What are the Private Capital Markets?

Speakers

Dr. Kiran Garimella

Chief Scientist & CTO

KoreConX

Dr. Kiran Garimella

Chief Scientist & CTO

Kiran Garimella, Ph.D., is the chief scientist and chief technology officer at KoreConX, leading the strategy and development of blockchain and machine learning solutions. A sought after speaker and author, Kiran has more than 25 years experience in information technology, consulting and financial services. Previously, Kiran held roles such as global CIO and chief architect at a General Electric company and vice president and chief evangelist for BPM at Software AG. He is also an advisor to the Alliance of Merger & Acquisition Advisors and the MidMarket Alliance, principal founder of iKnowCentral and co-founder of CognitiveWorld.com.

Oscar Jofre

CEO and Co-Founder

KoreConX

Oscar Jofre

CEO and Co-Founder

Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.

Jeannette Spaulding

Co-Founder

Tokenwise

Jeannette Spaulding

Co-Founder

Oscar Jofre  00:46

All right, well, good afternoon, everyone, and welcome once again, to the KoreChain webinar series, where blockchain education all starts. Today, we are going to have a great conversation. We have some great guests today joining us. So I’m gonna let them introduce themselves. But don’t forget, you know, with the KoreChain webinar series, you’ll be able to still see it on either YouTube or you can go to KoreChain.io, you’ll be able to watch the video and the transcript of this series. And we have many in store for you. Thank you everyone for submitting some of the titles that you would like to, for us to speak with you. Today’s topic is really interesting, because, you know, in order to talk about blockchain, you really need to first talk about where you’re going to put it in. I mean, Blockchain is just like one of those great technologies that are useful. But why is one particular sector or another and today’s topic is the private capital markets and the private capital markets is vast, but we’re going to get into that. But before we do, let’s have our guests today introduce themselves, Jeanette, please.

 

Jeanette Spaulding 02:04

Thank you so much, Oscar. My name is Jeanette Spaulding. I am co founder of Tokenwise, which is a tokenization and growth strategy for blockchain companies. And what we do is we really bring together the various participants in the space so that they can execute on strategies that involve asset tokenization. Getting into various parts of web three, and really leveraging blockchain technology. I come from a traditional finance background. So I have a suspicion that that is why I have been brought on to be a contributor to this particular webinar, I started my career in Paris, working with institutional investors also worked in London doing the same thing, before I made my transition into technology as an operator in the blockchain space, as well as a digital transformation leader and product management leader in various large financial institutions. So very happy to be here and looking forward to discussing private capital markets. 

 

Oscar Jofre  03:09

Perfect. And you’re right. I mean, you’re well suited for this. You’ve spent enough time in it. It’s now too time to share. As David Weild always reminds me, we we have to start at the beginning. And I’m going to share a little tidbit with you guys on it. But as well, I would like for everyone to meet the esteemed Dr. Kiran Garimella, please.

 

Oscar Jofre  03:37

I don’t think we can hear him. I believe it’s not working for him. So. So for all of you. I am sure this has happened to all of your CTOs. Because it happens to mine every single time. We’re in a meeting and guess what? The microphone doesn’t work, the camera doesn’t work. And of course, their machines are doing different things. So we’re gonna come back to him. He’s gonna introduce himself here shortly. And high level Dr. Garimella is the Chief Technology Officer and Chief Science Officer both at KoreChain and KoreConX, his vast number of years experience working in the sector. Are you able to join us Garimella? Nope, still out to lunch. Okay, Viva Las Vegas. So, the Yeah, you’re going to need to figure that out. Because otherwise, what am I going to do? You’re going to have puppet me from the back. So one little tidbit that I noticed and we’re gonna get into the discussion today, the private capital markets because it’s it’s so important is that the last week or so I’ve been noticing participants intermediaries, people in our ecosystem, whether it’s technology or private capital markets or anything, everybody is going back to the basics, I found it very interesting that the DC Blockchain Association, which normally the digital assets and stuff like that, their very first event is what is blockchain. And I thought that was, you know, we’re, it’s almost, it’s reminded me, we’re going through a reset. And when you go through a reset, and this is why this subject is so timely, you need to revisit things right from the get go in order to get to why blockchain is so important here. And that will be our next webinars. So but we’ll touch on a little bit. So today, we’re going to talk about the private capital markets. And what why are we so excited about it? I’m going to share something with everyone really quickly, that you probably didn’t know. And we have recently learned that the private capital markets represent 70% of the world’s GDP. I mean, that’s the impact we as privately held companies have on the world. And this is, this is quite powerful information. So it goes to show you the, the we’re not a small piece of pie. In fact, the public companies only represent a very small portion of it, but they get 99% of all the publicity and the rest of us don’t, or the market doesn’t so. But the rest of us are dealing with the the what is the private mark, but Jeannette, I mean, you’ve been working in this space. So let’s talk first, in defining the difference between private market and public markets in a in a simplistic way, and then we’re going to go into kind of the participants so people can understand who they all are.

 

Jeanette Spaulding  06:48

Sure, yeah, happy to kick it off. Well, I mean, a very simple definition of the difference between public markets and private markets are public markets are available to the public, to be purchased, to be invested in etc. So for example, looking at stock, the stock market, when people think of the New York Stock Exchange, for example, that lists publicly traded companies. So that means you have companies where any member of the public can go and you know, they go through a brokerage account, or they you know, now we have more direct methods of investing in public companies as well. But you can go and there is no real barrier to entry, generally are very few barriers to entry for anyone in the public to go and buy a stock. For example, with private markets, those we’re talking about, if you look at companies, as an example, companies that do not offer members of the public the ability to invest in in their companies, and that’s because the owners are private owners. So that we have cap tables, which is basically like the record of all of the different investors in a company that are very small when you’re talking about a private market company. And usually, especially with the kinds of private companies that Oscar is talking about. It’s often like just the owners themselves, or the owners and the employees working in the company who’ve been given some incentives. But it’s a very restricted audience. And sometimes there’s private investors from like the private equity world or the hedge fund world. But in general, the private markets are much more restricted and closed off to the average investor than public markets would be. And because of that, as well, when you have a publicly traded company, there’s a lot more regulatory scrutiny around how often that that publicly traded company reports on things because really, they’re accountable to the public, and a much stronger way than private markets. So there are a lot more compliance and regulatory burdens on on publicly traded companies. So I think you know, there are a lot of differences, but we’ll start with those. And maybe I’ll hand it off to other folks to kind of continue. I think we have Kiran back, so maybe

 

Oscar Jofre  08:56

I think he is back. Are you back?

 

Dr. Kiran Garimella  08:58

Well, I’m back. Can you guys hear me?

 

Oscar Jofre  09:01

Hello, I’ve lost Espanol. Senor. No, say impossible. Yes. Yes, please. We hear you.

 

Dr. Kiran Garimella  09:08

Oh, I kind of wonder what happened. I apologize for that. Hi, I’m Kiran Garimella. I’m the Chief Scientist and CTO for KoreConX. What I found very interesting, besides the fiasco with the technical audio, what I found very interesting in this whole conversation, and the way Oscar introduced this, is that typically, you know, as technologists, and you know, we always look at the shiny object and say, Wait, can we use this now? Right, I have a brand new shiny hammer and when what needs can I find to hit it? But I think the approach that we have taken in the center spaces and forget the technology for a second, and let’s look at what is private capital markets are I mean, these are a very interesting piece, right. And everyone knows public markets, but what are private capital markets and what distinguishes them from the public markets and what can we do to serve this ecosystem much better. So I’m glad we’re taking that approach and then comes to technology, how we do all this with the right tools?

 

Oscar Jofre  10:09

Yeah, that’s a good point. You know it, I think they were sometimes forgetting the very basic question we need to ask. And that’s why I brought up the point that one of the leading associations that’s been doing these summits, you know, it’s all about digital assets that they’re going back to the basics on, what is this technology? Because I think it’s getting lost. And the same thing here is, how can we solve a problem with we don’t even know what it is yet or not sorry, that’s not true. I think people know bits and pieces of it. And I think the the analogy that Jeanette provided both private and public, it’s a it’s a great framework, high level, private versus public. The higher level is what the contribution profits bring in to all of this. The other element, if we break that down, globally, people go, that’s a big number. But I’ll just give you the United States, I mean, $3.9 trillion, was raised by privately held companies and $1.2 trillion was raised by public companies, the data is right there. That’s, you know, that’s black and white. And that was just last year. So there that we need to look at that. So, but to look at that, we now know that some of the differences there. Now let’s talk about some of the participants that are involved, you know, from your experience, and you know, I’ll start this off, because to give to give some, and then Jeanette and Kiran you guys can lead on to it. But that the difference in the public and private is one from operational reporting from a regulatory and exemptions you can use from the participants, ironically enough, they’re almost all the same. We’re dealing with lawyers, auditors, and, obviously, Jeanette you’ve worked on the other side, you’ve been on the broker dealer and the investment banking side, which plays on both sides, right.

 

Jeanette Spaulding  11:57

Yeah, exactly, plays on both sides, you know, buy side sell side, I would add to that, that there is like, you know, the secondary market platforms as well, that are different for private markets versus public markets. Something like, like I mentioned, the New York Stock Exchange would be very look very different than an alternative trading system, which is like the venue for trading these sorts of assets on secondary market. So I’d say, looking at, you know, where these things trade where these assets, trade, the public markets, and the private markets still do look very different.

 

Oscar Jofre  12:40

All right. And I mean, Kiran, obviously, from what we’ve been working on, KoreConX and KoreChain, you, you’ve obviously seen, everybody had Oh, I only thought there were only three. I mean, there’s obviously a lot more than that, right? Oh, absolutely.

 

Dr. Kiran Garimella  12:54

You know, people always thinking of, hey, there’s a investor, and then there’s the issuer or the company. And that’s it. Who else can it be? Right? But we know, you know, on the public market side, unfortunately, most people who come to this space, they have this background as a reference point with the public markets, and in the public markets, you don’t see many of these players, at least not from an investor’s standpoint. But in the in the private markets, you know, I mean, there’s so many other participants, we have the lawyers, and one of the things we’ve learned Oscar, and you know, and Jeanette, if you have seen this, too, is many people who are largely the same. They’re not, you know, they have to understand securities. You know, we have seen people that who said, hey, my brother in law is an IP lawyer. So can we, you know, see has given us some, you know, advice, but no, there’s a boatload of difference. And I know, we’ll talk about the, you know, the regulations in a minute later. But lawyers are great auditors, there’s a whole set of orders, both the formal third party independent auditors, but also the regulatory auditors as well. And then you have the banks and people think a bank is a bank. But what we have found is that there are many, many different types of banks, there are different types of risk and underwriting profiles that they deal with, right? And where are the escrow agents, on what is their role in this entire ecosystem. That’s an important point to insurances are the big thing. Then, of course, we have the regulators with different types of regulations, we have the SEC with a FINRA broken dealer, associations and so on, right, and there are broker dealers. And as we got get deeper into this space, you know, it’s been a learning experience over the last five or six years and, and Oscar has been in this for many, many more years. But, you know, we know that there are various types of broker dealers that are not licensed exactly the same way. And finally, of course, after all these, you know, shares and shareholders are done, I mean, the raises done, they’re all put on the cap table, and then there’s a transfer. Then who has to manage the transfers and perform various other activities on behalf of the investors, the shareholders and the company. So there are so many people, and all of them play a role in this ecosystem. And that’s what people forget, I think, you know, that, therefore, you know, various steps of operational process that with this types of protections, compliance with, with regulation and so on.

 

Oscar Jofre  15:27

I, you know, you nailed it, I am sharing an image with everybody, because what I find fascinating is that, we obviously, we all look at something only from what we know. And we wonder why sometimes people get into trouble or they stumble into something. And this has been, we’ve compiled this to show people, all the participants in a transaction, that’s just to raise capital, if you go, What are you talking about? Yes, that’s just to raise capital, those are all the different participants in one way or another, don’t touch it in the lightweight, whatever. And what they all have in common, they’re regulated, and they’re all regulated differently, broker dealers are regulated differently than issuers, then auditors and lawyers, insurance companies, banks, and so on. So when you’re dealing with a mix of regulators and all that, the complexity of our transaction, and yet we look, we account for 70% of the world’s GDP, $3.9 trillion was raised in the United States. We’re doing it clearly we are, but at the same time, the other parties that cost us more money in our sector to do it versus the public’s the we share the commonality of, of what we need. It’s just the way it’s deployed. or utilize is very different in the privates versus the public markets. So you know, I, I find it again, it’s listening from all of you, as you look at the same as you go, wow, in real yeah, there’s verification and, and not verification, just ID in AML, that everybody’s familiar with no, there, there are certain countries. United States is one of them, the other country is Australia. And there are more coming, where you need a third party verification needed on the investor to determine whether they are a accredited or high net worth, or whatever name they use in that particular country, where, again, that doesn’t exist in the public markets, does it mean so. But all of these little things they tie in, and it puts additional strain in how we move things forward in a more efficient way. So you need in order to solve any problem, you need to know each one of these intimately, in how it will have an effect in a company in order to move forward. So I hope that was useful. I just thought, you know, as you were talking Kiran, and Jeanette, I found that that to understanding the participants people go, Wait a minute, there’s not many. So now we know a little bit of difference. So from your experience, Jeanette, I mean, you’ve been in the private markets for a while now. You worked in both sides. And now you’re, you’re an entrepreneur, which is even better, because you went from big to midsize now you’re an entrepreneur? Where do you personally see some of the issues that private companies face in the private capital markets?

 

Jeanette Spaulding  18:40

Yeah, I think, you know, one of the main issues that that private companies face is liquidity. Basically, when they want to raise more money in order to fund certain aspects of their their business. Their operations or you know, launching new products or what have you. Obviously, it’s a lot more difficult if you are a private company to go out and raise that money. And I think as we’re probably going to talk about there are a lot of technology solutions now available to kind of overcome that those obstacles. But traditionally, it has been very difficult and it has involved intermediaries like making appeals to private equity firms or venture capital firms and things like that, in order to get those or you know, angel investors, friends and family just depending on how much money private companies need. There are these sort of echelons of investors that you go and you you know, put together your pitch deck and then we go out and do a road show you go out and raise funds. That was a very sort of like, onerous, like time consuming process that used to take place anytime a private company would need to raise capital. That’s one aspect. Another aspect is actually keeping employees incentivized when you offer equity for example, to your employees as part of their compensation. One of the reasons why we’ve seen so many of the large tech companies that their main event there’s like this rush to get to the IPO is because of employee incentives are only valuable if you can trade them. And if you have given your employees equity in the company, but your private, it’s very difficult for your employees to actually make use of any of the those shares that they have been allocated. And so that’s another thing that that private companies face is that they really need to keep their employees engaged and even help their employees out. So if there is an employee who wants to, like use some of their shares to buy a house, right, usually that involves you’d have to have to kind of locate someone who wants to buy their shares, or they can maybe get their their the company to arrange for like a buyback or something like that. But these are all very one off cases, there has not really been a systematic way to allow employees themselves to get liquidity from the their equity stakes in the companies that they work for.

 

Oscar Jofre  21:06

Yeah, it’s, it is pretty interesting. When you have a first hand view what you see. And, obviously, Kiran, you’ve seen a lot, haven’t you in the last few years? Have probably, you know, I would like before you start telling me about how you saw it before you came in, you know, starting KoreConX with us in 2014, to what you know now, what do you think that’s been like for you? And what are the issues that you see the challenges in the private markets,

 

Dr. Kiran Garimella  21:39

It’s been an eye opening experience, right? You know, I feel like I’ve been on the no land and the land mammals for many, many years since my birth, right. And now suddenly, I’m thrown into the ocean, it’s a different medium. And it’s three times as big, okay, which is exactly what the planet is, right. And the private capital markets are, you know, almost like 60 to 70% of the world’s GDP is from them, which I never realized, it’s amazing how vibrant this entire market is. And from both from a technology process, and, you know, the types of things that you can do in this space is, it’s not just public markets, but it’s even more much, much more than that, right. So my predominant experience has been, you know, in the financial services industry, I was with GE, you know, as a global CIO for one of their divisions. And it’s all in the financial services area, too. And I personally have been a trader in various types of markets, including the futures and commodities. And we know that market, and I’m fairly familiar with that market, right. And the tools and the processes that you use, there are very, very different things are very liquid, if you’re working in the liquid, highly liquid markets. And there’s very little friction, in many of the things I mean, you can take out your smartphone, and then buy a public stock and get a confirmation in five seconds flat, right? And what amazed me, when you told me that in the private markets, it takes weeks to process any private equity, private transaction, like a buy sale. And that even that after you find your counterparty, whether you’re buying or selling, you have to find your counterparty somewhere at the, you know, 90 and hold on the golf course, for example. And, you know, even after that, it’s it takes a long time. So, and also the characteristics of the participants we just talked about, that are very different the way the large investment banks approach IPOs. And the public markets is very different than how the similar institutions, broker dealers on the private side approach, right, they have a different mindset. So it’s very different. And the risks, the regulations, the protections in place, and how people try to circumvent them in some of these public blockchain kinds of activities. I mean, that’s been a huge, huge eye opener.

 

Oscar Jofre  24:17

But, I mean, are you I mean, specifically, some of the things, you know, I know of holistically, we can see it, but where do you see the some of the roadblocks that people don’t understand in the private markets. You know, it’s it’s sort of like go getting your driver’s license, I go, Oh, my God, there’s got to be a better way of doing this. You got to stand in line there. I already took my picture. Why can’t they do with my phone or that way? We open bank accounts, you know, in Brazil, 10 years ago, people could pick up their iPhone. You look there and a bank account was open. We’re still having to go to the branch. So where do you see some of the issues we’re dealing private markets, that that those are problems that technology could ultimately relieved those doors to make it to make the transition much easier for companies.

 

Dr. Kiran Garimella  25:08

Yeah, first of all, unlike in the public markets, there is no central place you can go to and say, you know, I’m going to make a trade here, or I’m going to send with a broker dealer, you know, brokerage firm here, there’s no such central place to do that. And for people who are raising money on the issuer side, you know, you know, they know, it’s a very streamlined process for them where to go IPO way to list NASDAQ, or, you know, NYSE or somewhere else. And it’s a very familiar path for them. But for issuers in the space, there is really no path on how to raise this money. So really understanding that that’s been pretty critical on the investor side, I mean, you know, how do I invest in a private company? Right? I had no clue. I mean, I never invested in a private company before, you know, knowing about this space. And until the regulations came up, and you know, we have this new funding portals and all these platforms out there. Before that there was nothing else out there. So that’s been a significant roadblock. So where does technology play a role in all this, technology can really helped in, in in offering a very smooth and frictionless method for normal investors, retail investors to come in and make an investment, and, and also to be assured that the entire process and the transactions are safe, they’re secure, and compliant. These three things if you forget that, I think there’s a whole segment of the population a minor segment that forgot or didn’t pay too much attention to the safety and security and compliance. And that’s the reason why we see so many scams and scandals like the FTX in some of these spaces, right? So I think people are the big roadblock for most people has got to be, you know, how can I be assured that it’s safe, it is still compliant. And if I lose my tokens, if I lose something, can easily recourse right, or ever lost it forever? I think being able to assure people of all these things is is a fundamental roadblock for adoption here.

 

Oscar Jofre  27:16

Okay, and, you know, again, given both your backgrounds and what you guys have been working on the private markets, you know. I concur with both your component, your your feedback and the private markets, I think the challenges it does face overall, is that there is two participants. And I think that, you know, when you break it down like this, it really in one end, you have the company, a requirement for capital. And then on the other end, you have an investor, a requirement to deploy its capital. So those are in the middle is the mesh, that has been completely dark for us is like being blind, and trying to get to that investor and along the way. We keep hearing, you need to follow this rule, you need to do this, you need to do that you need to do that, to wiggle your way through. And through it. You’re taking so many different education steps, as we’re speaking here, there are people posting, you know, enough is enough. Stop reading what the venture capitalist saying it’s time to take control of your capital raising. But how do you take control? If you don’t know where that is? That are known. I think, this leads to my big foundation, what I believe in. I’m 14 years in, 14 years in that like that, celebrating the getting involved with the private capital markets with the introduction of the Jobs Act, is that education is going to be the cornerstone to making this even bigger. The mere fact that we now know it represents 70% of the GDP is world GDP. We know it’s big. Now, what do we need to do unveil it, we need to make it more efficient. So we can it can become even bigger, or more importantly, to allow the ones that are doing it in efficiently costing them an arm and a leg can participate more and more often into their companies because clearly private companies, you know. David, David Weild taught this to me a long time ago, and I’ve never forgotten this. Public companies do not create jobs. They do not create innovation. They create wealth, money. That’s it. Whenever the market is joining, what are they doing right now? layoff people just lay off? Why? Because their next quarterly is coming up private companies, we create jobs, you create innovation, we build communities, we we create wealth as well. It’s a combination of all of them, and the evidence is now there, but it is inefficient in some ways. And Jeanette, you brought it up, you brought it up a couple of times because I know you’re tickling on it, that secondary market and and you know so here we are. We’re Still trying to get primary completed. But the Holy Grail is here. Secondary market trading? I mean, so let’s go through that a little bit. I mean, with your your experience, where do you see that as the path now that is coming for private markets? And how do you see it unfolding? In what sectors do you think will gravitate to it first?

 

Jeanette Spaulding  30:24

Yeah, I definitely see that unfolding in terms of, you know, the the interest level of companies that do end up, you know, they’re private, and they want access to a broader pool of investors, for example, currently, how that works, like I mentioned, you know, their alternative trading systems. But it’s all done in a very piecemeal fashion, it’s still all very fragmented. So I think we’re probably going to see a development of more standardized standardization of private market assets on alternative trading systems. So that’s kind of like from a technology perspective, where I see things going, as more and more private market assets are on boarded onto tokenization platforms, we’re going to see a standardization as those assets move into secondary markets. And I want to also just ideologically come back to a point that Oscar you just made, which is the idea that with public companies, they are not really aligned with the the employees with, you know, with the overall long term objectives of a company. Oftentimes, those are out of sync with the objectives of a market, because public markets are very short term thinking, they’re always thinking about the next quarter and the next earnings report. And it’s really up to the management of a publicly traded company, to act in the best interest of the shareholders, that’s basically like their fiduciary duty. And all of that is that they really have to be looking in terms of what’s what’s gonna make the earnings, what’s going to allow us to meet our earnings actions for the next quarter, and then the next quarter, and then the next quarter. Which means that they are trapped in this cycle of short term thinking. And of course, the best CEOs try to break out of that, and do try to maintain long term objectives, despite the pressure to align with the short term thinking, but it’s difficult, and it’s always a balancing act. And it’s really hard to get that balancing act, right. Whereas with private markets, you are basically mitigating that short term ism, that short term thinking those requirements to focus on the short term. And you really the leaders and management of private companies that can stay private, they are able to align their strategic strategic objectives and their implementation with what’s truly best for their company, what’s truly best for their employees. And they can basically get a little bit of trust back from those that their circle of investors that believe in them as leaders that you know, the journey towards success is going to have its ups and downs. Of course, it always does. But trust me as a leader, and we are going to ultimately make it to the long term objective. Whereas publicly traded companies don’t have the luxury of being able to say that because they have their quarterly earnings report that they have to live up to every quarter. So I would say, as we are seeing more from private markets, in terms of private markets that are actually available as investments beyond what’s traditionally been available, as we see tokenized private markets, we are going to allow investors to actually invest in companies that do align with that long term thinking, which ultimately is better for global growth is to allow for that kind of those kinds of strategic actions and thoughts.

 

Oscar Jofre  33:58

Kiran we’ve been involved in a couple, many sub discussion partnerships and all that with secondary market trading. And we obviously like Jeanette, where we see it coming as well in from your point of view, based from where you came from when and now with secondary, where do you see it? How does, how does that evolve? In which sector? Do you think it’s going to be the kind of the one that’s going to kick us off to getting everyone in mainstream?

 

Dr. Kiran Garimella  34:28

Well, I don’t know which sector might happen, you know, because that’s like, you know, trying to predict the future, right? Well, but the main thing here really, is that we need a lot of liquidity in the secondary markets, otherwise, that’s not going to work. I mean, there has to be a base of lots of investors out there. So if I’m today investing in private markets, one thing that Jeanette that you said It is really critical in the dynamics of how people invest and why they look to a secondary market in this space is because on the public markets, right. They’re all in there to make the money they really don’t care so much about and most of that trading on the on the public markets is really program trading. It’s all algorithmic driven trading, right. So they really don’t care. You know, the company could have been, you know, making sawdust for all they care, and cannot make money. And that’s it, you know, who is a bigger fool in this? Right, that’s thing, what I’m seeing in the secondary markets and the way, you know, we see investors and shareholders in, you know, some of our issuers is that they’re very tied in with the concept of, you know, the community, what is it that they’re trying to do? And here’s another interesting dynamic, right? You know, any large public company CEO, they don’t know who I am I invest in that company, they don’t know my name from Adam. The shares are held in the street name, the broker, right. So as far as I’m concerned, I’m very, very, my privacy is highly maintained, as far as a public company is concerned. But in the private company, the CEO knows their shareholders pretty intimately, right. They they talk to them. So it’s very ironic that in the public markets, you know, the the shoulders are almost private, but in the private markets are also more public. They’re known to many more of the participants there, right. So it’s pretty interesting how the dynamic works. 

 

Oscar Jofre  36:27

That was done on purpose. But that was done on purpose by the very market to separate the investor to create this kind of line item to say, you know, what, we’ll we won’t show your name. So they will manage that for you. And at that moment, you gave up your right, in a private company, the investor sits directly on the cap table. So you’re right, the CEO, the CFO board of directors, hey, Kiran Garimella, they own shares in my company. There it is.

 

Dr. Kiran Garimella  36:57

That’s right. That’s right. So that’s, that’s that one to one connection, there is much more easier, I think, in the private markets. And and that’s, you know, that’s what gets a lot of people going in when I’ve talked to, you know, many, like minded, you know, investors in the space, and they say, No, I want to know, I want to get involved in sustainability. I want to get involved in, you know, cannabis, I believe in that sector. I believe in entertainment, I believe in something right, energy, you know, ESG type of companies, and I think we’re going to see a lot of traction in, in, especially in those companies, and they could be in different industries. But the key characteristic that I see is that it’s something that they can emotionally be involved in. Right, rather than, you know, some big company out there, like in the public market, you know, I don’t know what’s going to happen to them. And, you know, my mutual fund invests in them, my Index Fund invests in it, my pension fund, invest in it, but I don’t do that. I have no emotional connectivity to that, right.

 

Oscar Jofre  37:56

Yeah, it’s, you know, some people are using words like affinity isn’t your connection to the company, people want things to matter. They want to be heard, they want to be seen. They want to feel joy, proud. I mean, we have a client called Brew Dog, I find it extremely fascinating. That so their shareholders in their company, they call them punks. So this is, you know, in our company, we call them gladiators. Everybody’s got and the punks are engaged in a way that you go, Wait a minute, that’s sort of like you engaging with ambassadors. And they go, that’s exactly what they are. They have want, they want to participate with us. They’re, they’re our brand ambassadors, they’re the ones who do the first tasting of our products, they come up with the ideas, and they carry badges of honor. And I didn’t know what that meant, until they started sending me pictures. There are people who go from location to location to get a badge to say I was here. And I’m not only am I a shareholder, I am, I am. I am a punk. And it’s gonna sound funny the way it sets up. But you know, you’re a british company, that that came up with this and, and why so significant for a company like BrewDog is that six years ago, it was just another micro brewery in London, England. Where if anybody’s ever been there, every pub is a micro brewery. It decided to use the Jobs Act regulations, regulation, a plus to raise capital from the general public, and it’s become the success story of the world. And today, it’s got shareholders from 86 countries around the world. It’s a phenomenal story. But, you know, it goes back to the early teachings that the book that I wrote, way back oh my goodness, eight years ago, when we were talking about in a private company, why not? I treat these individuals called shareholders, why don’t we treat them as stakeholders or brand ambassadors, our customer, would you treat them differently as a public company? I mean, that’s a distinction both of you have made here, you brought it up Jeanette from alignment for employee, to shareholders. Kiran, you brought it up from the the management team, the board of directors to knowing to not knowing these are big differences. So those are, those are tangible components, I want to share a slide with both of you because they I want to this is a this is part of the second part of it, where that I want to be able to go through with you. Which is distinguishing the two markets, because throughout this discussion, I’m sure the audience is sitting there saying, I’m really struggling with this difference to the private and the public’s. And I commend you, I understand what you mean. And unless you come from the markets, it is it is a vast market, there’s a lot of participants inside of it. But more importantly, there are some things that you need to understand ovitch and why one works better than the other. So I’m going to give you this quick analogy for everyone to to understand what it is. The one thing that people don’t realize is that when you think of the public markets today, I can tell all of you today that are listening in, go to your mobile app or go to your computer, I don’t care what you use Google, Yahoo, AOL, whatever app, and if I tell you to look for the Tesla stock, that’s exactly what you’re gonna get. All of you around the world, no matter what country, you’re all going to get the same information. And some say, hey, the reason we get that is because of the Internet. The Internet is a delivery vehicle, only this was already in place, even before the internet. And what is that the public markets are on a framework or an infrastructure that everybody sits on the brokers, the transfer agents, the stock exchanges, the traders online, everybody that needs to transact is there, nothing moves, even the news wires? That’s right, the news. It’s not magic, that the news also in shows up on Yahoo, with that stock symbol, and you got real time set. That’s not magic. That’s not the internet. That’s the infrastructure. So when we look at the privates, and we want to be private, and not be like public companies, as, as we are alluding to, we need to look at it, what is distinctively different, we’re using the same type of participants. So what makes it where are the challenges and the challenges are that it is larger. So in the public markets in the whole world, there is 100,000 companies. That’s it. That’s the infrastructure that it supports. It’s not a magic number, for whatever reason, it has not exceeded 100,000 companies in the last 30 years. And the private markets today, there is roughly 400 million plus companies around the world 32 million just in the United States alone. And yet, it operates with no infrastructure. Everyone, everyone’s disconnected. Everyone’s niche, everyone’s building their own brand. Yet, they all need to transact this very same way as public markets. And that is the that’s the reason why we have somewhat of a disconnect with matching people to capital or not matching, I should say, connecting and doing it in a more cost efficient way. So the private markets can even be greater than 3.9 trillion. I think there’s more capital that wants to deploy here. But the inefficiencies of it are the reason and I share that because we’re going to get into the next discussion point here. As I take all the points, all of you’ve said and it comes down to those things. And the you know, the broker dealers are not all integrated as they are in public market and privates. They’re all writing their own systems email, maybe they’re using HubSpot, and so on the companies the way they manage themselves, same thing. So that fragmentation provides an opportunity. So why is that opportunity important? Because now what we’re going to talk about is because I want to lead it, I’m not going to go full into it. It’s a question each of you need to think about. So any meenie miney moe, I’ve think I will go with so I like to have fun. Do you believe and based on the discussion we’re having the blockchain can have either a revolutionize revolutionising the, or is it? Is it going to be more of a transformation? And if it is, how big do you think it can be for the market. Jeanette, I’ll start with you. And then Kiran, you’ve been coming at it from, you know, high level and you’ve been grinding it down here. And this is a this is an important question, because we’ve described the market the problem to participants. Now, how does this technology potentially have that impact?

 

Jeanette Spaulding  45:18

So I think I’m probably going to cheat a little bit and say it’s both it’s both transformative and revolutionary, because it’s really about who is using the tool. So for incumbents, like financial institutions, they are going to use this tool in a in a transformative way. Because they as we speak, you know, they’re building their own platforms to take advantage of these types of assets of these types of markets, etc, etc. So of course they are not going to do that in a way that strays very far from their current business models. So the types of blockchain and tokenization systems that are being built by large financial institutions are going to look very much like what the current financial markets look like. And that will still be transformative, because they’re still going to be able to streamline their operations, and therefore costs and probably you know, how, what it looks like to actually trade a stock in 10 years is going to look vastly different 10 years than what it looks like today, I believe, due to blockchain technology, but a lot of that is basically using the technology to improve how the current financial markets run. That’s transformative. Revolutionary, however, is the way that blockchain is used by private companies, oftentimes, smaller companies, by small businesses, etc, because for the first time ever, they’re actually able to take on outside investors in a meaningful way, in a systematic way, in a way that’s not fragmented and confusing. Like Oscar, you were just describing what that slide, they are getting access to capital markets in a way that has never been possible before. And I can only imagine the the growth and the innovation that that’s actually going to generate, because they’re also going to be free from, you know, the the boogeyman of the quarterly earnings report. As I mentioned before, obviously, they’re still going to be accountable to their investors, but it’s going to be much more on their terms and in their way and by managing their community. So they’re really the innovation that’s going to be unlocked by that new paradigm of giving private businesses access to additional funds and additional liquidity. That is going to be something that transforms basically, like the global economy is what I what I believe. And so we’re going to probably have these these parallel systems where you have, you know, the financial markets that are going to continue to operate and the way that they operate public financial markets. And then you’re also you’re gonna have this upswell of really groundbreaking revolutionary, small businesses, medium sized businesses that are doing things on their own terms. And these two forces are going to have to work together and figure out, you know, what the new new balance of that is, but I think we’re gonna see additive markets in a way that we haven’t seen before.

 

Oscar Jofre  48:26

That’s great. I like that. You try to balance both Kiran with where you’re gonna go.

 

Dr. Kiran Garimella  48:33

So I will start with a slide that you should ask that is a very, very telling slide. And the one point I want to make there because it’s very pertinent, is that 99% of all the noise in the in the news media is all about the public markets. 99% of it right. And this makes it especially challenging for people to even realize that there is a private market place out there private capital markets out there, right. And that makes it really challenging. Similarly, when it comes to on the technology side, you know, all all of the characteristics of a blockchain, why do we use it? We have too many, very many participants. They’re all decoupled. Right? You can’t get them all on the same platform. Well, one of the ways you can get everyone, you know, working on the same platform on the same infrastructure is to insist in the in previously insists that they all be on one big, large, honking ERP system. Right? And we know that it’s not going to happen, right? No, no one company has nothing but one ERP forget the fact that an entire ecosystem is going to be on one ERP. Until blockchain came about there was no alternative to that. And blockchain is the first cost effective alternative that from the smallest investor to the largest company can utilize today in various shapes and forms, right? They can all be on that infrastructure. And everybody doesn’t have to spend millions and millions of dollars and boatloads of money to implement a solution like an ERP solutions, right? And that’s where I see, Blockchain is going to be one of the most transformative and revolutionary things. I know, I agree with you Jeanette, that for a long time, for several years to come, the incumbents in the financial industry, you know, they’re incentivized to maintain the status quo and to be in control of that stuff. So there will be these parallel systems. But what I think will happen is that, given the fact that the private companies are two orders of magnitude larger, more than the public companies, right? That’s number one. Secondly, you know, they almost 60 to 70% of all the GDP is generated by the private companies, as the secondary markets in this private market space, start evolving, and then you know, becoming larger, there is going to be a tipping point, mark my words, there’s going to be a tipping point. And people will say, Who cares for the public markets anymore? Many of the public companies are going private, there’s been a trend towards privatization since the last two decades, right? That’s not going away anywhere. Right? It’s increasing now. So with all this, I can imagine I mean, one day, I think some of these incumbents who don’t know about all this stuff, and don’t make plans that one day wake up and say, Where are all our customers? When are all our assets? What happened? Well, they are with the private capital markets. And that’s very integrated system at that point, right. And I think the only transformative technology that can make this happen. It’s not going to be ERP, it’s not going to be the large, you know, database systems, it’s going to be the blockchain.

 

Oscar Jofre  51:43

Well, I obviously, I agree with both of you in this, there’s no word about it in my mind that it, it is very much like any thing when you know. When there’s a problem, how something can immediately have a meaningful impact. People in the front lines may not be able to see it immediately. And I think that’s the, that’s the one thing that’s different. We’re not sexy, somebody said that. What we do as companies in the in the private capital markets is not sexy as crypto, I get it and sexy, and not being sexy is fun. What we’re here to do is be compliant. And, but to be compliant, you need to understand the problem, and to understand the inefficiencies, because people obviously know how to fix problems, and we’re, we’re transacting. But we’re transacting inefficiently we’re duplicating the records. The amount of times a company needs to duplicate itself, to apply to the broker dealer to the escrow provider to the payment gateway to the broker dealer to the lawyer to the auditor. I mean, and, and then, of course,

 

Dr. Kiran Garimella  52:53

yeah, that’s another one of the problem, too, right. And, you know, you mentioned the word sexy agreed, cryptocurrencies are very sexy, right. But this entire space won’t evolve until people realize that crypto currencies are not the only financial instrument, right? There are many other financial instruments that need to be there. And that’s the reason why, you know, 99% of all the noise in in blockchain itself is nothing but cryptocurrencies. Well, you’re gonna get off of that bypass.

 

Oscar Jofre  53:20

No, I, I am with you. 100% It’s just because of that it I think, the the audience at the beginning need to understand you may not see it immediately. That the way you think you would, where you can see the today, you know, as we tokenize private securities and companies compliantly. Of course, the investor is not seeing it, they’re still logging in the same traditional software and application, they see it where they can experience the true benefit, when when they want to reinvest, and only then they’re gonna go, wow, how did that happen? How were they? Okay, it was really simple. Oh, I want to go to training. How did they do that? That was, I was used to doing all this paperwork. So only then, you know, it’s a it’s like chaos. We’re having chaos right now. We need chaos. I know people are gonna, what are you talking about? I love building, I’m sorry, we need it. We sometimes needed as human beings, it’s the way to remind ourselves that we’re not perfect. And we need to make things better. And so I see it this way real, you know, real estate tokenization I’m just going to talk to you a little bit about it. That’s a perfect example. There’s so much chatter about it. And I go, you know, this is such an exciting sector that you’re right, it can it can revolutionize it can transform, but if it doesn’t get started at the very first step, which is the government’s who are the owners of the land titles, all the other stuff is a pipe dream. So if you’re trying to sell me this site over here, and this stuff hasn’t started, yes, you need to sell them and they’re looking for serious participants and are looking For, you know, the crypto or they want a serious solution to solve the problem, ownership, you know. The city that I live in something really interesting happened, and blockchain could have prevented it. The homeowners were away out of the country for over three months. Three months, I think it was four and a half months. During that time somebody sold her home. Wow. I know you’re laughing. I’m not kidding you. You get it? Someone sold that home. And here’s the most boggling thing of all. This happens more often than you think. And so how easy is it? Oh, my goodness, it wow, is easier than you think. So with Blockchain, all of that could be prevented. Hey, it’s Jeanette Spalding, the co owner, we need verification Jeanette’s actually selling it. And although that is because it’s manual processes, human beings, people met Well, we all know human beings where we can tend to go the other way. We don’t but those who do.

 

Dr. Kiran Garimella  56:07

Right, sorry, I mean to say and to give you the other side of the story, you told your hometown, I’ll tell you what, my hometown in Tampa, Florida is the first city in the United States where a house was sold on NFT. Think about that.

 

Oscar Jofre  56:22

And here we go. And pretty soon they’re gonna take a picture of all that. Okay, get ready for you. And that’s okay, I’m still okay. But okay, inside. I mean, listen, it’s been great having you both. I mean, look, it’s a, it seems, maybe it’s rudimentary. But sometimes we need to go to the basics to remind people. Because the journey of the private capital markets, when people look back, I want them to say, Okay, what is it, here it is, learn about it. These are, obviously we didn’t go into great detail on each part. But you get the gist of it high level you can dig in. But from here on, obviously, I’m leading everybody to to the next one, which is our next topic, our next KoreChain webinar, which we’re going to invite you and hopefully, you’ll be able to attend is blockchain in the private capital market. The impact and as you heard from Jeannette, it’s going to be transformative and to revolutionize it. But that’s, you know, that scene in the future, as Kiran said it, and we’re going to actually talk about the present. And this is the most important thing about our discussions in education, we’re not going to give you a router, a theoretical, that there’s enough of that already. We’re going to talk about real life. So you can see it, you might not be able to see it firsthand. You know, when people say I want to see the blockchain and like a really you Do you know what it looks like? I know Jeanette’s laughing because it is questions, we will ask. But we want to open the unveiling of all of that as we carry on this journey at KoreChain of bringing blockchain education, we want you to feel that, in this particular use case that we’re talking about. We’re walking through it. And along the way, lots of different elements are going to come in, but the foundation has been set for you in order to have a basic and a core understanding. And you can see the opportunities that you can participate. The more information you have, the more you know about the private markets, the better everyone will be because we’re all going to move in the same way. So Jeanette, thank you. It’s always a pleasure. I’m so glad you were able to make it Kiran. As always, I’m glad you got the mic issue fix for every one. Thank you for joining us this afternoon. We look forward to seeing you again very soon. We’re going to have some great conversations on our next KoreChain webinar series on blockchain. Have a great day.

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