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Security Token Insight: Expert Interview with Gregory Keough of Finova Financial

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Expert Interview


 

Gregory Keough

Mr. Keough is the founder of the IBI and a pioneer in the Security Token Industry. Keough is a sought-after speaker and a leader in using the blockchain in the tokenization of assets. Mr. Keough is the creator of the JOBS Crypto Offering (JCO) a compliant open source initiative to raising capital on the blockchain.

As CEO of Finova Financial, Keough has raised over $100M from Silicon Valley VCs and private equity firms and driven the company’s mission to transform the future of global banking through the creation of fair and affordable digital financial services for consumers outside of formal financial systems.

Finova is now working to transform the traditional capital raising process through the creation of digital equity securities (equity tokens) to be traded in cryptocurrency on the blockchain through the JOBS Crypto Offering (JCO) backed by numerous pioneers in the blockchain and crypto space.

Keough is a serial entrepreneur who previously served as CEO of a MasterCard Telefonica joint venture for global Mobile Financial Services, and over the last 20 years was founder and CEO of multiple venture-backed companies going back to the early days of the internet.

Transcript


 

Amy Wan:

Hi. I'm Amy Wan. Welcome to Security Token Insight, brought to you by the Security Token Academy. The security token industry is gaining momentum 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. Coming up on today's episode of Security Token Insight, we've got a look at the latest security token investing news. Plus we sit down with CEO of Finova Financial, Gregory Keough, for this week's expert interview and learn more about the events taking place during Security Token Industry Launch Week set for this October.

Now it's time for your security token investing news. Crowdfunding giant Indiegogo is getting into the security token industry, thanks to the St. Regis Aspen Resorts token sale. We first told you about the resort's security token sale on our last show. Since then, we've learned Indiegogo will present its 10 million members with the opportunity to own a tokenized share of common stock in the St. Regis Aspen Resort through the Aspen digital token asset offering. The offering will be available directly through Templum Markets and is open to accredited investors in the U.S. and overseas.

In other news, the blockchain for private equity platform Swarm Fund has entered into an agreement to list security tokens on OpenFinance Network. Swarm was launched in January 2018 and is described as a fully decentralized capital market platform that democratizes investing by using the power of blockchain to open up alternative investment classes to small investors through asset-backed funds using crypto.

The Security Token Academy has spoken to countless industry leaders, CEOs, and attorneys about the growing security token industry. This week's expert interview, Security Token Academy's Adam Chapnick sits down with Gregory Keough, CEO of Finova Financial and founder and chairman of the Institute for Blockchain Innovation. Find out why he believes security tokens will be a trillion-dollar industry in this week's expert interview.

Adam Chapnick:

In your view, just from where you sit, how is this whole security token industry different from the ICO industry, if there is such a thing?

Gregory Keough:

Yeah, so I think going back to the ICO, so if you look and say, "Why was the ICO so popular?" So looking at it, and this is how kind of we got into the security token space obviously, was one, I think it unlocked an inherent investor demand and interest that nobody had kind of tapped into. I think people were quite surprised by it, and even venture capitalists I think were quite surprised.

Adam Chapnick:

For sure.

Gregory Keough:

But if you look at it, first it was kind of the total decentralization of ideas, either really good or some really, really bad. The second is, you had a frictionless transaction, so very quickly, you could invest globally in cryptocurrency to get involved in the project. Third and perhaps most importantly, there was liquidity, right?

Adam Chapnick:

Mm-hmm.

Gregory Keough:

If you look at kind of what I think investors look for, startup investors, for example, they like that process, but generally it takes many, many years. I think if you look even at the VC industry, the average IPO is, went from about four years, I don't know, seven or eight years ago, now it's almost 10.

Adam Chapnick:

Or never.

Gregory Keough:

Yeah, or never.

Adam Chapnick:

That's right.

Gregory Keough:

They're never going to get liquid. So for the first time, you saw this kind of unleashing of kind of raw capitalism and new technology in this new thing called an ICO, and it just kind of took off. No matter what everybody tell us, like it took most people by surprise, right,-

Adam Chapnick:

Yes, for sure.

Gregory Keough:

... more traditional folks. So I thought that was great. I'm a technology guy, I love finance and innovation. I love decentralization, democratization of things, right? I think that's great. The one thing I didn't really like at all, though, coming from Finova, a regulated company, the JVRN was highly regulated globally.

Adam Chapnick:

Yeah.

Gregory Keough:

Was like I was very concerned that a lot of these things actually were securities, right? So obviously, anything that's a security has very strict regulation. Now kind of fast forward to today ... and I remember at the time I suggested, "Hey, I think maybe a lot of this stuff is kind of securities that probably should follow some pathways that are SEC compliant." I actually got a lot of hate mail on that idea saying, "No, that's a horrible idea." But if you fast forward to today, now we've seen you don't hear those voices too much anymore.

Adam Chapnick:

No, no.

Gregory Keough:

But I do think that's a good thing, because what you're seeing is kind of the maturation of the industry into what I think it's going to be, a multi-trillion dollar industry that is going to fundamentally change Wall Street, capital raising, and many other things.

Adam Chapnick:

Yeah, well we agree obviously here at the Security Token Academy. So okay, now that's the ICO versus the STO. Just for people watching, what's your take on how is the security token industry different from, let's say, the cryptocurrency sort of craze?

Gregory Keough:

I think there's components and there is overlap.

Adam Chapnick:

Sure, right.

Gregory Keough:

With that said, I think that you're getting ... it's kind of interesting, to tell you the truth, because you have people who are traditional investors who've heard the cryptocurrency stuff and they kind of are fascinated and interested. But a lot of them are not quite so sure.

Adam Chapnick:

Yeah.

Gregory Keough:

Then they've heard the ICO, and they know that one they probably can't touch because it's not regulated, and if you have a fiduciary responsibility for something, you couldn't touch it. So, I think they've heard about the security token industry and they say like, "It's a good sweet spot." With that said, I think a lot of folks have a hard time getting their arms around ... because it's so new, and that's the exciting thing about it. Like, "Which products are better?" There's a lot of learning curve still coming up.

I do think it's interesting you're starting to see Goldman Sachs get involved and a lot of these other big players get involved. You're seeing money managers saying, "An allocation should be towards kind of crypto, blockchain-type products," right?

Adam Chapnick:

Yes.

Gregory Keough:

So that's a major event, I think.

Adam Chapnick:

It is, huge evolution.

Gregory Keough:

Yeah. So I think that that's a trend. Having been involved in the very early days of the internet, had a technology company that we built up and we sold off. But it's very reminiscent of that, except I think the impact is going to be greater.

Adam Chapnick:

Interesting. Okay. So what do you see as the specific benefit of the security token? Like what does it make better?

Gregory Keough:

So I think, a couple things. So if you look at like the initial reason why there was the Delaware Blockchain Initiative, so like the Dole-

Adam Chapnick:

Will you say a little bit about that for those who aren't following that?

Gregory Keough:

Yeah, so one of the big kind of, to me, the glue that holds the security token industry together is the Delaware Blockchain Initiative. So as you probably know, about 78% of publicly-traded companies come from Delaware. Most startups are based in Delaware, VC-backed startups, etc. It's got good corporate governance and good business courts, etc. It's a very kind of stable place. So they came across with the Delaware Blockchain Initiative, and basically what it said is, you could tokenize your equity stack and move it out of the blockchain. The reason they did that was because the sheer tracking process was not that great. And there's even a case with Dole, where I think they said they were doing an issuance of some sort. And I think they said they had 20 millions shares, but it turned out they really had like 34 millions shares outstanding. It wasn't due to them trying to, you know, it was just bad administrative work, right?

Adam Chapnick:

Right.

Gregory Keough:

So you could see a very clear example of how, in that instance, had that all been on a blockchain, it would have been very transparent-

Adam Chapnick:

Yes.

Gregory Keough:

... and immediately transferable, and everything else. So they embraced that. That then allows you to build on top of that, I think, secure ... using the SEC current regulations, products that can be blockchain based, tokenized, but then eventually traded. And I think that's kind of the glue that holds a lot of this stuff together.

Adam Chapnick:

Yeah, when did that opinion come out?

Gregory Keough:

So it was under discussion for a long time, and I think it was ... I'm not sure of my dates exactly.

Adam Chapnick:

Roughly, I won't hold you to it. Just for people that-

Gregory Keough:

It was like last year, kind of first or second quarter of last year-

Adam Chapnick:

Right.

Gregory Keough:

... I believe it was actually formally approved.

Adam Chapnick:

Yeah, relatively new, but it's still-

Gregory Keough:

So, it's relatively new.

Adam Chapnick:

... people are kind of grappling with it.

Gregory Keough:

Correct.

Adam Chapnick:

But I agree, it's a big deal. Okay, so there are a lot of blockchains that provide a foundation for our industry, let's say. Do you have any feelings about how the different blockchains compare, which ones will be more relevant? Do you know, are you plugged into that?

Gregory Keough:

Yeah, I mean, I think that we're so early on, and I always go back, maybe a bad idea, I don't know. But I'm an old man. So I go back to kind of the early days of the internet and kind of the learnings there.

Adam Chapnick:

Yes.

Gregory Keough:

And if you look at ... you'll remember like Netscape, totally revolutionary.

Adam Chapnick:

Yeah.

Gregory Keough:

Totally changed everything. You had a browser-based way to look at the internet. You look at Napster, but they're not here anymore, right?

Adam Chapnick:

No.

Gregory Keough:

So, a lot of times these things, there's a person who breaks the ice, but then there's a second wave that comes and actually makes it the big, big company. To me, it's not clear what that is still.

Adam Chapnick:

Right.

Gregory Keough:

So I'm not sure which ones are breaking ice, and I'm not sure which ones are the big ones. I do think that it is interesting, all the things being built on a theorem, etc. And obviously the security tokens is a big part of that.

Adam Chapnick:

Yep.

Gregory Keough:

But I think there's different applications. I don't think we need a million, though, protocols.

Adam Chapnick:

Right. You mentioned Ethereum, do you think smart contracts are the sort of the ... maybe that's a little bit of light in the darkness? Like that is the functionality that will be in the future?

Gregory Keough:

So I think if you look at smart contracts, specifically as the security industries takes ... like it gives you a lot of benefits, right? So you could say, "Hey, I'm tokenizing my equity. The equity can be traded." But then in a smart contract, there could be kickers with exactly how you get your dividends.

Adam Chapnick:

Right.

Gregory Keough:

You could pay your dividends much quicker.

Adam Chapnick:

All kinds of things, right.

Gregory Keough:

Exactly. For example, just a very traditional stock market, if you have like monthly dividends, you get an [inaudible 00:09:04] like 3% of the stock price. But you could pay daily dividends under a smart contract, right?

Adam Chapnick:

Right.

Gregory Keough:

So there's all these very unique things you can do, which also are very transparent, which is a good thing. Which I think are huge net advantages to both companies that embrace them, as well as investors that are interested.

Adam Chapnick:

Yeah.

Gregory Keough:

So yeah.

Adam Chapnick:

So you have some experience in international dealings in finance and stuff, which have all kinds of complications and headaches, I can imagine. Obviously I haven't done it, but just watching it gives me a headache to watch. Do you have a sense of any of the foreign jurisdictions that are probably going to be into security tokens more than others, or the first ones, or the best ones?

Gregory Keough:

Yeah, I mean, I think there's lots of very interesting things going on, and there's also lots of interesting approaches. I do think that the United States is one of the largest capital markets in the world. I do think a lot of people look at the United States and the SEC, to what they're doing. If you look at like just the JOBS Act, that's been replicated in about 21 countries.

Adam Chapnick:

Oh, interesting.

Gregory Keough:

It does provide a framework that also can be used in accordance with blockchain and et cetera, which I think is interesting. So yeah, I think that there's different variance to it. I think we're going to have some that are just totally free ... not free-for-all, but like very, very laissez-faire, I guess. But I do think once you get to real scale, you're going to have regulation. As I say, everything at scale has regulation.

Adam Chapnick:

Yeah.

Gregory Keough:

There's pretty much no business I can think of that has real scale that doesn't have some level of regulation, right?

Adam Chapnick:

Right, for sure. Okay, so what about the time period? Looking into your crystal ball, the Keough ball, are we 18 months away, are we a year, five years away from the security token industry sort of becoming major, sort of taking over? What do you think?

Amy Wan:

We have the full interview with Gregory Keough on our website. Be sure to click on the "Interviews" tab. For more information on Finova Financial, visit finovafinancial.com.

Now this past June, the Security Token Academy hosted the first ever Security Token Summit in New York City. The groundbreaking, sold-out conference was the first one of its kind to focus on the emergence on security token trading organizations.

The best and the brightest spoke at our summit, and we captured it all on video. There were keynote addresses from David Weild, former vice chairman of NASDAQ and Bruce Fenton, CEO of Chainstone Labs, plus panel discussions, interviews, and much more. You can get an inside view to what the top experts had to say about the future of the security token industry and where security token exchanges and trading platforms are going this year and beyond. You can purchase all of the videos from the event for just $99, and as a bonus you will also receive a free one-year membership to the Security Token Academy.

We want to let you know that our next event is the security token launch in New York City, set for October 4th and 5th. Come together with security token leaders, experts, and enthusiasts to celebrate the opening bell in the security token industry. Our event will feature industry experts, including ERC-20 Creator Fabian Vogelsteller and David Weild, former vice chairman of NASDAQ. Highlights include a cruise on the Hudson River on the Spirit of New York yacht during our special networking event to be held on Thursday, October 4th. On Friday, October 5th, you'll hear from leaders in the security token industry during our conference at the Conrad New York City as we dive into the core foundations of the security token industry. Tickets are on sale right now. Just visit our website and click on the events page to learn more about October's security token industry launch event. We hope to see you there.

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 and expert interviews.

I'm Amy Wan. For everyone here at the Security Token Academy, thanks for watching.