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.