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Security Token Insight: Expert Interview with Scott Nissenbaum, chief investment officer, Ben Franklin Technology Partners

Expert Interview


 
Scott Nissenbaum, Ben Franklin Technology Partners

Scott Nissenbaum

With a deep understanding of the early-stage investment landscape, Nissenbaum brings more than 20 years of venture capital, entrepreneurship, and operational excellence to the Ben Franklin team. From his leadership experience at such organizations as Novitas Capital and Finite Carbon, Nissenbaum brings nimble insights from investment and entrepreneurial perspectives. A long-standing member of Ben Franklin’s Technology Advisory Committee for IT investments, Nissenbaum has also worked with entrepreneurs on debt financing at Hercules Technology Growth Capital and Merion Investment Partners.

Nissenbaum held seats on the Boards of more than 14 companies including Traffic.com (NASDAQ:TRFC), USA Technologies (NASDAQ:USAT), EZ Prints, Inc. (acquired by Café Press), Haley Systems (acquired by Ruleburst), ClickEquations (acquired by Channel Intelligence) and ImageTree (acquired by GeoDigital). He also served as Chairman of the Board at Philadelphia Game Labs, a non-profit incubator for Pennsylvania based gaming companies..

Before getting involved in venture and entrepreneurship, Randall was a Captain in the United States Army and is both Airborne and Ranger qualified. He served over six years active duty and deployed twice in support of Operation Iraqi Freedom where he was awarded two Bronze Stars for his actions during combat operations.

Nissenbaum is a frequent speaker on the topics of venture capital and entrepreneurship at such industry meetings as The Wharton Energy Conference, The CFA Society of Philadelphia, Venture Talk Radio, and the National Science Foundation’s University Startup Conference. He also served as an adjunct faculty member at University of Pennsylvania’s Wharton school teaching the graduate course on Venture Capital and in the Management Information Systems Department at St. Joseph’s University focusing on business software applications. Nissenbaum received an MBA in Finance from St. Joseph’s University and a B.S. degree in Finance and a Minor in Economics from the Pennsylvania State University.

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Transcript


 

Amy Wan:

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.

Amy Wan:

Hi, I’m Amy Wan. Adam Chapnick is on vacation this week. Coming up on today’s episode of Security Token Insight, in your security token investing news find out what Securitize is doing to strengthen its presence in Asia. We’ve got an expert interview with Scott Nissenbaum, Chief Investment Officer at Ben Franklin Technology Partners. Plus a look at our new series, Global Capital Markets and Security Tokens with David Weild, and how you can subscribe to the Security Token Edge newsletter. That and more is coming up on this episode of Security Token Insight.

Amy Wan:

Now it’s time for your security token investing news. Security token platform Securitize has partnered with the Japan Security Token Association to strengthen its presence in the Asian market. Securitize will work with local and international business regulators to bring security tokens to Asia.

Amy Wan:

In other news, Euronext, the leading pan-European exchange in the Eurozone, has invested in tokenization platform Tokeny Solutions. This investment compliments Euronext’s position in the digital asset industry, combining Tokeny’s token management expertise with Liquidshare’s post-trade solutions. The CEO of Tokeny Solutions, Luc Falempin, told Security Token Academy, “being selected by Euronext allows Tokeny Solutions to lean on the resources brought by the largest center of debt and funds listings in the world. We are now in a fantastic position to hire the best talent, expand on new business lines, and execute our vision of a digital capital markets world.”

Amy Wan:

By the way, Tokeny and Securitize are gold corporate members of the Security Token Academy. To learn more about them go to our website, SecurityTokenAcademy.com, click on the membership tab and then the corporate directory.

Amy Wan:

Back in April the Security Token Academy attended Crypto Invest Summit in downtown Los Angeles. The event attracts security token and crypto enthusiasts from around the world. The Security Token Academy team was there, interviewing some of the biggest names in the security token industry. That’s where we met Scott Nissenbaum. Scott is the Chief Investment Officer at Ben Franklin Technology Partners in Pennsylvania. He’s also an entrepreneur and investor.

Amy Wan:

In this expert interview, Scott sits down with our own Adam Chapnick to discuss the company’s first US-compliant security token offering. Take a look.

Adam Chapnick:

As a proud graduate of Franklin and Marshall college in the great state of Pennsylvania, I love what you guys are up to. But for those who don’t have the same affinity, why don’t you tell us, what does Ben Franklin Technology Partners do?

Scott Nissenbaum:

Sure. So Ben Franklin Technology Partners is a seed and early-stage investor focused on the greater Philadelphia region. What differentiates us is we made 50 investments last year, 67 investments the year before that. 225 companies in the portfolio, which makes us the ninth most active seed investor in the nation. All early stage, all tech, all in Philly.

Adam Chapnick:

All in Philadelphia area.

Scott Nissenbaum:

All the time.

Adam Chapnick:

That is insane. I love it and am boggled by that. Okay, so how did there come to be an investment company focused on tech in Philadelphia of all places?

Scott Nissenbaum:

Believe it or not, the state of Pennsylvania created the Ben Franklin Network 35 years ago. And so about 20 years ago we morphed from a true economic development agency, where we were focused on creating the tech ecosystem for us specifically in Philly. And then we started operating more similar to a double bottom line VC firm. So the idea is, we want to build the tech ecosystem, but we want to make money so that we can take the proceeds from each company and then reinvest it back into the region, growing stronger and stronger every year.

Scott Nissenbaum:

Which brings us to today where we have not only money that we invest on behalf of the state of Pennsylvania, we invest money on our own balance sheet back in. So everything’s recycled in an evergreen. And then we have co-investing partnerships with Drexel, with Temple. We do four different programs with Penn. We co-invest with Blue Cross and Blue Shield in Philadelphia, KeyBank. And so we’re just trying to build that ecosystem with every resource we can.

Adam Chapnick:

Amazing. So in the bylaws or in the... there’s an actual mandate to build-

Scott Nissenbaum:

Yes.

Adam Chapnick:

How do you measure building ecosystems?

Scott Nissenbaum:

Yeah, good question. So the Department of Commerce and Economic Development in this last year gave us three and a half million. We started it in 1982 with 10 million, then it went to seven, then it went to three and a half. But we have been building, and for every dollar they’ve given us, they’ve gotten back four dollars directly related to the wage and tax revenue. And so essentially it’s an economic engine, not only for the jobs we create, but also for the state in terms of revenue generation.

Adam Chapnick:

So if that’s the economics you would think it would have gone the other direction, from 10 up.

Scott Nissenbaum:

You would think so, and if you do it on an inflation-adjusted basis it should be about 44 million. But the state, like most states, have their own issues and their own priorities. And although we continue to perform, we’re starting to get closer and closer to be [inaudible 00:05:28] to do it and stand on our own.

Adam Chapnick:

That is amazing. So what it the average size of a deal that you guys will enter into?

Scott Nissenbaum:

And so average investment size is about 200 thousand, as part of a million dollar round. We can invest up to a million dollars in any one company.

Adam Chapnick:

So you’re super seed, you really are early stage. Pre-revenue?

Scott Nissenbaum:

We do... So Drexel University has Drexel Ventures, that is 100% powered by Ben Franklin. So when they want Drexel technology that’s created at Drexel to be commercialized it goes through the Ben Franklin process, and then Drexel can reinvest, Ben Franklin can invest, and then we build the company in Philly.

Scott Nissenbaum:

We do the same thing for Temple University. We’ve probably spun out six to 10 companies from the University of Pennsylvania alone.

Adam Chapnick:

Wow. I’ve heard that’s an okay school. No Franklin and Marshall.

Scott Nissenbaum:

It is no Franklin and Marshall.

Adam Chapnick:

Anyway. Please continue.

Scott Nissenbaum:

But yeah. Dare to dream. One day.

Adam Chapnick:

One day, one day.

Scott Nissenbaum:

And so because of all that we went out and we raised, which is why we’re at this crypto conference, the first US-regulated, US-domiciled venture fund that is blockchain enabled. And when I say blockchain enabled I mean... threefold. One, we can raise money from anywhere on the planet, going through an automated AML KYC process on the Securitize IO Platform. Thanks Jamie.

Adam Chapnick:

Yes, friend of the show, friend of the show.

Scott Nissenbaum:

Secondly, it allows us to use smart contracting for the back office and management. That’s more a promise of the future. And then lastly, and I have to be very careful how I say this, there is a more efficient secondary market for the limited partnership interests themselves. That’s the token, the security token that we create so that when you buy into the venture fund, if for whatever reason you need liquidity before the 10 or 12 year lifecycle, you can go and find a more efficient second buyer, hopefully with price discovery as SEC regulations start to-

Adam Chapnick:

Dictate.

Scott Nissenbaum:

Yeah, allow I should say.

Adam Chapnick:

Allow, that’s correct, yes. Fascinating. So it would be correct to say that you are the first US-domiciled, compliant security token offering.

Scott Nissenbaum:

Yes, we are fully regulatory compliant in the US, and we don’t do anything offshore. And so if you look at Securitize’s IO, SPiCE VC or 22X, or blockchain, they all have some component of managing US regulations by going outside of the regulations. Whereas we came in and said, “we really want this to be focused on Philly, but all about the US. We want to prove, and the innovation is that we want to prove that you can leverage the blockchain for added value but still fully comply with rules that don’t quite contemplate the blockchain yet.

Scott Nissenbaum:

So, we’re kind of bridging that interim gap if you will.

Adam Chapnick:

So, how did what started as sort of like a project for good decide to get into such an innovative and not yet fully formed space, as the structure of the fund itself? You’re not even... Well are you also... Oh, first answer that and then I want to hear, are you also investing in blockchain companies as some kind of mandate?

Scott Nissenbaum:

Yes. And so it came about when one of my colleagues, Shawn Bession, started talking about crypto and Bitcoin and ICOs. And we started to dig in and look at, “why don’t we have an ICO?” And then we said, “well that won’t jive with our legal framework, especially in the US.” And then we said, “but is there an opportunity to leverage blockchain, what would that look like?”

Scott Nissenbaum:

We worked for about 18 months. We worked closely with KPMG, Pepper Hamilton, Morgan Lewis, White and Williams, all these different service providers to say, “is it legal? Will it work? Can we do it?” And 18 months out of the other end we said, “let’s run with it.”

Scott Nissenbaum:

And I’d be amiss if I didn’t highlight, EPAM Systems, which is the largest outsource software engineering firm in the world, 28 thousand employees, eight billion dollars in market cap, traded on the New York Stock Exchange, is our anchor investor. And so they committed five million, they’ve been a phenomenal partner. They’re helping us with international reach, and it brings gravitas to the overall enterprise. We put five million of our own money in, we have Fulton Bank in for a couple million dollars. Couple family offices.

Scott Nissenbaum:

So we’ve got some real momentum in terms of tier one caliber investors in the US sort of setting the stage, so that investors abroad can look at that and say, “all right, they’re real, they’re doing deals, they’ve got a huge portfolio. Maybe it’s a fit.”

Adam Chapnick:

So what has been the result of yours and your partner’s influence in the tech region? You know, what was it before and what is it now? Is it...

Scott Nissenbaum:

So, I’m born and raised in Philadelphia, and I think if you go back 25 years Philly was always that ignored city. And I think we really have blossomed as a tech community. I mean, the fact that there’s 255 active tech companies in a city like that, I think it’s eye opening for people who are like, “oh, I didn’t even know.” We have a number of VCs from across the nation that basically partner with Ben Franklin to say, “hey listen, we’re going to come to Philly and we know you’re providing us access to all of these companies. You’re doing the hard work, you’re rolling up your sleeve. But when you mature those companies to a certain point we’d love to follow on.”

Scott Nissenbaum:

The GO Philly fund is the partner to that. And so every time one of those companies bubbles to the top and we feel really good about, they’re through the technology, they’re into execution, there’s a lot of upside here, GO Philly can pile onto the winners. And that is the investment thesis which is, you make more money in VC if you pile onto your winners. Ben Franklin can’t because of the resource constraints. The GO Philly fund can.

Adam Chapnick:

Isn’t that fantastic. So as far as the mandate or the thesis of the fund itself, is there some component that includes blockchain? Or is it just sort of what... Is that not part of the mission?

Scott Nissenbaum:

Because we’re always early stage, because we’re always technology, and because we’re always in the Philadelphia region, we don’t purely focus on a technology sector. It would too narrow-minded. We have dedicated investment teams to information technology, digital health, life sciences, and advanced manufacturing. We do have a number of blockchain companies, so AlphaPoint, which your viewers may know. Great group, Igor and his team there are crushing it. We’re in a company called Amino Payments, which has been stealth for a while. Serial entrepreneurs, they’re crushing it. And we’re always actively looking for sort of the next big thing.

Amy Wan:

We have the full interview with Scott on our website, SecuritTokenAcademy.com. Click on the interviews tab, and then click STA Video Interviews.

Amy Wan:

Now live on Security Token Academy’s website, a new expert video series. Global Capital Markets and Security Tokens, with David Weild. Part one covers the state of the market. David is the founder of Weild & Co. and is the former vice-chairman of NASDAQ. He’s also a 30 year veteran of Wall Street.

Amy Wan:

In this new series we cover the growing intersection of security tokens and traditional finance, as well as the benefits of tokenization. Here’s your preview.

Adam Chapnick:

In your mind, what are the applications of security tokens? How do they fit in with today’s finance world?

David Weild:

Well I think first and foremost, I think we’re going to be able to strip out costs from the issuance of securities and the trading of securities in general. And when you do that you also enable certain kinds of securities that heretofore have probably been cost prohibitive. And what I mean by that is, I think the frequency of distributions can be increased very significantly.

David Weild:

Why is that important? It’s important because retail in particular values higher frequency distribution. So if you look at a traditional bond, it may pay twice a year. If you look at a closed-end bond fund there are two forms, ones that pay quarterly distributions versus monthly. The monthly ones that trade on the New York Stock Exchange and NASDAQ actually trade at about a four or five percent premium to those that pay on a quarterly basis.

David Weild:

So I suspect that what we’re going to see is the tokenization of certain kinds of assets in a way that they will pay weekly distributions, maybe even daily distributions at some point.

Adam Chapnick:

That’s interesting. It’ll be interesting to see how that curve is shaped when you go from quarterly to monthly to weekly to daily, in terms of the premium you were describing. What do you think about that?

David Weild:

Well you know, if you’re a retiree you’re going to live week-to-week, managing your budget that way. So having something actually hit your account, a distribution hit your account on a weekly basis is something that I think that retirees would really value. So I think it will happen, I think it’s just a question of time. And I think that it will be highly valued by at least some subset of the market.

Adam Chapnick:

Yeah, no doubt. So why is this a preferred method as opposed to issuance of traditional securities? What benefits did the security token have over a traditional security?

David Weild:

Well you can hold it directly in a cyber-wallet if you so choose, as opposed to through a traditional security account which would be held by a broker-dealer. But I think that the real advantage is that there are a number of, in certain markets, there’s an application layer that is wedded to the token. And so for example you can automate all of the legal and compliance checks that are done in private markets, to be able to trade securities in private markets, stripping out a lot of the cost and some of the constipation from having tokens, or securities if you will, move from the hands of one investor to another.

David Weild:

So there’s a big uptick in ease and efficiency for certain kinds of applications. And so my suspicion is is that that’s where we’re going to see most of the early adoption.

Adam Chapnick:

What are some of the real world uses, where security tokens offer an advantage over traditional securities?

David Weild:

Well if I was to apply it to asset classes, if you drive down the cost of tokenizing or securitizing an asset for instance, we might be able to... We’ve already actually seen the beginning of this, tokenize a particular building. And it would then allow, instead of somebody having to buy a basket of buildings through a real estate investment trust, you might be able to actually say, “okay, here’s an interest directly in the Empire State Building, or in the Sears Tower.” You know?

David Weild:

So you can then... The old cliché which is, “location, location, location.” It will actually allow investors then to put together portfolios that are very much location-based type of real estate. So for example, whether it’s warehouse facilities or multi-family residential, or office properties. And so as a consequence I think it will create greater overall efficiency of capital allocation to the real estate market.

David Weild:

So I think it’s the beginning or the dawn of a brave new world in certain types of asset classes, as opposed to forcing you to buy a big basket of properties where you don’t have control over the actual building selection within a portfolio.

Adam Chapnick:

Got it. Now when it comes to issuers, what do you generally recommend? That an issuer issue a security token or start with a traditional security and maybe tokenize later?

Amy Wan:

Be sure to check out this new video series on our website, SecurityTokenAcademy.com.

Amy Wan:

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

Amy Wan:

We also invite you to check out the Digital Wrapper on Medium. It’s our new behind-the-scenes series where 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 out more information on our website, SecurityTokenAcademy.com.

Amy Wan:

The Security Token Academy held its first ever meetup in London, in partnership with Fincross International. The sold-out event took place inside the 12 Hay Hill Club. Our top-notch panel included Daniel Coheur, co-founder and CSO of Tokeny, Henry James, deputy CEO of Fincross International, Graham Rodford, CEO of Archax, and Briege Tinnelly, head of Europe for Securitize.

Amy Wan:

The meetup was sponsored by Merrill Lynch, Clifford Chance, and Fincross International. All three companies are corporate members of the Security Token Academy. To learn more about them, go to our website, SecurityTokenAcademy.com, click on the membership tab and then the corporate directory.

Amy Wan:

In a first of its kind, multi-city webinar on the tokenization of commercial real estate, CREST, a project of the Security Token Academy, provided a detailed case study on the tokenization of the St. Regis Aspen Resort. Learn how the webinar explored the disruptive forces that are emerging in commercial real estate, or CRE financing. Here’s your preview.

Adam Chapnick:

Disruption in commercial real estate has been appearing in lots of different ways. Certainly in the office category of commercial real estate, also known as CRE, the appearance of coworking companies such as WeWork is a major new trend. Also, the appearance of technology companies that strive to improve property operating efficiency through prop-tech or property technology is another area of CRE disruption.

Adam Chapnick:

But there’s a new type of disruption emerging in the area of CRE financing. It’s a way to raise money via a new solution which is compliant with US SEC regulations. It’s called tokenization, and it is based on security tokens.

Adam Chapnick:

This wave is barely just beginning but examples are starting to emerge, and that’s why we’re here today as we cover the tokenization of the St. Regis Aspen Resort.

Amy Wan:

I wanted to help our viewers take a closer look at this iconic hotel. So while I was there I had the opportunity to meet with the hotel’s general manager Heather Steenge-Hart. Let’s take a look at what she had to say.

Amy Wan:

This is a gorgeous property, can you tell me a bit about it?

Heather Steenge-Hart:

I’d love to. We have 179 guest rooms, 30 suites. This is one of our three specialty suites. And then we also have 25 residences, two and three bedrooms, which are fractional ownership.

Amy Wan:

Fantastic. What else should we know about this property?

Heather Steenge-Hart:

Well the rooms and our public spaces were designed by Lauren Rottet. And she was wanting to make sure that we’re bringing the outside light into the hotel, that it was like a mountainside manor. That it was contemporary yet very, very comfortable, because after you go skiing you just want to relax. And so I think she really did a lovely job in portraying those goals overall.

Adam Chapnick:

Regarding this specific property, you had the listing at JLL and sold it to Stephane and Elevated Returns. What’s the backstory on that?

Jeffrey Davis:

Yeah, 2010 we had the property on the market, and we had reached out to a number of off-shore investors and had gotten in touch with OptAsia. We had been in touch with them on previous transactions before, and we sold the asset to OptAsia and Stephane in 2010.

Rick Kirkbride:

And the 19 million dollars of tokens that were raised, what were those funds used for?

Stephane De Baets:

Well I mean, that was a return of capital to the owner. So effectively the tokenization is a true sale of ownership into the property, so the current owner decided that the maximum they were willing to give away at that valuation was 18.9%. So that’s what we put for sale and we were happy enough to fill up the entire stack.

Stephane De Baets:

So, the way that it works is that you actually sell the property into an operating partnership. You create REIT shares interest out of the partnership, and you capitalize the REIT through the sale of smart contracts. Smart contract is effectively a digital share certificate, so rather than to have the old fashioned paper share certificate you have a digital form of it. It’s a beautiful instrument because all the securities regulation are actually embedded into the contract itself. And it’s cheaper, it’s faster to transact, and it offers also the ability to have a global product trading on multiple exchanges.

Jay Bernstein:

We got involved with Elevated Returns first helping Stephane in trying to liquefy in a different format, in a registered format, a traditional listed REIT format, the St. Regis Aspen. And then helped him transition his project to a tokenized solution. Prior to helping Stephane we’ve also been very active in the whole idea of creating liquidity around, non-traditional liquidity solutions around single-asset real estate. And so it was a natural for us to help Elevated Returns and Stephane with their project.

Henry Elder:

Everything is going to get tokenized. Your identity will be tokenized, your title will be tokenized, your mortgage will be tokenized, your equity will be tokenized. I mean, that is the future when everything is running on this integrated, efficient, immutable blockchain system.

Amy Wan:

To watch the full webinar just go to CREST.io to register. Registration is free.

Amy Wan:

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. One more time, the address is [email protected]

Amy Wan:

All right, that’s it for today’s episode. Be sure to follow us on Twitter, Facebook, Telegram, and Medium. And do not 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.

Amy Wan:

And before we go, a big thank you to our platinum corporate member, Merrill Lynch. And all of our gold corporate members as well. We invite you to learn more about our corporate members by clicking on the membership tab, and then click Corporate Member Directory.

Amy Wan:

For everyone here at the Security Token Academy, thanks so much for watching.

Adam Chapnick:

You want to learn more about security tokens from the top leaders in the industry? Be sure to visit our website, SecurityTokenAcademy.com, and click on the interviews tab so you can stay connected.