Rob is the managing partner and CEO of CityBlock Capital, a venture capital platform issuing security tokens backed by equity or tokens in blockchain companies. Rob is also the co-founder and managing partner of Edgewater Equity, an early stage venture capital fund based in New York City. He manages a portfolio of early-stage companies around the globe. Outside of CityBlock & Edgewater, Rob advises a diverse group of operating businesses that range from restaurants to medical cannabis dispensaries. Rob holds a Bachelor of Science in Finance from Winthrop University and Master of Science of Law in International Taxation from Thomas Jefferson School of Law.
Hey, everybody, it’s me again, Adam Chapnick, from the Security Token Academy. And we are here with friend of the show, Rob Nance of CityBlock Capital. Thanks for being with us.
Hey, thanks for having me back.
All right. So, today we’re talking about issuance. And in the entire world there are nary but a few who have actually gone through the whole process of issuance and lived to tell the tale, barely. And you are one of them, you guys. So maybe you can start by telling us, because we’re trying to find out what really goes into it. What did you learn that you would’ve done differently. Those kinds of things are real interesting to us because there’s only a few people who’ve actually done it. So let’s start with maybe why did you do it, and what did you learn that was a surprise?
Right, well, I think that if we knew how hard it was we probably wouldn’t have done it, right? If we knew ... It’s by far the hardest thing I’ve done in my life.
By a factor of 10.
So we started this because we saw the opportunity to provide liquidity to asset classes that didn’t have it before. And so we thought, well, this is a great way to do it. And I think that what’s really hard about this process is taking technology and marrying it with the legal that’s necessary to do this. And then taking both of those and putting a product inside of it that you can actually sell.
So there’s three things that are really, really difficult to do. One is, the tech. So when we started this, secure ties didn’t exist, right? It’s who our issuance platform is. So we had to find an issuance platform, we had to find lawyers that knew what this was. If you remember, a year ago, no one knew what a security token was.
Well, it hadn’t been defined, there wasn’t even an answer to know.
We knew we wanted to build this thing, which came to be known as a security token, or digital asset. But we didn’t know anyway how to do it, right? So we had to focus on those three areas. So, we have in-house counsel, for legal, which helps steer the process with our external counsel, which is both U.S. and Cayman counsel, because we’re issuing out of the Cayman Islands. But you learn a lot of things along the way that are really difficult. Like, Cayman law can’t actually govern the token.
Okay, so what happens then?
In our instance, we have English law, that’s governing the token. So now we’re dealing with lawyers in three different jurisdictions, all trying to work together. So I don’t think if we would’ve had in-house counsel that could play quarterback, that we would have been able to accomplish it.
Yeah, that’s complex.
At the same time, we had…
Very expensive. Very, very expensive. So we actually raised money for our company, CityBlock Capital, we’re just issuing funds. Our first fund is NYCQ, but we had to because it’s expensive, and it’s a big process. So on top of that, we then had to find a technology provider that could write the smart contract. And so, you had to find somebody that could…
Today it’s easier.
Right, today it’s much, much easier, but no one existed. If you read our story about our founding, which we had a writer come and write about why we did this, and why it’s important. We talk about trying to get a hold of secure ties for the first time. And we couldn’t even get a hold of them, until I found one of the founder’s cell phone numbers on the internet, and I called him until he answered. And he said, he’s like, “Who is this?” I was like, give me…
Don’t hang up, don’t hang up.
Yeah, don’t hang up. It was like, “Give me five minutes.” And 45 minutes later, he said, “Well great, we’re going to be in New York in a couple of weeks, we can meet there.” They’re in San Francisco, and I said, “No, I’ll fly out tomorrow and meet you on Friday.” This was a Wednesday. And so, it was really hard to even find a provider.
And then, the third is, how do you build a real offering, right? So, security token is an excuse to get funding for a really bad asset, which is what people, is what some people assume, right? At the very beginning of this process, it’s a better way of ownership. So you get to build a really, really good asset that you’re going to sell on this platform. So, those three things really were the key for us, to doing this.
And what we found is that it’s very, very difficult, and there’s still a lot of legal issues that are trying to be worked out, and people are looking at different jurisdictions to issue out of. So, I think that there’s a way to do it, legally compliant today. But I think that’ll continue to evolve as legal regulations evolves with, as more of these assets are issued.
How much of that do you think was the fact that you were just so early, versus, it’s a bad process?
So, I think a lot of it was because we were early. And I think the process is getting better. I think people are working through it. I think the legal process is still not caught up to it, right? And so, a lot of the very earliest security tokens, so SPiCE VC, Blockchain Capital, VCAT, issued out of Singapore. You saw people move away from that, to.... I know people are talking about Bermuda now, and some other jurisdictions. I don’t think there’s a clear consensus of where is the best and most issuer friendly place to issue a token.
Yeah, the jurisdiction question’s one we haven’t really focused on, and it’s something that’s so important, oh my god. And we obviously hear a lot, at the Security Token Academy. But that’s a fundamental. Is there a pathway to clarity on that, that you’re aware of in terms of where is a place where it’s just fairly straightforward, as opposed to, “Oh, we just discovered that the jurisdiction we’re in is only not capable of governing our issuance, we have to go to Great Britain or whatever.” That seems like a big aha.
Yeah, so it’s not clear, right? And there’s not a lot of clarity so it’s something people have to work through. I think we’ve taken a very conservative approach on the legal side. So other people may not have the same scenario that we did, but we wanted to take the most conservative approach we could. Which is, it may be more expensive, it may be more onerous, but we want to make sure we’re falling in line with all the laws that exist, both internationally, in the countries in which people are purchasing our asset, but also within the U.S. and with the SEC.
I think that’s a wise course. So, in terms of having done it, would you say that the outcome, forget about the pain, was the outcome what you thought, or was the outcome different as well?
So I think when we started this process, we envisioned thousands of investors, internationally, that would be interested in this, and there just really wasn’t that strong of demand, as we initially thought. And maybe that will come as the market continues to evolve. I think that the liquidity is more limited today, than people think.
When I think of liquidity and markets, there’s really two things that bring liquidity to market. It’s high-frequency trading and the derivatives market, none of which exists for private assets.
Right, not yet today.
So, liquidity will be very, very limited. And again, because we’re a venture fund, we don’t really want liquidity right away. Meaning, if you buy this asset, you should buy it because you think …
You like it, you believe in it.
You were investing in a great company, and maybe at some point, several years down the road, you want to sell it. And that’s how we think about it. I think that liquidity is going to be much more limited than people anticipate for the next couple of years. But it doesn’t mean it’s not a good reason to build one. So, it’s a better form of ownership. I think that people should think about that when they’re building one is, this is how I believe all assets will be structured in the future. And so, if every asset becomes a digital asset, why not start now, and have a better way to own your assets.
Yeah, there’re fundamental benefits just in the structure of the token, of the recordkeeping, of the KYC, they mail all that stuff, it seems. But maybe it doesn’t quite outweigh the lack of liquidity, maybe it will soon, we’ll see.
Well, we love hearing from you because you have the battle scars.
And you’re not afraid to share them and the wisdom from having gone through it. So, come back soon, and tell us more about how it’s going as soon as you can.
Thank you, appreciate it.
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