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Expert Interview


 
Scott Nissenbaum, Ben Franklin Technology Partners

Scott Nissenbaum

With a deep understanding of the early-stage investment landscape, Nissenbaum brings more than 20 years of venture capital, entrepreneurship, and operational excellence to the Ben Franklin team. From his leadership experience at such organizations as Novitas Capital and Finite Carbon, Nissenbaum brings nimble insights from investment and entrepreneurial perspectives. A long-standing member of Ben Franklin’s Technology Advisory Committee for IT investments, Nissenbaum has also worked with entrepreneurs on debt financing at Hercules Technology Growth Capital and Merion Investment Partners.

Nissenbaum held seats on the Boards of more than 14 companies including Traffic.com (NASDAQ:TRFC), USA Technologies (NASDAQ:USAT), EZ Prints, Inc. (acquired by Café Press), Haley Systems (acquired by Ruleburst), ClickEquations (acquired by Channel Intelligence) and ImageTree (acquired by GeoDigital). He also served as Chairman of the Board at Philadelphia Game Labs, a non-profit incubator for Pennsylvania based gaming companies..

Before getting involved in venture and entrepreneurship, Randall was a Captain in the United States Army and is both Airborne and Ranger qualified. He served over six years active duty and deployed twice in support of Operation Iraqi Freedom where he was awarded two Bronze Stars for his actions during combat operations.

Nissenbaum is a frequent speaker on the topics of venture capital and entrepreneurship at such industry meetings as The Wharton Energy Conference, The CFA Society of Philadelphia, Venture Talk Radio, and the National Science Foundation’s University Startup Conference. He also served as an adjunct faculty member at University of Pennsylvania’s Wharton school teaching the graduate course on Venture Capital and in the Management Information Systems Department at St. Joseph’s University focusing on business software applications. Nissenbaum received an MBA in Finance from St. Joseph’s University and a B.S. degree in Finance and a Minor in Economics from the Pennsylvania State University.

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Transcript


 

Adam Chapnick:

Hey everybody it’s me again, Adam Chapnick with the Security Token Academy. We are here in Los Angeles at CIS 2019 and I am joined by none other than the CIO of Ben Franklin Technology Partners in the beautiful city of Philadelphia, Mr. Scott Nissenbaum.

Scott Nissenbaum:

Thanks for having me.

Adam Chapnick:

It’s great to have you. So, as a proud graduate of Franklin and Marshall College in the great state of Pennsylvania, I love what you guys are up to. But for those who don’t have the same affinity, why don’t you tell us what does Ben Franklin Technology Partners do?

Scott Nissenbaum:

Sure. So, Ben Franklin Technology Partners is a seed and early stage investor, focused on the greater Philadelphia region. What differentiates us is we have made 50 investments last year, 67 investments the year before that, 225 companies in the portfolio, which makes us the 9th most active seed investor in the nation.

Scott Nissenbaum:

All early stage, all tech, all in the Philly…

Adam Chapnick:

All in the Philly, Philadelphia area.

Scott Nissenbaum:

All the time.

Adam Chapnick:

That is insane. I love it and am boggled by that. Okay, so how did there come to be an investment company focused on tech in Philadelphia, of all places?

Scott Nissenbaum:

Believe it or not, the state of Pennsylvania created the Ben Franklin network 35 years ago.

Adam Chapnick:

Wow!

Scott Nissenbaum:

And so about 20 years ago we morphed from a true economic development agency, where we are focused on creating the tech ecosystem for us specifically in Philly. And then we started operating more similar to a double bottom line VC firm.

Adam Chapnick:

Wow!

Scott Nissenbaum:

So, the idea is we want to build the tech ecosystem, but we want to make money so that we can take the proceeds from each company and then reinvest it back into the region growing stronger and stronger every year. Which brings us to today, where we have not only money that we invest on behalf of the state of Pennsylvania, we invest money on our own balance sheet back in, so everything’s recycled and then evergreen.

Adam Chapnick:

Oh wow!

Scott Nissenbaum:

And then we have co-investing partnerships with Drexel, with Temple, we do 4 different programs with Penn. We co-invest with Blue Cross and Blue Shield in Philadelphia, Key Bank, and so we are just trying to build that ecosystem with every resource we can.

Adam Chapnick:

Amazing! So in the bylaws, is there an actual mandate to build ...

Scott Nissenbaum:

Yes

Adam Chapnick:

How do you measure building ecosystem?

Scott Nissenbaum:

Yeah, so good question. The Department of Commerce and Economic Development in this last year gave us 3 and a half Million.

Adam Chapnick:

Okay.

Scott Nissenbaum:

We started in 1982 with 10 Million, then it went to 7 and then it went to 3 1/2

Adam Chapnick:

Awww.

Scott Nissenbaum:

But we have been building and for every dollar they’ve given us, they’ve gotten back 4 dollars directly related to the wage and tax revenue.

Adam Chapnick:

Wow!

Scott Nissenbaum:

So essentially it’s an economic engine not only for the jobs we create, but also for the state in terms of revenue generation.

Adam Chapnick:

So, if that’s the economics, you would think it would’ve gone the other direction, from 10 up.

Scott Nissenbaum:

You would think so.

Adam Chapnick:

Right!

Scott Nissenbaum:

And if you do it on an inflation adjusted basis, it should be about 44 Million.

Adam Chapnick:

Huh!

Scott Nissenbaum:

But, the state, like most states, have their own issues and their own priorities. And although we continue to perform, we are starting to get closer and closer to being able to do it and stand on our own.

Adam Chapnick:

That is amazing! So, what is the average size of a deal that you guys will enter into?

Scott Nissenbaum:

So, average investment size is about 200,000 as part of a million dollar round.

Adam Chapnick:

Wow!

Scott Nissenbaum:

We can invest up to a million dollars in any one company.

Adam Chapnick:

So you’re super seed, you really are early stage.

Scott Nissenbaum:

We ...

Adam Chapnick:

Pre-revenue?

Scott Nissenbaum:

We do, so Drexel University has Drexel Ventures, that is 100% powered by Ben Franklin. So when they want Drexel technology that’s created at Drexel to be commercialized, it goes through the Ben Franklin process and then Drexel can invest, then Franklin can invest, and then we build the company in Philly. We do the same thing for Temple University. We’ve probably spun out 6-10 companies from the University of Pennsylvania alone.

Adam Chapnick:

Wow! I’ve heard that’s an okay school. No Franklin and Marshall.

Scott Nissenbaum:

It is no Franklin.

Adam Chapnick:

Anyway ...

Scott Nissenbaum:

and Marshall, but

Adam Chapnick:

Yeah, please continue ...

Scott Nissenbaum:

But yeah ...

Adam Chapnick:

Dare to dream. One day.

Scott Nissenbaum:

One day

Adam Chapnick:

So.

Scott Nissenbaum:

One day. So, and because of all that, we went out and we raised, which is why we’re at this Crypto Conference -

Adam Chapnick:

Yes.

Scott Nissenbaum:

- our first, the first US regulated, US domiciled venture fund that is blockchain enabled. And when I say blockchain enabled, I mean 3-fold. One, we can raise money from anywhere, anywhere on the planet, going through an automated AML KYC process.

Adam Chapnick:

Yes.

Scott Nissenbaum:

On the Securitize.io platform. Thanks Jamie.

Adam Chapnick:

Yes, friend of the show, friend of the show.

Scott Nissenbaum:

Secondly, it allows us to use smart contracting for the back office and management. That’s more of a promise of the future.

Adam Chapnick:

Yes.

Scott Nissenbaum:

And then lastly, and I have to be very careful how I say this, there is a more efficient secondary market for the limited partnership interest themselves, that’s the token, security token -

Adam Chapnick:

Yes

Scott Nissenbaum:

- that we create so that when you buy into the venture fund, if for whatever reason you need liquidity before the ten, or twelve year life cycle, you can go and find a more efficient second buyer, hopefully with price discovery as SEC regulations

Adam Chapnick:

Right.

Scott Nissenbaum:

Start to allow, I should say.

Adam Chapnick:

Allow, that’s correct, yes. Fascinating so it would be correct to say that you are the first US domiciled compliant security token offering?

Scott Nissenbaum:

Yes, we are fully regulatory compliant in the US, and we don’t do anything offshore. And so if you look at Securitize.io, SPiCE VC or 22X or -

Adam Chapnick:

Yeah!

Scott Nissenbaum:

- blockchain, they all have some component of managing US regulations by going outside of the regulations. Whereas we came in and said, “We really want this to be focused on Philly, but all about the US. We want to prove, and the innovation is, that we want to prove that you can leverage the blockchain for added value, but still fully comply with rules that don’t quite contemplate the blockchain yet.”

Scott Nissenbaum:

So we’re kind of bridging -

Adam Chapnick:

Incredible!

Scott Nissenbaum:

- that interim gap, if you will.

Adam Chapnick:

So, how did what started as sort of like a project for good, decide to get into such an innovative and not yet fully formed space -

Scott Nissenbaum:

Yeah.

Adam Chapnick:

- as the structure of the fund itself? That’s not even, you’re not even, well are you also? Well, first answer that and then I want to hear you also investing in blockchain companies -

Scott Nissenbaum:

Yes.

Adam Chapnick:

- as some kind of mandate.

Scott Nissenbaum:

And so, it came about when one of my colleagues Sean Beshin started talking about crypto and bitcoin and ICOs and we started to dig in and look at why don’t we have an ICO? And then we said, well that won’t jive with our legal framework, especially in the US.

Adam Chapnick:

Ah hah.

Scott Nissenbaum:

Then we said, well but is there an opportunity to leverage blockchain, what would that look like? We worked for about 18 months, we worked closely with KPMG, Pepper Hamilton, Morgan Lewis, White and Williams, all these different service providers to say “Is it legal? Will it work? Can we do it?” And, 18 months out of the other end we said, “Let’s run with it.”

Adam Chapnick:

Amazing!

Scott Nissenbaum:

And I’d be amiss if I didn’t highlight Epom Systems, which is the largest outsourced software engineering firm in the world,

Adam Chapnick:

Oh.

Scott Nissenbaum:

20,000 employees, $8 Billion in market cap, traded on the New York Stock Exchange is our anchor investor.

Adam Chapnick:

Whoa!

Scott Nissenbaum:

So they committed $5 Million, they have been a phenomenal partner.

Adam Chapnick:

That’s great!

Scott Nissenbaum:

They’re helping us with international reach and it brings gravitas to the overall -

Adam Chapnick:

Yeah!

Scott Nissenbaum:

- enterprise. We put $5 Million of our own money in.

Adam Chapnick:

Uh huh.

Scott Nissenbaum:

We have Fulton Bank in -

Adam Chapnick:

Yeah, sure.

Scott Nissenbaum:

- for a couple million dollars. A couple family offices so we’ve got some real momentum in terms of the tier 1 caliber investors in the US sort of setting the stage so that investors abroad can look at that and say “All right, they’re real, they’re doing deals, they’ve got a huge portfolio -

Adam Chapnick:

Yeah!

Scott Nissenbaum:

- maybe it’s a fit.”

Adam Chapnick:

So what has been the, I guess, the result of yours and your partners influence in the tech region. What was it before and what is it now? Is it...?

Scott Nissenbaum:

Yeah. So I’m born and raised in Philadelphia -

Adam Chapnick:

Right.

Scott Nissenbaum:

-and I think if you go back 25 years, Philly was always that ignored city. And I think we really have blossomed as a tech community. I mean the fact that there’s 255 active tech companies in a city like that, I think it’s eye opening for people who are like “oh, I didn’t even know!”

Adam Chapnick:

No!

Scott Nissenbaum:

We have a number of VCs from across the nation that basically partner with Ben Franklin to say “hey listen, we’re going to come to Philly and we know you’re providing us access to all these companies, you’re doing the hard work, you’re rolling up your sleeve. But when you mature those companies to a certain point, we’d love to follow on.

Scott Nissenbaum:

The GO Philly Fund is the partner to that. So every time one of those companies bubbles to the top, and we feel really good about they’re through the technology, they’re into execution, there’s a lot of upside here, GO Philly can pile onto the winners. And that is the investment thesis which is you make more money in VC if you pile onto your winners. Ben Franklin can’t because of the resource constraints, the GO Philly Fund can.

Adam Chapnick:

Isn’t that fantastic! So as far as the mandate or the thesis of the fund itself, is there some component that includes blockchain? Or is it just sort of, what, is that…

Scott Nissenbaum:

Yeah.

Adam Chapnick:

- not part of the mission?

Scott Nissenbaum:

Because we’re always early stage, because we’re always technology and because we’re always in the Philadelphia region, we don’t purely focus on the technology sector. It would be too much.

Adam Chapnick:

Yeah right.

Scott Nissenbaum:

We have dedicated investment teams to information technology, digital health, life sciences, and advanced manufacturing.

Adam Chapnick:

Hmmm.

Scott Nissenbaum:

We do have a number of blockchain companies.

Adam Chapnick:

You do?

Scott Nissenbaum:

So AlphaPoint, which -

Adam Chapnick:

Oh yeah!

Scott Nissenbaum:

- some of your viewers may know.

Adam Chapnick:

Yeah!

Scott Nissenbaum:

Great group, Igor and his team there are crushing it.

Adam Chapnick:

Yeah!

Scott Nissenbaum:

We are in a company called Amino Payments, which has been stealth for a while. Serial entrepreneurs they’re crushing it -

Adam Chapnick:

Great!

Scott Nissenbaum:

- and we’re always actively looking for the next big thing.

Adam Chapnick:

That is so fantastic. Well, it’s great to have met you and to have been, I think, I’m going to say the first place to feature the world’s first -

Scott Nissenbaum:

World premier.

Adam Chapnick:

US compliant, STO issuer himself, Mr. Scott Nissenbaum.

Scott Nissenbaum:

Great!

Adam Chapnick:

Thanks for joining us.

Scott Nissenbaum:

Thank you so much for having me.