Hey everybody it’s me Adam Chapnick with the Security Token Academy. We’re here at CIS Los Angeles and I’m joined by none other than the CEO of River, Mister David Benizri. Thanks for being with us.
Hey Adam Chapnick, thanks for having me. Pleasure to be here.
Great having you so tell us about River. Some people may not have heard about it yet. You guys are based in Israel. What is River and why does it exist?
Sure, absolutely. So River is a fully servicing fund management platform built for private equity and venture funds. We provide a full suite from KYC AML accreditation replication to investor onboarding to capital calls to reporting and et cetera. Absolutely tokenization as well.
We are unique in the sense that we don’t simply provide a tokenization solution, but a full servicing fund admin as well. Because we believe that tokenization is disruptive, but it’s not its’ own service and by combining it with our fully functioning fund management software we’re able to disrupt an existing industry and really add value to our clients.
Wow. Okay so of all the things you could have tackled what was it about this particular fund management problem that attracted you? Why did you say this is the place you are going to apply yourself?
So, we looked at several verticals, we looked at real estate, we looked at the more alternative ones, like art, and diamonds, and et cetera… and as appealing as those new verticals sound, we wanted to go a market that was already established. You know with strong supply and demand. And that automatically we thought of secondaries for fund interest. And the reason being is that you know companies, especially venture backed company are staying private for a lot longer than we saw in the last decade or two.
So, what happens then is that you know there’s a highly increased illiquidity, which is found on the LP levels.
Previously would be 7, 8 years in the IPO and now there could be extensions up to 12, 14 years which is you know ...
Yeah absolutely. So, LP’s need a viable way to see returns before the fund is worn out and by being able to streamline the whole settlement process of secondary transactions our goal is not to create the market, and to create the supply and demand but just to become catalysts to an already established $61 billion market. And that’s why we picked this niche.
Wow. I think that’s a good reason. 61 billion reasons. I love it. So where do you operate? And who have you noticed to be, maybe, your ideal kind of client?
We are based in Tel Aviv, Israel. We are a team of six people. We work with five funds spread across three jurisdictions. We work with EU, U.S. and Israel regulations. Our ideal clients, as I said we only work with private equity and venture funds.
Is there a size that works better for you?
Yeah. Absolutely for the first year or so we are better suited for funds between 50 million to 100 million. Assets under management but we definitely see us scaling up to the bigger funds down the line.
Got it. What do you think is the biggest promise, you were talking about secondaries specifically for LP’s. Do you see that just being the big sort of meat on the bone right now or is there something else that’s in the security token space as a promise with it or is it sequential, like we’re going to start like you said where the money already is, supply and demand, and then something else is going to come. Where do you see the big opportunities here?
So it’s funny actually we spoke about this on our panel yesterday at Security Token Summit and in my opinion I think that we need to start where the market is and afterwards we’ll see other players that will be tackling more alternative space. Like, you know diamonds, and arts and et cetera. But in terms of River, you know we are hyper-focused on funds and we’re not going anywhere you know. It is a niche comparatively to other players in the space but for us $4 trillion niche is more than enough for us to, you know.
It’s a wide street to drive on.
That’s great. So what are the biggest obstacles to success?
So there are several, some can discuss regulation and custody challenges but in my opinion the one which is the most painful today is when I approach institutions for example, and I tell them that you know the whole promise of tokenization is increased liquidity and they understand how tokenizing can streamline the back office process and make it more efficient. They get it, not right away but after four or five meetings they start to understand it. But the biggest challenge right now is okay, great, so it’s more efficient but who are the buyers? Where’s this liquidity coming from? So I tell them that there are very exciting, you know ATS platforms out there but you know their trading volume is not extremely high as of right now. They are growing very rapidly and I’m very excited for them but it’ll take a little while before I can say that they have the volume which can really guarantee increased liquidity. So that right now is the biggest challenge but we’re in the right direction.
People talk about a liquidity premium on things that get tokenized and unleashed, for the opportunities in the market. Are you expecting to see that in some of these funds too?
Yes, yes, absolutely. You know I think by being able to digitize their offerings, fund managers can really add value to their offerings and to their LP’s when fundraising and the reason why we like to target those smaller funds for now is because they’re able to stand out when approaching their LP’s. I think it definitely helps them in their fundraising efforts.
There’s a use case that this might not apply to you for some time, but I come from the startup world and a ton of compensation among employees in Silicon Valley and in startups is options or straight-up grants or equity in whatever. But for the same reasons that you cited, a lot of times they go] unclaimed because it’s so long between when the employee gets an option and when the company has a liquidity event. Do you think having the opportunity to list your own company’s equity on an exchange is going to impact these companies about their ability to employ people or even any kind of thinking among employees in Silicon Valley about how they get compensated because they’ll be able to actually monetize their equity?
Yeah so, I think that is an interesting use case. It’s talking about the whole employee options and early investor shares in startup companies. In my opinion that can only be done Series B and up because before that there’s a lot of conflicts with the investors and you know, but Series B and up I think that can be a good use case. Us at River, we’re not tackling it but we have some partners in the space that are interested and we’d definitely love to work with them on that front but yeah I think definitely when you discuss about the whole friction which comes along with making a secondary transaction in private markets you know it’s so painful that people just don’t go through it.
That’s exactly right. It’s so painful.
And I think that that applies to several verticals in the market.
Interesting. So what’s around the bend for River. Where are you focused for the remainder or 2019?
So, 2019 for us working with our design partners. We have about six funds that we work with right now. We’re looking to cap it at about ten, work with them, build the product around them, really understand their needs and how we can better our offering with a client obsessed approach. Aside from that we are also product obsessed right now. So we are really, our R & D Team is working very hard to really you know build the best products for our clients and to have it on the market with our final product as soon as possible. Right now we are in Beta and we hope to have our final product ready for launch in the next quarter. So I’m very excited.
Well thanks for joining us and telling everybody about River. Hope to have you back soon.
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