the borrower violates terms of the agreement, we can decide to step in and proactively put the loan in default, which can result in a stronger outcome for the investor because we pass through penalty interest. Most GROUNDFLOOR loans are first lien position, so the loan is backed by a physical asset, which is the land and structure.
What are some of the types of returns that can be expected by investors?
For the past six years, participants in GROUNDFLOOR real estate loans have earned annualized returns averaging 10 to 12 percent in a 6 to 12 month timeframe.
Are all investments currently in the United States? Is there a preference for certain cities or states? If yes, could you describe these.
While anyone in the country can invest in GROUNDFLOOR with only $10, the company focuses its lending in 30 states.
You were an early advocate for the JOBS Act, were you happy with how the JOBS Act was written? Was there anything that should have been left out?
I am generally happy with how the act turned out. The different provisions are designed to help companies of different sizes, and each provides value for companies in different situations. I don’t think any particular provision should have been left out.
What would you like to see changed in a future version of the JOBS Act?
We have seen Reg. A be used heavily by real estate issuances. I think there is value beyond this use case, particularly for mid-sized privately held companies that want to access public market capital. The cap for Regulation A will soon change to $75M, which will be more appealing to companies of that size. I think we could see some novel offerings in that space.
Is there anything else that you would like to share about GROUNDFLOOR?
There is no other company that offers what GROUNDFLOOR does for individual investors and borrowers. We’ve created a new category and offer completely new products.
Why hasn’t anyone copied us? One reason is because regulatory innovation. Providing investments directly tied to this type of high quality, high yield real estate credit is not something that has been done for the retail investor. GROUNDFLOOR was the very first company qualified by the Securities & Exchange Commission to offer this type of investment via Reg A for non-accredited and accredited investors alike, and because of the enormous amount of infrastructure we put into place, we can continue to iterate on our product where others cannot.
I really enjoyed learning about your company, readers and/or investors who wishes to learn more may visit GROUNDFLOOR.