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.