I recently had the pleasure of interviewing Darren Marble, CEO of Issuance. Through his role as CEO of CrowdFundX , Darren has extensive experience marketing Reg A+ IPOs and Digital Security Offerings to institutional and retail investors. This experience perfectly aligns with Issuance (a platform that connects digital security issuers with investors) as Darren knows what investors are looking for, and what is needed for a successful and compliant offering. Check out the interview below to learn more about Issuance.
RS: Can you tell us a little bit about what Issuance does and the long-term vision?
DM: Issuance is developing a technology-enabled investment bank for digital securities issuers–a modern Goldman Sachs. Our vision is to be the leading investment bank for digital securities, which we believe is the next mega-trend in capital markets.
We believe in regulated markets, investor protection, and are confident that the U.S. will be the leading market globally for digital securities.
RS: Issuance recently announced the acquisition of CrowdFundX, how will this acquisition be integrated with Issuance?
DM: Issuance has executed a Letter of Intent (LOI) to acquire the assets of CrowdfundX (CfX), a FinTech marketing firm known for marketing some of the industry’s most notable digital securities offerings (DSOs) and Regulation (Reg) A+ IPOs. Some of CfX’s clients include Drake’s Virginia Black Whiskey, KODAKOne, and tZERO, among others.
The dominant investment banks of the future will effectively blend digital securities technology with traditional financial services. Issuance at its core is a technology company, while CfX is a services company with notable industry clients and established revenue streams. As such, CfX is a natural acquisition for Issuance.
The transaction, which is expected to close in February, 2019, will be subject to due diligence and definitive legal documents acceptable to all parties. Once completed, the CfX brand will be sunsetted, and Issuance will be the enduring brand.
RS: How is your platform different from similar issuance platforms like Securitize, for example?
DM: Issuance is in the business of deal marketing and capital raising, which is the biggest pain point in the market. We act as a bridge between tokenization platforms and secondary trading platforms, since neither of these players are true capital raisers.
In September, we announced a strategic partnership with Securitize to give their clients exposure to the right network of investors and increase their likelihood of funding. Conversely, Securitize offers a proven tokenization solution for our clients, who require a proven compliance solution for the trading of their digital securities.
RS: How does Issuance market to potential investors?
DM: Issuance is developing an app that will allow issuers to market their deals directly to authenticated, interested investors. Issuers will pay a fee to Issuance each time they send a message to an investor on our platform, with the fee varying based on the type of investor messaged. For instance, a message to an institutional investor will carry a higher fee than a message to an accredited investor.
Issuance is in the process of partnering with a broker-dealer, which will allow us to capture success fees when investors sourced through Issuance invest into a deal.
The Issuance app is expected to be available in mid 2019. In the interim, we are selling traditional advisory and marketing contracts where Issuance serves as an introducer between our issuer clients and our network of investors. We have trusted relationships with some of the most active digital asset investors around the world, and have successfully sourced capital through this model for multiple clients. Our advisory and marketing engagements are sold in a fee-for-service model where Issuance is paid a flat fee month-to-month.
RS: Your website notes that Issuance “provides unique incentives for investors”, can you tell us what incentives Issuance offers that sets it apart?
DM: Investors generally want access to the best deals in the highest discounted rounds. Issuance has access to some of the industry’s most proprietary, desirable deals, which is an incentive for investors–particularly institutional investors and digital asset funds–to work with us.
As an example, we just signed a NASDAQ-listed biotechnology company running what it believes to be a historic digital securities offering (DSO). The company has a $250 million market cap and has been publicly traded on NASDAQ for more than a decade. This is one of most unique DSOs in the industry, and Issuance has exclusive access to the deal. The initial reception from our investors has been incredibly positive, and will further credentialize Issuance as a firm with true proprietary deal flow.
RS: Issuance “allows investors to only receive certain deals”, can you tell us how this works and how it is beneficial to investors and issuers?
DM: The problem with current platforms is that they are issuer-focused, and they market every deal they take to every investor in their database. Moreover, the majority of investors on these platforms are self-directed retail investors. This approach has resulted in a lose-lose-lose scenario for issuers, investors, and platforms alike. It’s one of the big reasons no equity crowdfunding platforms have had any real success to date.
Our strategy to solve this problem is counterintuitive, yet simple: Issuance will solve for investors first. Our app will cater to investors–the most sought-after segment of the market–and ensure that we protect both their privacy, and, more importantly, their time.
The Issuance app will gather investor profile and deal preference information up front during the sign-up process, which can be completed through the app itself, or through our institutional sales reps who will input profile information on behalf of investors.
By gathering profile and preference information up front, Issuance knows what deals investors are interested in seeing, and what deals they have no interest in. When an issuer pays a fee to market their deal to an institutional investor, for instance, that deal will only be sent to an investor who has explicitly expressed interest in that type of deal.
Think of it as a matching technology. By better matching the right deals, to the right investors, at the right time, we increase conversion, and everyone wins.
RS: Can you tell us some more about the ranking system that exists within the platform?
DM: We are developing an algorithm that we can share more about when we launch.
RS: What is the most important criteria you can recommend to issuers to achieve a high ranking within the platform?
DM: Issuance is focused on working with established businesses and publicly traded companies. Ultimately, issuers whose deals are the most highly de-risked, and offer the most fair and compelling terms to investors, will have a higher ranking on our app.
RS: Issuance offers aftermarket services, can you tell us a bit about those services and the benefits?
DM: Issuance offers aftermarket support services for issuers who successfully raise capital and list their digital securities to a secondary trading platform. Raising capital is only half the battle: issuers must continue to aggressively market to investors post-raise in order to increase the visibility, liquidity, and market cap of their digital securities.
Aftermarket support is one of the most overlooked yet critical services that digital securities issuers will need to succeed long-term. Issuance currently offers aftermarket support contracts with 6-month or 12-month terms, with our 12-month terms offered at a slight monthly discount.
RS: Is there anything else you want to share about your project?
DM: Issuance is currently raising our own round of capital, and some of our current and committed investors include Alpha Omega Capital Partners, Slim Ventures, Proactive Capital, and Business Instincts Group, to name a few.
If you’re looking to invest in the digital securities ecosystem, and want a company with a proven team, traction, and revenues, I’d say we’re a great bet–and our investors would agree. To access our complete investment package, please visit www.issuance.com.
Interview Series – Dave Hendricks, CEO & cofounder of Vertalo
Dave Hendricks is the CEO and cofounder of Vertalo which is a stakeholder Registry and Cap Table platform for SEC Compliant Security Token offerings. They connect broker-dealers, issuers, exchanges and ATS’s.
AT: Could you share with us what Vertalo does?
DH: Vertalo seeks to help more issuers, tokenize more assets, at lower cost and lower risk. And at less expense. Vertalo’s core offering is a crypto cap table, in other words a ledger of token holders. ICOs didn’t care about cap tables, but equity investors do.
Investors can be added to a Vertalo-built cap table before, during, or after a fundraise or ICO. Vertalo’s wallet registration process is the connective process between issuers – who want to know who owns how much of their company – and investors, who want to know how much they own of the company. Vertalo is glue for the overly confusing STO ecosystem. Vertalo helps issuers manage their investor community and Vertalo helps investor manage their holdings – all via a simple graphical interface that is way better than etherscan.
AT: Is this on a public or private blockchain? If both, could you elaborate what information is on the public versus the private?
DH: Most Security Token issuance development is Ethereum-based, and most smart contracts are written in Solidity, so Vertalo started its work in alignment with the community, but Vertalo was designed to be chain-agnostic. If an issuer wants to write their token using Hyperledger, or Hashgraph, or NEO, or Stellar they can do that and Vertalo’s cap table and investor registration functions will operate the same way. We see benefits of permission-less and permissioned Blockchains for Security Tokens.
AT: Do you perform the KYC/AML accreditation yourselves?
DH: Vertalo partners with major Accredited/Qualified and KYC/AML Services, since there are more than 200 different jurisdictions and we want to focus on what we do best. We are developing a subscription service with several of these vendors to simplify secondary trading (where KYC-AML is so important). More on that later in Q1.
AT: Could you describe how the platform enables issuers to manage the investor community?
DH: Vertalo’s Cap Table combines the features of a traditional ledger with network connectivity. The Vertalo cap table represents a relationship between two parties, determined by consensus. Issuers use the vertalo registration smart contract process to invite and add an investor to the cap table. That registration process creates a ledger which is more than a list of holders, it facilitates communications between the issuer and investor so that tokens, dividends, and documents can be transferred between the parties.
AT: There are many non-blockchain options to manage a cap table. What are the benefits of using a blockchain, and more specifically Vertalo?
DH: Token trading is real-time. If someone trades a security token, the investor ledger by law must be updated with the new address/holder of the token. So a blockchain-based cap table ledger operates at the speed of blockchain, faster than paper and with better record-keeping. Without a blockchain-based ledger for a blockchain based security, who would manage the legal requirements for maintaining a list of shareholders? This was not a concern for ICO issuers, so they didnt create this tech. ICOs just cared about exchanges. STO issuers need to maintain compliance with securities law.
Developing blockchain-based cap tables is also the first and fundamental step towards greater liquidity for private assets, because cap tables are where the investor ownership rights are best enforced. The reason that issuers and investors are tokenizing their offerings is to ultimately achieve greater liquidity by enabling their shareholders to sell on exchanges and ATSs subject to the issuers rules.
No traditional private equity cap table platforms connect to exchanges, and even obtaining a stock certificate from a traditional cap table platform is a days-long effort. And when you receive a paper share from a traditional cap table platform there is no where to sell it, since you have to get permission from the board, and then there are few marketplaces for anything other than Uber or Lyft, etc..
Tokenized offerings are issued on the predication that the tokens/shares will be ‘tradeable/’ after a restriction is lifted. By connecting the Vertalo blockchain-based cap table to exchanges and ATSs, we enable token holders to achieve the liquidity that is main differentiating feature of a security token offering, while complying with basic securities law.
AT: How does the Vertalo registry reduce costs for Broker dealers?
DH: Broker-Dealers have fiduciary requirements to check KYC and AML. Vertalo’s investor registry function, which connects KYC verified email addresses to blockchain wallets, was designed in conjunction with major broker dealers to help them comply with basic AML requirements. Vertalo built its platform to be whitelabeled by broker-dealers so they don’t have to build or manage this process themselves.
AT: You offer investors who register with Vertalo the opportunity to instantaneously share their investor profile with broker-dealers and issuers. How do investors sign up for this?
DH: This feature will be built out later this year. Our focus is on the Picks and Shovels for our business clients.
AT: One of the tools that you offer is the verification of wallet ownership? How is this performed?
DH: The Vertalo Wallet Registration process uses a smart contract to run a process that is similar to the method by which a bank verifies your ownership of an account, by depositing random amounts into an account. We send an email to the registered account holder, with a link to kick off a process. If you can log into that account and verify the amounts, that is the beginning of proven ownership. It’s actually a little more complicated than that, but to the proper owner of a wallet, it is a very smooth process. We use a special utility token (no, you can’t trade or transfer it) and smart contracts for this process.
AT: Are there any notable projects that are currently using the Vertalo platform?
DH: We were our first client. I think that Vertalo issued the third or fourth real, US compliant Security token in March 2018. That is why we built this. We are working with PrimeTrust, Issuance, Entoro, and we will be announcing some Major real estate, fund, and debt issuances that are launching in February and March. By the end of Q1 there should be more than 10 projects or Broker-Dealers using the tech to simplify their token issuances, investor relations and cap table management.
AT: Is there anything else that you would like to share about Vertalo?
DH: Issuers should create a great product, find a great law firm, find a great broker-dealer and call Vertalo. We can stitch all the parts together for you and also help you save a tremendous amount on your overall tokenization costs.
Interview Series – Patrick Campos, Chief Strategy Officer of Securrency
Patrick has worked with clients across multiple industries around the world as a strategic consultant and as a lawyer with three top-tier international law firms, giving him deep transactional and project experience – as well as hands-on understanding of the start-up and growth stages of company development.
AT: For our readers who are not familiar with Securrency, could you share with us what it is your company does?
PC: Securrency develops and sells proprietary software products and infrastructure supporting the regulatory-compliant issuance and trading of digital securities in the form of security tokens. Our software is typically licensed to authorized persons, such as broker-dealers, and enable them to provide end-to-end lifecycle management of security tokens. In addition, our core interoperability protocols enable trading platforms around the world to interoperate for the trading of security tokens across a global interlinked network of centralized exchanges. Securrency’s technology allows for atomic swaps of different token types, which enables the trading of non-fungible tokens (NFTs) across a global decentralized exchange.
AT: In October you launched the protocols CAT-20 and CAT-721, could you go into some details on the differences and benefits of these protocols?
PC: The Compliance Aware Token (CAT) protocols allow issuers to mint security tokens (CAT-20) and non-fungible tokens (CAT-721) that incorporate the regulatory and transactional rules that apply to that particular security. Accordingly, the token will govern itself and not go where it is prohibited. The CAT protocols are also fully interoperable with multiple blockchains and legacy systems, which enables tokens minted with the CAT protocol to trade in various markets without losing their compliance characteristics.
AT: You recently partnered with QuantmRE to help build your real estate trading platform, could we get some details in what this partnership entails?
PC: Securrency is providing investor onboarding and token minting services for QuantmRE’s real estate fund offering by providing its technology via API to Quantm’s platform. As capital is invested into the Quantm fund, Securrency will create EQRE security tokens that will be distributed to Quantm’s investors and provide Quantm with automated compliance functionality, including fund LP communications and dividend distributions.
AT: In July 2018 you announced a partnership with SharesPost. What benefit will this offer your clients?
PC: SharesPost provides a purpose-built trading platform for security tokens, so this partnership will facilitate the trading of tokens minted with Securrency technology on the SharesPost exchange.
AT: One of your products is the RegTex engine, what is this exactly?
PC: RegTex is our suite of tools that are delivered either as a turn-key issuance portal or via APIs to existing issuance portals and alternative trading systems (ATS). This PC: enables the onboarding of investors (fully KYC/KYC/KYB/AML) and the compliant enrollment, subscription, tokenization and issuance of security tokens.
AT: You have a large international presence, are there certain regions that you are targeting to tokenize first?
PC: We have established an initial footprint in Abu Dhabi, United Arab Emirates, where we have been admitted to the Regulatory Laboratory of the Abu Dhabi Global Market – a 21st century international financial center. From this platform, we intend to support authorized persons and issuers throughout the Middle East and North Africa (MENA) region and beyond. We are also in the process of establishing a presence in Asia and in Europe.
AT: Are there any upcoming STOs in the pipeline that you can reveal to our readers?
PC: We have many transactions in the pipeline, but one that is currently in the market is Frontier Spirits. This is a really interesting, Texas-based spirits company with a market track record of selling Pura Vida Tequila, a new whiskey brand and a destination distillery that is soon to be launched. This is a traditional equity raise that is being conducted through the sale of security tokens, which is a great showcase of the intersection of the legacy capital markets and the new security token economy.
AT: You are pci dss certified, what benefits does this offer STOs and investors?
PC: PCI-DSS is not a security token industry standard, as it is a very high certification with rigorous requirements that was developed by and for the credit card industry in order to protect financial value within their networks. Securrency’s voluntary submission to this certification process demonstrates our commitment to network security and the protection of investor value.
AT: Securrency is ledger agnostic, nonetheless are there blockchains that you prefer to work with?
PC: We don’t like to pick favorites, as each ledger has certain strengths and weaknesses. We prefer to let issuers pick their favorites and we, in turn, support the issuers.
AT: You are working on cross ledger issuance, what are the benefits of this framework?
PC: This again supports issuer choice. For example, an issuer may prefer certain aspects of the Stellar ledger while still wishing to market to the Ethereum community, so issuing simultaneously on both ledgers is an appealing option.
AT: Is there anything else that you would like to share about Securrency?
PC: Unlike many of our competing platforms that were built to support ICOs with a veneer of compliance on initial issuance, Securrency was built from the core to support and expand the vast existing capital markets through the incredible functionality of well-crafted and compliant security tokens. As a result, our proprietary end-to-end suite of technologies addresses the many pain points of capital formation and secondary-market trading.
AT: Thank you for the informative interview.
Interview Series – Howard Marks, CEO, of StartEngine
Howard Marks is a co-founder and CEO of StartEngine. Since inception, nearly 150 successful financings have been completed for startups and other businesses via the StartEngine platform.
Long before ICOs became standard parlance, Howard saw the future of Security Token Offerings. On his blog and also through guest articles as contributor to Forbes, Hacker Noon, The Mission and Next Web, Howard has shared his vision for the space and has worked to chart the path forward to liquidity.
StartEngine was involved in the highly successful tZERO STO, they hold annual conferences, and many STOs are raising via the StartEngine platform.
AT: You have quite the impressive background, with an extensive history in software and gaming. Yet, you decided to launch an accelerator program called StartEngine. What inspired this?
HM: I felt the Los Angeles technology community needed an accelerator to invest in young companies. We were the first accelerator to launch in Los Angeles, many more followed. The mission was to help Los Angeles become a technology city.
AT: How long was it until StartEngine pivoted towards equity crowdfunding?
HM: We invested in 60 startups and most of them were not able to raise any capital. This was a huge problem. Investors were only interested in very narrow set of ideas and a certain type of founder. This resulted in most of our investments failing. This is viewed as normal given the early stage nature of the companies, however, access to capital was difficult for most of them, especially for the female led founders. In 2014, two years after launching the accelerator, we created the crowdfunding platform and launched in June 2015.
AT: Your first client on StartEngine Elio Motors went on to raise an impressive $16.9 million. How did you source this client?
HM: We were introduced to Paul Elio through a marketing company who felt they would be a perfect first customer for our company. Paul was adamant his community would invest and we were excited to have such an early success.
AT: When did StartEngine decide to also offer ICOs?
HM: In June 2017, I was reading about the DAO report published by SEC. This report explained how the DAO was an investment in securities although it was positioned as utility tokens. This intrigued me to learn more about ICOs and I found huge fast growing marketplace of investors who were using cryptocurrencies to crowdfund companies. There were two main differences from our marketplace: They were not following the securities laws and they offered many liquidation marketplaces for the investors. We decided to help ICOs get out of the shadows and use the JOBS ACT to sell securities within the securities rules. The first significant ICO we launched was tZero in February 2018.
AT: You were one of the first companies that pivoted from ICOs to STOs. What made you pivot toward STOs?
HM: ICOs were viewed by the general public as an investment in utility tokens. Although most of those tokens were securities, they were not sold as such. Changing the name to STO made sense because it was clear these offerings were for securities.
AT: We are huge fans of tZERO, how did you get tZERO on-board to raise on the StartEngine platform?
HM: When we launched our first summit on November 10 in 2017, we invited Ralph Diauto from tZero to come and speak. He saw our entire organization and how we were focused on compliance and following the rules. This was refreshing for him given the large number of platforms who were launching utility tokens by disregarding the laws.
AT: The StartEngine Summit has been quite successful. My only complaint is that it’s not long enough, any plans on making this a 2-day conference?
HM: We have completed three Summit so far and our next one is April 12th. I think a 2 day conference makes sense, however, it involves twice as many speakers and a lot more logistics. For now, we are expanding the 1 day conference and in collaboration with many other Los Angeles companies to offer an incredible LA Blockchain Week.
AT: You’ve spoken strongly in the past about supporting women entrepreneurs as traditional venture capitalists often do not provide them with the support and funding that they need. Do you feel that equity crowdfunding and STOs offer them more of a fair playing field?
HM: We have learned that under 4% of Venture Capital is invested in women led companies. This results in discouraging women to pursue their dreams and business aspirations. This bias contributes to the lack of diversification in the types of companies that are funded and also in the types of ideas available for investors. So far, StartEngine has women leading 22% of the companies on our crowdfunding platform. This is still low but a large step forward. We believe crowdfunding and STOs will help fund more women led companies than VC and Angels combined.
AT: I know you believe in mission statements, what’s the mission statement of Start Engine?
HM: Our mission is to help entrepreneurs achieve their dreams.
AT: StartEngine is currently running their own STO. Could you tell us about this STO, the raise amount, and the terms that are offered?
HM: We have a fundraising campaign for accredited investors called OWN Limited. This is limited to a short period of time before we have received qualification from the SEC for our next Regulation A+ public offering. The OWN Limited terms are $7.50 per token. Each token represents a share of Preferred stock in the company. To see the details, go to https://www.startengine.com/own-limited
AT: Anything else that you would like to share about StartEngine?
HM: We are focused on building a modern financial firm which can help entrepreneurs capitalize their companies directly from the crowd. We also want to provide investors with liquidity options. We are in the process of registration with the SEC for our broker-dealer and Alternative Trading System. We recently launched a proposed standard called ERC-1450 to tokenize securities. The purpose is to offer investors the ability to receive digital stock certificates in the form of tokens and to then facilitate the trading on our upcoming platform.
AT: Thank you for the interview. We are huge fans of StartEngine and we were excited you were able to join us.
For anyone who wishes to learn more about StartEngine or Howard please see the links below:
StartEngine – Invest in companies via equity crowdfunding or STOs.
StartEngine STO – Invest in the StartEngine STO.
Howard’s Blog – Howard discusses his views on the industry.
Howard’s Twitter – One of the best Twitter accounts in the industry to follow.
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