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Security Token Insight: Expert Interview with
Aryeh Friendman, General Counsel at SeedInvest

Expert Interview


 
Aryeh Friedman of SeedInvest

Aryeh Friedman

An entrepreneur at heart, Aryeh enjoys learning how startups operate and leverage technology in creative ways to craft a successful business model. Prior to joining SeedInvest, Aryeh worked at FINRA where he reviewed hundreds of IPO's, follow-on, and secondary offerings. During law school Aryeh worked at FINRA, the FDIC, USAO, New York Attorney General's Office and the New York State Supreme Court. Aryeh enjoys traveling to Israel and is especially interested in the Israeli startup and biotech scene. Aryeh graduated magna cum laude from Queens College with a B.B.A. in Corporate Finance and cum laude from the Benjamin N. Cardozo School of Law.

LinkedIn    |    Twitter    |    Company

SeedInvest SeedInvest a Gold Corporate Member of Security Token Academy

SeedInvest is a leading equity crowdfunding platform that provides individual investors with access to pre-vetted startup investment opportunities. SeedInvest has funded over 150 startups and boasts a rapidly growing network of over 200,000 investors. SeedInvest has had over 30,000 startups apply to raise capital since inception and has accepted less than 1% of those companies to feature on the platform. All securities-related activity is conducted by SI Securities, LLC, a wholly owned subsidiary of SeedInvest, and a registered broker-dealer, and member FINRA/SIPC.

 
Howard Marks of Securitize

Howard Marks

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.

LinkedIn    |    Twitter    |    Medium    |    Company

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).

Transcript


 

Adam Chapnick:

Welcome to Security Token Insight, brought to you by the Security Token Academy. The security token industry is here, and will provide a key foundation for the evolving financial internet. The Security Token Academy provides insights about this new era for security token enthusiasts, investors, and issuers. The security token industry is here, and you can get involved.

Hi, I’m Adam Chapnick. Coming up on today’s episode of Security Token Insight: in your Security Token Investing News, Binance acquires India’s WazirX. Plus, we’ve got an expert interview with Howard Marks, CEO of StartEngine, and a special one-on-one interview with Aryeh Friedman from our New York City meetup. That and more is coming up on this episode of Security Token Insight.

Now it’s time for your Security Token Investing News. Up first, Binance announces that it has acquired WazirX, an India-based crypto exchange, which will now allow the trading of cryptocurrencies. This new move now gives Binance access to the over one billion residents of India. WazirX CEO Nischal Shetty, had this to say: “The next phase of our mass adoption for crypto will arise from developing nations around the world. India, with more than a billion people, is primed for massive crypto adoption, and this acquisition by Binance gives us the opportunity to not only cater to India, but every developing nation where Fiat on-ramps have to be built.” That’s a quote.

In other news, Polymath moved their Polymesh blockchain on to Substrate. Developed by Ethereum co-founder Gavin Wood’s Parity Technologies, Substrate supports multiple and custom consensus algorithms, which was a major factor in the decision to move to Polymesh. Wood’s company, Parity, has agreed to create specific business logic features on Polymesh’s base layer, which will also include smart contract communication and runtime modules.

And finally, Coinbase announced that it has patented a KYC tool which automatically removes bad user accounts, which are suspected of engaging in illegal activities. The new tool operates by assigning an overall compliance score, which incorporates a variety of factors, as well as measuring the level of due diligence that has been performed on the respective account.

The Security Token Academy is proud to present an expert interview with Howard Marks, CEO of StartEngine. I sat down with Howard to discuss what steps companies should take when they want to launch a campaign with StartEngine. Take a look.

Tell us how you do work with an issuer of a young company that’s looking to raise money. What’s the process? How can they work with you?

Howard Marks:

Well, the process is pretty simple. We have two product lines, really, that are important. The one is what we call the $1 million rule, is regulation crowdfunding, you can raise a million dollars from the crowd. The good news with that is you don’t need an audit, so you just need your financials to be reviewed by a CPA. That’s really inexpensive. We file the offering, it’s called Form C, we file it with the SEC, we do all the review, check, due diligence, make sure it’s okay, and then it goes live on our platform, and the company can raise up to a million dollars, and we help them with the marketing. We help them figure out how to engage the community, advertising, all the different elements, as soon as the offering is live and it goes over $45,000, an email goes out to the entire StartEngine community so they can be aware of it as well. That’s working great, we’ve done a lot of them.

Adam Chapnick:

Oh really?

Howard Marks:

And we’re pretty excited. We’ve raised, actually between regulation crowdfunding and Regulation A, over a hundred million dollars for companies.

Adam Chapnick:

Tremendous.

Howard Marks:

So Regulation A, as we discussed, it is $50 million, but you need the two year audit, and you have to have the attorneys, and you have to have the SEC qualification, but regulation crowdfunding is actually very accessible, and very, very well put in place by the SEC. So we’re very happy about that, and our customers are happy, but however, once they get to that million or close to that number, they need more capital. So they have to switch over to the Regulation A+, which is now where the broker-dealer fits.

Adam Chapnick:

Sure.

Howard Marks:

So for the regulation crowdfunding, that’s The Funding Portal, StartEngine, Capital LLC, and then once you want to go to Regulation A+, that’s the broker-dealer, which is StartEngine Primary LLC.

Adam Chapnick:

Got it. And how does that appear? Is that a seamless transition, that as far as the investor community understands, it’s just more is available, or is there a whole new offering? What’s the experience to an investor of an offering, that shifts from reg CF into an A+?

Howard Marks:

Right. So there are two different offerings. That’s the answer. So it’s the same company, two different offerings, and we explain clearly on the screen, where this offering is being issued. Is it StartEngine Capital? So it’s basically a $1 million maximum, or it’s actually StartEngine Primary, you have that 50 million or whatever the company chooses to raise.

Adam Chapnick:

Got it.

Howard Marks:

And we’re very clear, and we want to make sure that the investor understands when they put their money in, which company they’re working with.

Adam Chapnick:

Yeah, that makes sense. So from where you’re sitting, how difficult is it now for early stage companies to raise money, in any of these sort of methodologies?

Howard Marks:

Well, my opinion is this. So we look for three things for a company, and everybody’s welcome to come and raise money, but we look for three things.

Adam Chapnick:

Okay.

Howard Marks:

So the first thing is we want a CEO that is willing to put themselves out there, that really engaged-

Adam Chapnick:

Front man.

Howard Marks:

Front man or woman, but really engaged, really willing to go out there, no barriers.

Adam Chapnick:

Mm-hmm (affirmative).

Howard Marks:

The second thing is we want a compelling offering, and compelling offering doesn’t mean the company is necessarily compelling, the offering is compelling. They have to offer something that is really unique, interesting to investors. And the third one is they need a well-defined audience. Really clear who the audience is, because that’s how you do the marketing, right?

Adam Chapnick:

Yeah.

Howard Marks:

Once we have those three things in place, we believe they will be successful. The first one, the CEO willing to put themselves out there, is probably the most important one, because it really drives the energy and the day-to-day actions that a company’s going to undertake to raise the money.

Adam Chapnick:

Sure. So what are the steps now? Now, people have heard what you’re talking about. I’m sure they’re all getting excited, because it sounds possible, and a lot of people in the early stage community that we talked to, a lot kind of throw their hands up. It’s like this alchemy that they can’t figure out how to get from here to there, to get to raising the money they need. What are the actual steps if someone is working with you to get started launching a campaign?

Howard Marks:

Well, we believe it’s pretty simple. However, it’s not easy, but the process is they contact us, they go on our website, let’s startengine.com, they fill in some questions, we have a conversation, and once it looks like they’re interested, they sign an agreement with us, and then we onboard them.

Adam Chapnick:

We have a full interview with Howard Marks on our website. Be sure to check that out.

StartEngine is a gold corporate member of the Security token Academy. To learn more, go to our website, securitytokenacademy.com, click on the directory tab, and then corporate members.

Did you know that you can get the latest industry updates in our free weekly newsletter, The Security Token Edge? Well, the newsletter is packed full of insightful information about, what else? The security token industry. To subscribe and get your free weekly copy, go to our website, securitytokenacademy.com.

We also invite you to check out The digital Wrapper on Medium. It’s our new behind the scene series with the teams building out the security token industry. These are in-depth interviews covering a wide variety of topics. You can view these when you follow us on Medium. You can find more information on our website, securitytokenacademy.com.

The Security Token Academy held another successful meetup, this time in New York City, and we want to thank everyone who attended. We had a big crowd inside the Sunset Terrace at Chelsea Piers. Security token experts and financial services professionals were on hand for an evening of informative discussions, networking, food and drinks. The Security Token Academy had the opportunity to speak to our panelists one-on-one to get their insights on the security token industry. Let’s take a look at what Aryeh Friedman, general counsel at SeedInvest had to say.

Aryeh Friedman:

I think there’s a lot being done, especially post 2018, where you saw the market take a big decline, and I think the one thing that’s happened is the market is maturing, and people are quickly realizing that they have to work with regulators and embrace regulations. So I think a lot of that’s being done, especially in the US, I know Commissioner Clayton’s generally been very supportive of private companies and expanding their access to capital. However, he’s not the biggest fan of blockchain and security token, so that’s been a challenge, and there’s been a lot of efforts to kind of work with regulators in a very collaborative effort, to try to get regulators comfortable with security token offerings and the benefits that it can provide to small capital, small business capital formation. I think there’s been a lot of issues and unanswered questions that a lot of people in the industry are trying to work with regulators to get answers to.

Yeah. From SeedInvest’s perspective, selfishly, we’d like to get guidance on the custody issue, so that’s been a big thing that’s been holding regulated entities like SeedInvest who operate through broker dealers, that’s been holding them back from really being able to be active and push the industry forward. And the reason why custody is important, is for a lot of these issuers, they do these raises and they’re looking for their investors to be able to be custody at, and normal custodians like you would for registered offerings in an IPO, whether it’s a clearing firm or a brokerage account. And so, there’s a similar need for it in the private space in order to push the industry forward, and what that really is trying to get towards, is secondary markets and that’s where the industry really sees the utility of blockchain technology.

They’ve said a lot without saying much, so they recently put out a joint statement with FINRA, which didn’t give any particular guidance, in the sense they just acknowledged that they’re aware of the issues and are working towards it. It did point out some of the challenges and issues that they’re thinking about, but at the same time, it didn’t give anybody in the industry real guidance to act on. One of their biggest concerns is one, cybersecurity generally in the space. It’s a new space that they’re still learning, and there are a lot of people within the SEC and FINRA who are very sophisticated on the issue. The other issue is customer protection, so things around protecting customers, funds and assets at broker-dealers, and understanding how they can truly protect customers due to the uniqueness of the security tokens.

There’s a lot of demand, a lot of pent up-demand, and to be honest, what you’re starting to see is a lot of that demand actually moved overseas, which is setting the US behind. And so, one thing we’re trying to hammer home in our deregulators, is that it’s important to get guidance, so we could push the industry forward in the US, so we don’t lose market share overseas.

So there’s certain jurisdictions that are just opening the flood gates, and anything goes. I don’t think that’s the best long-term strategy, and so what we’re looking towards is jurisdictions that are thinking about it in a very progressive approach, that this is a new asset class and a new type of security, and we can’t treat it like traditional security that’s been around for the past eight years. We need to have a new approach and a new regulatory framework towards security tokens, and really be thoughtful about it, versus trying to fit a square peg into a round hole.

I think ideally, we’d like to tear it up and start from scratch, and really build something that’s built for the 21st century and blockchain technology, as well as traditional security issues, and this has worked for a while, but just not suited for the new technology, as well as additional guidance, so things around custody and around cybersecurity. So we could really start to push the industry forward, and actually start to progressively work on some of these digital asset offerings, and it’s not going to be perfect, and one of the critical things to achieving that is a very active and robust feedback loop. So practitioners in the industry could give feedback directly to regulators in real time, and also see real time changes and updates as things happen, versus the traditional way of how laws and congressional action works, where it may take years to see even incremental changes, let alone significant ones.

Adam Chapnick:

Be sure to check out more interviews from our New York City meetup on our website, securitytokenacademy.com. Click on interviews tab, and select the video you’d like to watch.

I want to remind our viewers that if you have any questions about security tokens, be sure to email us, and we could answer them right here on a future episode of Security Token Insight. The address is [email protected] Be sure to include your name with your question, and one more time, the address is [email protected]

You can also learn more by visiting the frequently asked questions page on our website by clicking on the FAQ tab. You can also find a glossary of helpful terms as well.

Today’s term of the day is custodian. What’s a custodian? Custodians are third party service providers that custody security tokens on behalf of their legal owners. Custodians safekeep digital assets, and minimize the risk of their theft or loss.

All right, that’s it for today’s episode. Be sure to follow us on Twitter, Facebook, Telegram, and Medium, and don’t forget to subscribe to our YouTube page, so you don’t miss out on any of our videos or our expert interviews, and big thank you to all of our gold corporate members. We invite you to learn more about our corporate members by clicking the directory tab, and click corporate member. I’m Adam Chapnick. For everyone here at Security Token Academy, thanks so much for watching.

Amy Wan:

Be sure to check out our live online videos and panel discussions, featuring security token experts from around the world. Visit securitytokenacademy.com and click on the interviews tab.