Hi, I’m Adam Chapnick with the Security Token Academy. Today we’re pleased to bring you a corporate member interview with SeedInvest. The company’s a gold corporate member of the Security Token Academy. SeedInvest is a New York company and platform that links issuers to angel and venture capital. Today we’re going to learn more about the company, the SeedInvest team and of course, the latest news involving Circle and much more. And to do that, we go to New York City where I’m joined by Ryan Feit, the co-founder of SeedInvest. Hey Ryan, great to be with you.
Hey Adam, thanks so much for having me. I’m excited to be here.
Yeah, it’s great to have you. So let’s begin with a little background on SeedInvest. Can you tell us all how and why it was created in the first place?
So, the genesis of SeedInvest really went back to 2011. Along with my co-founder James Han we were finishing up business school and during our second year we ended up getting involved in this movement to change 80-year old U.S. Securities laws to make it possible for founders to raise capital on the internet for the first time and for investors to access start-up investments for the first time over the internet, and we got the bill that we were working on called the Entrepreneur Access to Capital Act rolled into what’s now known as the Jobs Act that was signed into law April 5, 2012 and basically built SeedInvest to leverage those historic changes to facilitate online fundraising for the very first time.
Amazing. So can you share a little bit of background about yourself and the team members that you do work with?
Yeah, absolutely. So in terms of my background I started out in investment banking at Lehman Brothers, and I left June 1, 2007. I left about a week before the first deal couldn’t get syndicated at Lehman Brothers and sort of everything unraveled over the next year and a half, so my timing was perfect and very lucky and I went after that to a private equity fund in New York called Wellspring where basically helped buy and improve and sell companies. And my co-founder James had a pretty similar background, he was at Morgan Stanley on the tech side, and then went to a private equity fund in San Francisco called Francisco Partners and beyond us we have a number of people who were at either different places in financial services, whether it’s private equity, venture capital, investment banking and then we have a number of people who come from other tech start-ups or that were entrepreneurs themselves. So pretty good blend of people with different backgrounds at SeedInvest.
Yeah absolutely. So let’s talk a little bit about the platform itself. What kind of companies are featured on SeedInvest? Is there a profile?
So, at SeedInvest historically we’ve typically funded companies that are raising their first $500,000 in their Seed Round all the way up to companies that are raising $20,000,000 or more in a Series B. And in terms of industries we typically are funding technology companies, although we also will fund consumer retail companies. And geographically, most of our deals are with U.S.-based companies although we have been expanding internationally as well. We funded companies in Europe and in Israel and Asia as well.
And what about on the other side? Who’s able to invest on the platform?
So, it all kind of goes back to the Jobs Act. Initially when we started only accredited investors can invest in start-up companies and that is, depending on what you look at, around 2% of the country that has enough income or net worth that has been allowed to invest in start-ups. So we started with that for the first three years or so and then as we worked with FINRA and the SEC and Treasury Department and the White House, this actually changed U.S. Securities laws to make it possible for more people, and ordinary people to actually access start-up investments for the first time.
We began to open up our platform to not just accredited investors but non-accredited investors. So today on SeedInvest we are open to all investors, we have different deal types. We have some that are done through Regulation D, that are just available to accredited investors and then we have some companies that raise capital through regulation crowdfunding or through regulation A+ that can raise capital from all investors and on SeedInvest today we have about 250,000 investors who have registered on SeedInvest and about 50,000 of those investors are accredited investors which includes high network individuals, family offices and venture capital funds.
Got it. Now back in November at our Security Token Industry launch week we learned of a pending acquisition involving SeedInvest and Circle. Let’s quickly take a look at that clip.
We acquired Poloniex in February of this year, they were really innovative in being one of the very first marketplaces for all these alternative assets in the United States and grew very, very fast. They needed help kind of scaling and growing the business, but that was the first key step in building a Token marketplace that can support a really broad range of digital assets from currency assets to commodity assets to, ultimately what we’d like to see if the trading of security token assets as well.
So that led us to Ryan and the SeedInvest team and really wanting to have a primary issuance platform for raising capital, for businesses to form capital, but the marry that with the crypto-infrastructure that we’ve been building out to be able to allow businesses and ultimately even individuals we hope to issue digital securities over the internet and allow investors, both accredited and unaccredited investors to invest in those and ultimately to provide global secondary liquidity platforms for those as well which is a really tremendous opportunity that crypto makes possible.
Now flash forward to today, it’s March 2019 and Ryan you have an update on the acquisition. Can you tell us a little bit more?
So excited to announce that we officially closed our sale to Circle. We received regulatory approval and closed the sale a few weeks ago, and so we’re now part of the Circle family of 300 employees across the world and real excited to be officially partnered with Circle and continue addressing our larger vision that we’ve had at SeedInvest.
Well congratulations, that’s big news.
Thank you, I appreciate it.
So on that, so can you give us a little color on why you actually decided in the first place to sell SeedInvest to Circle and why on the other hand they were interested in acquiring you?
Well on the SeedInvest side we’re very proud of what we’ve built and what we’ve been able to accomplish over the last six and a half years, but frankly we still have a lot of work left to do and we’re confident that by joining the Circle team we’ll be able to accomplish our original vision and be able to do it a lot quicker.
At the end of the day, we’re joining a team at Circle that is very well capitalized, has the best in-class management team, is backed by some of the world’s best investors and really has a global brand that’s really a leader in the industry. So Circle has raised $250,000,000 from investors that include Goldman Sachs, Excel, General Catalyst, ITG, Bideu, and Jim Bryer and others, and the co-founders of Circle, Jeremy Allaire and Sean Neville, their first two companies before founding Circle they took public, so an amazing amount of experience and Circle is really just getting started. So have a lot of work left to do and excited to be partnered with them.
What’s going to happen-?
And on the Circle side, in terms of why they wanted to acquire us, Circle built really a leading brand in the blockchain and crypto space, and it’s been growing tremendously fast. But they saw a really big opportunity when they looked at what their longer term vision was that a lot of the business that they’re trying to build globally will be regulated. And when they looked at SeedInvest as a partner they saw a business that we had built where we had started our own broker dealer that we’ve operated for over four years, and on the other hand we also built technology that enables you to facilitate investments and start-ups as easy as buying a share of stock and that’s very hard to do at scale. So beyond that we spent a lot of time with each other and just really had a similar vision and similar culture and the rest is history.
Fantastic. So what’s the outlook for the team? What’s going to happen with the SeedInvest team?
Well I’m pleased to announce that all of us at SeedInvest, including James and myself are all staying on. Like I said before, we have a lot that we still want to continue building and going to continue building it at Circle. So can talk more about what we’ll be doing at SeedInvest in particular, but we’re all staying on, we’re going to continue working on building SeedInvest and doing it as part of Circle.
That’s exciting. Well what will happen with the current SeedInvest business? You said you’re building a lot of exciting stuff. Can you talk a little bit about that?
So when Jeremy and Sean and the team looked at our business I think they respected what we built so far and our brand and so as a result we’re going to continue operating as usual, we’re just going to have a lot more resources to do it. So just like we have in the past, we’re going to continue to allow entrepreneurs to utilize Reg D, Reg CF and Reg A+ to raise capital on our platform and along the same lines we’re going to allow both accredited and non-accredited investors to access start-up investments.
Over time we’ll be working with the Circle team to build a secondary market where we can actually allow investors to be able to access liquidity much, much sooner than investors can and start-ups and other alternatives. We’re also, over time going to be expanding both geographically and horizontally. So expanding internationally and expanding into other asset classes over time. So business as usual and a lot of a road map over the next about five, seven years.
Yeah, I’ll say. So what’s your overall vision for specifically the digital security space? In 2019, what do you think about that?
Well, in terms of the digital security space, I’ll say this. So, over the last few years since we started and since we got the Jobs Act passed, we’ve basically been able to allow founders and investors to access the internet for the first time to actually facilitate fundraising investing and I think it’s made a huge difference in creating efficiencies, but when we think about the possibilities of tokenizing start-ups and facilitating liquid secondary markets that are global, I think we can take things to another level.
That being said when we think about 2019, there’s a lot of work left to be done. In particular, there’s a lot of work that the industry will need to deal with regulators, both in the U.S. abroad in order to facilitate true digital assets and tokenization across this space. So a lot of work left to be done in the rest of the year.
Yeah, well can you talk to us a little bit about that? The importance of compliance that you’re talking about with the regulators across the world?
You know that’s actually, if you think about our genesis as a company, we took a compliance-first approach and we had a very open dialogue with the regulators from the very beginning. And I think that served us very well both at SeedInvest and as an industry, and I think that people, if you look back at equity crowdfunding space over the last six plus years, the people that are still around today and the people that have thrived are the ones that really took a compliance-forward approach to things and did things the right way.
And one of the things that excited us about joining the Circle team is that it’s actually the exact same approach that they’ve taken. They were the first company to get a New York Bit license, they have spent an enormous time working and talking with regulators around the world to educate them on blockchain and crypto and the potential and we are continuing to do that together. So I think just like the equity crowdfunding space, when you look at the people that emerge in the crypto/blockchain digital asset space five, 10 years from now, I think will be the people that take compliance seriously and have a very open dialogue with regulators and do things the right way.
Well since you helped accomplish a lot of the historic changes to the securities laws and even establishing them in the first place, are there any regulatory changes that you still see as necessary since you have that particularly unique view?
Yeah. You know when I think about the Jobs Act and what we were able to accomplish the first time around, well I think it was a great accomplishment. It really was an MVP, a Minimum Viable Prototype and it was a V-1. There’s still a lot of things that, in our minds need to be fixed. You know when you look at securities exemptions in the U.S., it’s a patchwork of exemptions that have been written over decades that have been sort of patched together and it’s far from perfect.
So some of the things that we’re working with the regulators on or talking to the regulators about are things like raising the cap when it pertains to Reg CF from a $1,000,000 to a higher number we wrote a letter, as part of a group to the SEC about nine months ago and got a few thousand signatures in support of it. In terms of Reg A+, the whole idea of Tier one and Tier two doesn’t work as it was appropriately drafted and basically leads to a lot of companies that are raising somewhere between a couple million to $10,000,000 and are complying with a lot of onerous requirements like audited financials and ongoing reporting requirements and the Reg CF and Reg A+ as they stand now, they leave a really big gap for companies that are looking to raise between $1,000,000 and let’s say 10 to $15,000,000.
There’s still a big gap that needs to be addressed, so that’s something we’re working on. In addition with Reg A+, and a lot of people don’t realize this but companies that actually raise capital, whether it’s through Reg D or Reg CF or Reg A+, although the states are actually pre-empted from blue sky, meaning that when you raise primary capital you don’t need to go state by state and ask for permission for Reg D, Reg CF and Reg A+ Tier two. The same is not true for secondary trading and as we think about the future of equity crowdfunding, the future of digital assets, a big piece of that is liquidity and in order to facilitate liquidity we’re going to need to work on these restrictions for secondary trading. So that’s a big piece, something that we actually wrote a letter as well back in the fall to Nassau, the state regulators and something that they’re working on.
And lastly as it pertains to digital securities, there needs to be clarity from the SEC and from regulators abroad on not just what is a security but when does a security become a commodity? There’s been some guidance that that’s possible but how that happens, it’s still a little bit unclear. And also around security tokens and security token trading, there are a lot of questions around how custody will work in kind of this new world and that needs to be addressed so a lot of things that I think are opportunities but things that are going to require a lot of heavy lifting frankly over the next couple years.
No doubt, no doubt. So you mentioned the importance of the secondary markets to the digital securities. Why is liquidity so important in the security token space?
Well we look at the opportunity around investing and start-ups and all kinds of alternatives as really an opportunity to turn these into real asset classes. Based on the data that we’ve seen over the last 30 years, we don’t believe that investors should have all their money in stocks and bonds. If you look at the best pensions and endowments out there, they all have a significant amount of their investible assets and alternative assets, venture capital, private equity, real estate, etc. And so part of what we’ve been trying to do around the Jobs Act and building that equity crowdfunding is democratizing these asset classes.
So providing people access to these asset classes for the very first time, enabling people to diversify properly into these asset classes and really the last pillar for us and our vision is providing liquidity. If you look at somebody making an investment in Apple stock or Microsoft, if they want, they can change their mind the next day, and so it’s not that daunting to invest in a stock. Same is not true today for investing in start-ups or real estate. You might be making a seven to 10 year decision, and that’s scary. So, the promise of what we’re building right now and what Blockchain technologies could help to accelerate over the next few years is really inspiring because that could really turn all of these asset classes into something that is available to the masses and a part of everyone’s portfolio in the future.
Exciting. So tell us a little about the company’s road map and any future goals that maybe you haven’t hit on yet.
So, you know, talked about this a little bit in the beginning. At the moment it’s business as usual. We are looking to expand into more and more blockchain and crypto companies that are looking to raise capital traditionally, we’re going to talk to the regulators about some of the changes that I outlined around the Jobs Act around digital assets over the back half of the year. We also are going to be working on facilitating secondary trading along with Circle. Which is something that obviously, you know really passionate about, and then as I look past 2019, I mentioned this before, we’re going to be expanding both geographically and horizontally.
So, we’re going to be looking to expand into other countries, Circle already has a presence in the U.K. and Europe and Asia for instance. We’re going to be looking to allow fundraising and investing to span across geographic borders. And then in addition as we look forward out a few years, start-ups are just the beginning. We see a huge opportunity to expand into other alternative assets including real estate, private equity and frankly, asset classes that we can’t even imagine today that are made possible by Blockchain technology and Cryptocurrencies. So, there’s going to be a lot of things that are going to look a lot different in five to 10 years once we accomplish what’s on the road map.
I love it, well let’s talk about that for one second. Now that the ink is drying on your deal, let’s look ahead maybe 10 years. What do you think the world of fundraising and investing looks like? How will it be different?
I think it’s going to look remarkably different. It’s going to look to us a lot more like when you think about marketplaces like ours that facilitate fundraising investing, they’re going to look more like pure internet marketplaces. So you can imagine marketplaces like Amazon, marketplaces like Airbnb that are open, that are frictionless and that are open globally. We envision any entrepreneur anywhere around the world being able to easily go online and launch a project online and be able to share it with anyone around the world. And along the same line for an investor, we envision somebody being able to go online and invest in a real estate project in France and invest in a start-up in China and invest in an art project in Brazil, you name it.
And these online marketplaces just like, thinking about Airbnb and Uber and Amazon, they’re going to be more open, they’re going to be more transparent, they’re going to be more accessible and much more frictionless and that’s ultimately a great thing for consumers around the world. So, I mentioned this before but the Jobs Act and what we did with launching equity crowdfunding and SeedInvest, I think it provided people the first taste of being able to actually use the internet to disrupt fundraising investing for the first time and what we have in store over the next five to 10 years I think will totally take it to another level and you’ll look at finance, you’ll see true internet finance for the very first time. So, excited to continue building.
Well Ryan Feit, co-founder of SeedInvest, thanks so much for speaking with me today. We wish you and everyone at SeedInvest the very best of luck.
Thanks Adam, thanks for having me.
SeedInvest is a Gold Corporate Member of the Security Token Academy. To learn more go to our website, securitytokenacademy.com and click on the Directory tab and the Corporate Member homepage. For everyone here at the Security Token Academy, I’m Adam Chapnick. See you soon.
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