Howard Marks is the co-founder and CEO of StartEngine, the leader in Security Token Offerings and Online Public Offerings. Marks founded StartEngine with the mission to help entrepreneurs achieve their dreams. Marks was the founder and CEO of Acclaim Games, a publisher of online games now part of The Walt Disney Company. Before Acclaim, Marks was the co-founder of Activision Blizzard and Chairman of Activision Studios from 1991 until 1997. As co-founder, former Board Member, and Executive Vice-President of video game giant Activision, he and a partner took control in 1991 and turned the ailing company into the $50B market cap video game industry leader. As a games industry expert, Marks built one of the largest and most successful games studios in the industry selling millions of games.
Marks is the 2015 "Treasure of Los Angeles" recipient awarded for his work to transform Los Angeles into a leading technology city. Marks is also named one of the 500 most influential people in Los Angeles by the Los Angeles Business Journal. Marks is a member of Mayor Eric Garcetti's technology council. Marks has a Bachelor of Science in Computer Engineering from the University of Michigan. He is bilingual and is a triple national of the U.S., United Kingdom, and France.
StartEngine is a leading security offering platform that tokenizes securities for more efficient issuance and trading. Utilizing its expertise in regulated exempt offerings under the Securities Act, StartEngine has helped more than 160 companies raise capital and has over 150,000 registered prospective investors. Based in Los Angeles, the company was created in 2014 by Howard Marks, co-founder of Activision, and Ron Miller. StartEngine is committed to revolutionizing the ways companies raise capital and to helping entrepreneurs achieve their dreams. StartEngine Crowdfunding is a not a broker-dealer, funding portal or investment adviser. StartEngine Capital, LLC is a funding portal registered with the US Securities and Exchange Commission (SEC) and a member of the Financial Industry Regulatory Authority (FINRA).
Hey everybody, it's me again, Adam Chapnick from the Security Token Academy, and we are here at the 2018 StartEngine Summit. I believe this is the third and most spectacular of all the StartEngine Summits and we're happy to be joined by none other than the co-founder himself and CEO of StartEngine, our host, the one and only, Howard Marks. Thank you for being with us again.
Thank you Adam. I'm happy to be talk to you today. This has been an amazing start. We started early this morning. We had Chairman Cox, former SEC Chairman, also former congressman, make some remarks in private. This was not livestream for our audience. However, we believe his words were important because he set the stage for what is going to be a great day.
That's fantastic. So, tell us about the event a little bit. This is, as I mentioned, I think the third annual, and it's become one of the central events of this Security Token space. Why did you guys decide to start hosting an event like this, and how has it evolved?
So our view was this. This is a great opportunity, a great marketplace for everyone, except that we've found that there was not enough information, knowledge, idea sharing, especially in regulation thinking. How to work as regulators, what each regulation meant, how to apply it? We felt there was that lacking most of the other summits that we've been to, and conferences, were more, I would say, blockchain applications. We frankly believe, that access to capital, trading these tokens is center of what we believe is the blockchain revolution.
Yeah. You guys have come at it from the equity crowdfunding side, unlike a lot of people in this space, so you have a unique sort of evolution that has to do with really having deference to regulation and wanting to have that clarity and that regulation, and teaching people how to work within it. I think that's a neat sort of approach that you were sort of born with as a way, as an organization. It really reflects on the event and how people are participating with that in mind. I think it's great. So, StartEngine has had some pretty interesting stuff that's been popping up over the last several weeks. Do you want to talk about some of the developments that you guys have been announcing within the company? What's going on?
Sure. We've been quite busy.
We haven't been as busy as the SEC has, with all their enforcement and all the actions they've been doing. Our busy has been building. So, we announced recently the creation of what we call ERC1450, and that is a smart contract on the Ethereum, and its purpose is to tokenize securities and alternative assets. It has not really a purpose outside of that, so it's about a representation, a digital tool representation of what a security is. So a company that wants to raise money could use ERC1450 to give to their shareholders a digital certificate. Now, what ERC1450 does, it protects the investor and the people who are trading the token from violating any of the security rules. And the way we do it is not through code and programming, which is probably not possible at this moment to do, we do it because we force the transfer agent as registered with the SEC. The transfer agent has records of that token-holder to allow a token to transfer, meaning even if you have it in your wallet, there's nothing you can do with it until you decide to trade it on a regulated exchange.
Interesting. Well, that's a very applicable use of the smart contract technology, as it relates to compliance. I think that's a perfect offshoot of what we were saying before about your company's focus on figuring out the most, sort of real-world application for all of this technology. It fits with your track record I think, which is fun to watch. So, you guys have a very specific insight into the mix of issuers and how it sort of evolved from this equity crowdfunding world to this token issuance world. What are you guys seeing on the platform in terms of the adoption of token issuance among people who are thinking they want to raise money? Is that rare? Is it common? Is it half and half? What are you seeing?
So right now, we see about 15% of our customers-
...15, 1-5, were issuing tokens with their offerings. These are entrepreneurs that have companies that are related to the blockchain as applications or related applications. But with ERC1450, we are going to be announcing soon, that every company that we launch, every share we issue, will be tokenized.
Oh wow, that's a big deal.
Regardless, whether your company is a blockchain company or you're a restaurant looking for capital, an apparel business, a wine making business-
Electric car company maybe.
...an electric car company, absolutely. We believe that tokenizing securities from the launch, at the beginning, will be very appealing to investors. The next challenge to resolve for our marketplace and us, is how do you trade them? These security tokens will not be traded on any of those existing exchanges that are on the marketplace today, because they would be violating security laws. They may be already doing that, but at least that will be clear, very clear. So, they're not going to be taking those tokens, so who will? Well it turns out, many companies, including ourselves, are awaiting registration with the SEC or are already registered, and they're waiting on the final "yes", so that we can start trading securities that are tokenized.
So that'll be a secondary market. Is that an ATS that you're going to become? Is that the terminology?
That's correct. So, we're hoping to become an ATS. It is the secondary market, but keep in mind, the reason the secondary market is important, it's not because of the trading, it's because when you issue those tokens initially, and you receive money for your company, it enhances the offer.
The offer becomes much more appealing because you know that within a year or not, maybe with using Regulation A+ as an offering, you can trade the next day. That liquidity is an extraordinary enhancer for investors.
Yeah, we've heard in some of our interviews from experts saying that it instantly creates a 15% premium just across asset classes, and sometimes even more for perspective investors who are considering getting in. So that's borne out by the experts, for sure. So, since you're seeing, you said 15%, do you think there's anything that's missing? Is it a regulatory maybe clarity? Is it general awareness? Is it sort of trepidation on the part of people getting involved with something new? What do you think is missing that'll help that 15% become 85% of people who are willing to do just a straight up security token to raise money?
I think we're evolving. StartEngine, we view it this way. Our competitors, probably not yet. They're probably looking for what standards will be out there. We proposed ours with ERC1450. Others may see other kinds of opportunities to tokenize it differently. We're not sure how it's going to shake up, but we are going to move forward with the tokenization of everything, and then trading of it. And we're going to be doing it within our ecosystem, but we want to share it with everybody. And that's why, when we released ERC1450, we made it open source and available for everyone to use, and there's no financial transaction there.
That's fantastic. So, what about the question, interoperability, what will be possible with the ERC1450? Is that something people need to trade on your chain or is it going to be able to cooperate with other chains? How does that work?
Well initially, it will be on our systems, because we're the first to implement it. However, given that it's out there, available to everyone, we hope that other of our partners and that includes some of the great companies like tZERO, Open Finance, Circle, we hope they will adopt it. Should they decide to pick something else, that's fine, we may also look at it as well. We're here to change how companies raise capital for the better and to the extent that our ideas are adopted. We are thankful to the extent that another idea becomes more popular, we will adopt it as well.
That's amazing. You mentioned Circle and some of the other platforms or the exchanges. There have been a lot of announcements. Circle was acquired by Goldman Sachs. There's been a lot of heavyweight financial players coming into this industry in all different ways, whether it was in the crypto space or in the security token space, do you think that's a good thing or a bad thing or a neither thing?
Well, the more the players that are available to help companies raise capital, the better it is for everyone, for economy, for job creation. I find this a strong positive. I don't look at competition as they have to lose for us to win. I look at competition more of co-opetition where we work together. That's why at our summit here today, we've invited all our competitors to come. Most have chosen to come and speak. And we have done that with no strings attached, absolutely wanting to collaborate and have an open dialogue.
That's very admirable, I love that. Well, it's always a pleasure to talk to you. Thank you for being the host today. We'll let you get back to your duties, to satisfy the crowd. I'm sure everybody wants to talk to you. We'll have you back soon and often. Thank you Howard.
Thank you Adam. Thank you the Security Token Academy. We are really appreciative of everything you guys are doing.
We love you. Alright.
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