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.
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 – George Waller, CEO of Blocksafe Technologies
George serves as the CEO of BlockSafe Technologies. George is a co-founder of StrikeForce Technologies, Inc., and is an entrepreneur and technologist with over 30 years in the computer industry. George played a pivotal role in introducing two of the leading cyber security technologies i.e., out-of-band authentication and keystroke encryption to the marketplace. Today, these technologies are widely used in Banking, Healthcare, Education, manufacturing and government sectors.
Prior to founding StrikeForce, George served as Executive Vice President and Chief Strategist at: Connexus Corporation, RxRemedy, TeachMeIT, Incubation Systems, and HealthSCOUT.
George studied aerospace engineering at the Academy of Aeronautics.
AT: There is no doubt that hacking and stolen cryptocurrency is a huge problem in the industry. What made you decide to tackle this challenge?
GW: As a blockchain and cryptocurrency enthusiast, it only made sense to apply our years of experience developing cybersecurity software to an obvious problem plaguing the cryptocurrency industry. It’s clear that this is an issue that needs to be resolved before the market and technology can mature to reach the point of mass-adoption.
AT: CryptoDefender™ seems to be your flagship product which is designed to assist users with logging in safely to their crypto-wallets and to prevent keylogging, clickjacking, etc. I wanted to go into details in regards to some of these functionalities. To begin with can you tell us about keystroke encryption and how this works?
GW: Keystroke encryption immediately protects every keystroke, typed on a computer or mobile device keyboard. The technology bypasses the traditional route that a phone’s operating system takes when entering the keys pressed onto the screen. Normally this allows the data entered to be visible to any using malware to monitor what is typed. Keystroke encryption instead encrypts the information typed and inserts it directly into the desired fields, preventing malware from monitoring what was written.
AT: Anti-Clipboard Modification is another feature of CryptoDefender™. What is this exactly?
GW: Anti-Clipboard Modification protects the copy and paste mechanism on desktop computers. Clipboard Hijacking is when a malware program waits for a bitcoin send-to address to be copied onto the clipboard buffer, it then replaces that send-to wallet address with the hacker’s wallet address, as soon as you hit “send transaction” your tokens are automatically sent to a different person, and when that happens there is no way to get back you tokens.
AT: You offer a Secure Browser as one of the features of the CryptoDefender™ product. Is this browser designed for desktop or mobile usage?
GW: This product is for mobile devices only, it is a secure & hardened browser which prevents Man-in-the-Browser attacks.
AT: Anti-Clickjacking and Anti-Screen Capture is a bit easier for the average user to understand. This seems like it is something that other more mainstream anti-virus products offer, why should a user choose BlockSafe Technologies™?
GW: Often this isn’t actually a feature offered in more mainstream virus protection. Many mainstream anti-virus applications act reactively, focusing on monitoring what is downloaded or installed onto a device and then cross-referencing it with a database of known threats. They often do not have the functionality to monitor everything going on internally, if the screen being monitored, if this is an authorized use, etc. BlockSafe Technologies creates software solutions designed for specific purposes where we identify the largest malware threats and then design solutions that catered to the specific needs of the cryptocurrency and blockchain ecosystems.
AT: You plan on offering enterprise software for securing exchanges. What’s the expected release date of this software?
GW: ExchangeDefender ver 1.0 is available now.
AT: How are you planning on staying ahead of bad actors in the space?
GW: One of the most crucial roles we have as cybersecurity professionals is to be constantly aware of the constantly evolving tools and methods used to gain unauthorized access to personal accounts and ultimately steal cryptocurrency and other digital assets. Currently, the tools used by hackers are constantly growing in sophistication. We monitor the cybersecurity landscape 24 hours a day, dissecting attacks and attack vectors so that we can always be one step ahead.
AT: You decided on launching an STO, and from my knowledge you are the first software company to do so. What made you decide to go down this path?
GW: Currently, there are others that have launched STO’s. The reason we launched an STO is because we believe in the blockchain. We didn’t just see an opportunity to take advantage of a new fundraising method, we are enthusiasts and believers in how blockchain can change the world. We do love the idea of being one of the first software companies to acquire funding in this way, just as we are pioneering the field of blockchain cybersecurity, we want to also pioneer the way that we structure the company as well.
We believe that as a company blazing the path today, we set a precedent for tomorrow. By holding ourselves to the highest possible standards of regulatory compliance, we can help set the bar for the STOs and blockchain startups of the future.
AT: What company that is assisting with the STO process?
GW: PCG Advisory Group is assisting us.
AT: What’s your hard cap?
GW: We already reached our soft cap, our hard cap is $27 million.
AT: Anything else that you would like to tell us about BlockSafe Technologies™?
GW: Cybersecurity, or the lack thereof, and the threat of hacking is the single largest obstacle that threatens the growth of crypto and blockchains. Hacking, theft, and crime have become synonymous with the industry. Investors globally will hesitate to invest in the crypto & blockchain space if there is no confidence. It will be the cybersecurity infrastructure and software developers that instill the confidence needed for institutions, enterprises, and investors alike to fully adopt this emerging technology.
AT: Thank you for agreeing to this interview, we wish you the best of luck with your STO.
For more details on this STO, please view the Blocksafe token details page.
Interview Series – Erich Spangenberg, CEO of IPwe
Erich Spangenberg is the CEO and founder of IPwe, a company using blockchain and artificial intelligence to create the patent asset class. He also was a founder of nXn Partners, a company that is focused on predictive analytics. He was the founder and CEO of IPNav, a company that was one of the pioneers in patent monetization.
AT: Can you give a brief overview of how IPwe plans on revolutionizing the patent market?
EP: IPwe is leveraging technology—in particular, AI and blockchain, experience and changes in market attitudes to create the patent asset class. Billions are spent on regulating, obtaining and maintaining patents and the returns to owners and society are low. We are going to help fix that. AI and blockchain make things much easier to understand and far more transparent. Intangible assets—and patents are one of the key intangible assets for many companies – are just too important to be ignored and left to underperform under the management of people who are not asset managers.
AT: Are you using a public or private blockchain?
EP: IPwe’s Global Patent Registry – the first registry of the world’s patents—and our transaction platform are built on Hyperledger Fabric. After evaluating other solutions, we concluded that our market is best served through a private blockchain—we are not dealing with a fungible commodity where issues of who you are transacting with are not of any importance. We will be building public components as part of our product roadmap—but it will take time for the market to accept these solutions.
AT: How will you educate companies to register patents on the blockchain?
EP: We are fortunate that our management team is well known in the space and has extensive connections with key players in industry and the nonprofit and government sectors. Leveraging these connections, we reach a large swath of the world’s patent owners. In 2019 you will see IPwe more aggressively advertising and raising its profile.
AT: One of your goals is to enable the easy access to any patent from any office in the world. What incentive will those offices have to use the blockchain?
EP: Many of the world’s 200 patent offices already understand the importance of blockchain and its ability to increase transparency and improve things like how title is recorded. The most forward-thinking offices are already in conversations with us and we will be publicly announcing initiatives with them in 2019. We are not selling anything to these patent offices—we do not seek revenue from patent offices. What we offer is a way for these offices to better fulfil their public mission. Will all of them participate? No, as there are some offices that harbor curious beliefs that their mission is to do something other than serve innovators and society—we wish them well and believe they will soon enough recognize they can play an important role in improving the patent system.
AT: The IPwe blockchain is linked to your patent analytics platform, Zuse. Can you explain how Zuse is able to both estimate the worth of a patent and its validity?
EP: Zuse has been under development for 10 years and is the only analytics system that we are aware of that can lay claim to being central to and directly involved in over $3 billion of identified licensing and financing transactions and raising over $1.4 billion of capital as part of a strategy to invalidate patents. Zuse has been used by experts in recent US patent cases. The “how” is fairly complex and white papers are available on our website for those who want to dig deeper, but the system closely mimics the methodology experts use to assess validity. Our valuation efforts are progressing and we will be announcing an initiative in December as part of a joint effort with key industry, accounting and academic participants that will advance patent valuation to a new level.
AT: One of the intended goals of IPwe is cheaper patent transactions. How will the blockchain help with these cost savings?
EP: We have already announced our pricing for traditional transactions – 10% of the purchase price or license price– which compares to current market rates of 25%–and pricing for other services that owners pay for things like annual maintenance fee that are over 50% lower than what patent owners currently pay. We use a variety of technology–including smart contracts built on Hyperledger–to lower transaction costs. Since we are making the pie bigger, there is still a critical role for legal, broker and other patent service providers that we want to work with the improve the system and increase the transaction volume. A key goal of IPwe is to dramatically lower the cost of patent ownership.
AT: IPwe did not pursue an ICO – happy with that decision?
EP: An ICO was not a viable option for IPwe. At the end of the day we are a B2B market solution. Today most large companies simply cannot get past the regulatory issues raised by traditional ICOs. This will change—but it will take time. We also believe that forcing customers to transact with you only through a single purpose token is not a viable way to transact or build a platform.
AT: How about security token offerings—do they play a role in IPwe’s future or the future of the patent market?
EP: STOs are something completely different from ICOs in our view. We are huge fans of regulatory compliant STOs and will use STO structures for both IPwe and for our patent finance solutions. This is a huge development in the patent space that will become apparent soon when we announce our first two STO financings next month.
AT: It doesn’t sound like IPwe is seeking to eliminate intermediaries that exist in the current patent market—why?
EP: Patents are in fact complex assets and certain intermediaries will play a critical role going forward and some, we expect, will either change their business models or disappear. Many enjoy singling out lawyers as non-value creating intermediaries, and while this may be true in some contexts, it is not true in the patent space. We think their role might change as they will become focused on higher value services, but we believe they play an important role in the new market IPwe is helping to create. The patent intermediaries that charge exorbitant rates to, for example, do nothing more than make annual payments to patent offices – we think their days of exploiting these types of inefficiencies are limited.
We think some of the abuses and negatives in the system—patent trolls, efficient infringers and lower quality patents, for example, will be addressed and remedied by these same changes. The intermediaries that embrace AI and the transactional efficiencies that can be realized through blockchain and focus on high value services are going to do even better as the market expands. The sloths and luddites will disappear.
AT: If we visit with IPwe again in a few years, what will we be talking about with respect to patents and the patent market?
EP: The biggest changes that AI and blockchain are going to facility is that new managers will likely take over the patent asset class and, as capital becomes more comfortable with patents, patent based financings will dramatically increase and large and small patent owners will regularly use patents to access capital. Intangible assets – which includes patents – are a majority of most companies balance sheets. Today, these assets are largely managed by departments other than finance and not well understood by finance types. This will change and it will be a change for the better.
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