David Weild IV is Chairman & CEO of Weild & Co. one of the world’s fastest growing investment banks. He is the former vice chairman of Nasdaq where he worked with such luminaries as Steve Jobs (Apple and Pixar) and Tom Stemberg (Staples). He is a renowned capital markets expert known for his experience pricing over 1,000 equity offerings (including early offerings for Blackrock, Celgene, Nvidea and Chesapeake Energy) and for his public policy work on how market structure can help or hinder capital formation. His work led to him being referred to as the “Father of the JOBS Act” and is frequently cited by regulators, legislators, academics, politicians and stock exchanges. Mr. Weild has testified on stock exchange structure in the US Congress, at the US Securities & Exchange Commission and has spoken at the G-20, OECD (France, Italy and Japan), the European Federation of Securities Exchanges (Switzerland and Norway) and the Arab Federation of Exchanges in Jordan. Mr. Weild received his B.A. from Wesleyan University and his M.B.A. from New York University Stern School of Business. He also studied at the Sorbonne and on exchange at the Ecoles des Hautes Etudes Commerciales (HEC Paris) and the Stockholm School of Economics (Stockholm, Sweden). Mr. Weild is married and the father of three teenagers.
Weild & Co. is the fastest investment bank in the United States. Cloud-based, it pursues a radically different model focused on aggregating, organizing and enabling skilled human capital to provide better investment banking services to the growth and middle market economy. The Company was founded a former vice chairman of NASDAQ who earlier headed a top Wall Street investment bank and helped such companies as Blackrock, Celgene, Nvidea and Chesapeake Energy in the early part of their growth cycles. His thought leadership changed the discussion in Washington and led to a wave of pro-capital formation legislation. For this reason, he is known as the “Father” of the JOBS Act.
Now it's our pleasure to introduce our morning keynote speaker, David Weild. David is the founder, chairman, and CEO of Weild and Co, a rapidly growing network investment bank. During his career at NASDAQ, David oversaw over a thousand equity offerings including listings for Facebook, Netflix, and Jet Blue.
He helped create the Market Intelligence Desk at NASDAQ where he was vice chairman and executive committee member. He also headed the corporate finance and equity capital markets at a major investment bank, where he helped develop the first computer system to algorithmically distribute and incentivize investment in primarily equity offerings. Yeah, he did. Studies coauthored by Weild helped give rise to the Jobs Act and he attended the signing by President Obama in the Rose Garden. He's also an advisor, or board member, to a number of block chain companies, and regulated trading platforms, including Templum and INX.
David was named to Patrick Young's list of the world's most influential people in market structure, and was included in its list of the top 10 visionaries, and top 10 startup entrepreneurs. He was called a legendary Wall Street executive and fire starters, and is known as the father of the Jobs Act. Now please give a round of applause for our highly accomplished keynote, David Weild.
Thank you. Well good morning. Boy, it's an exciting time to be working in markets, isn't it? Talk about disruption. Everything is going to be changing. Just a quick, just want to tell you about what we're doing at Weild and Co, we took the Wall Street investment banking model and we turned it on its head. It's an in the cloud, not geographically constrained, like a traditional investment banking model. There are so many people because of market structure changes where they collapse trading, spreads, and commissions, I'm going to talk a bit about that. That, you know, we've had the middle market investment banks that had been mostly consolidated out, and there's a lot of talent out there, and a lot of need to effectively provide support services, advisory services, to middle market investment bank. We grew 100% last year in terms of numbers of investment bankers that are added to the platform and seeing some pretty amazing talent coming on board. We are actually actively out there doing some investment banking work with a block chain company. Just a FYI. That's us.
We're going to talk a little bit about the good, the bad, and the ugly, of the block chains, curious tokens, markets. A couple of categories that I just wanted to mention very quickly, one is block chain businesses, which are disrupting incumbents, sorry for the typo there, and tokenization of securities, assets, packaging, packaging for investment. I would like to say that very early on, this is before Clayton came out, Chair Clayton, and said that he hadn't seen an ICO that he didn't think was a security. In our investment banking operation we told everybody, probably three months before that, that we were not going to treat any token transactions as outside business activities. That we were going to deem them all to be security, so we were way out in front.
Then I subsequently spoke at a conference where somebody asked me, and I think there was a little hostile what I thought about some of these exchanges that were trading tokens. I said that I though that pretty much all of them were probably illegal. The reason is, is that this is a regulated business. If you're trading securities, or you're trading commodities for that matter, currencies, you're going to be regulated either by the SEC or SFTC, and there's sort of no question about it. It's also an area that the government, from a public policy standpoint, has a keen interest in making sure that investors don't get burned. You've seen a number of the articles, I'm going to get to that in a second, but what I see going on in this market, and I think a lot of you who are old enough to know this, or probably agree, this feels an awful lot like the early days of the internet, early-ish days of the internet.
It means that we're going to have big up cycles, we'll have corrections, we're going to have disasters along the way. The technology is real. It is going to have to have its kinks worked out, there will be versions 1.0, 2.0, 3.0. It's real. It's going to be here for a while. It's going to be up and down. There's going to be some big busts. We saw them in the internet. PETS.com, you all remember the sock puppet, WebVan, eToys, interestingly for those of you that are in the equity underwriting business, in the agreements among underwriters there is a provision, a clause, that was tacked on because of the lawsuit against Goldman Sachs. Where eToys shareholders alleged that if Goldman hadn't under priced the deal to the extent that they did, that the company wouldn't have gone bankrupt, because they left that money on the table. Subsequently, in agreements amongst underwriters, there was a provision that was added that said, essentially, we're not, the investment banks, are not your fiduciary if you're corporate or kind of interesting. That came out of the Dot Com period, a little bit of trivia.
We're going to see category defining companies. These were all companies that benefit from the internet, Amazon, Google, Netflix, you know, the internet enabled these businesses. Facebook, YouTube, iTunes, much of Apple. I think you're going to, not just think, I know you're going to see this kind of thing repeat itself in the block chain space.
Regulators. This is from the Wall Street Journal, there are a couple of articles out there, I took the Wall Street Journal one because it wasn't as flamboyant. There was one that said that 80% of initial coin offerings were ... there was something wrong with them. This is a Wall Street Journal article. There's quite a bit of fraud going on. I think that it behooves everybody in the industry to kind of get their ducks in a row, and to start running these transactions, these financings, to the standards of securities. Transactions, private placements, risk factor sections, and so on and so forth, full disclosure. If you read the typical white paper, it's really, really light on risk factors. It's really, really light on what is conferred in terms of benefits to the investor, by that token that you're purchasing. All that stuff, there's no cap table. All that stuff needs to be expanded upon and I would urge everybody to get ahold of a really high quality S1, which is the form of filing for an IPO. Look the sections, emulate the sections when you're out there doing capital, and just do a high quality job, respect the investor.
What are we selling via security tokens? There's, on the one hand, ownership stakes, and economic interests in operating entities. On the other hand, assets. You're going to see anything that people want to own, they want to sell an interest in, and that's going to be sold as token. We're going to see sort of a massive shift, I think, from stock certificates, and bond certificates, as a primary form of ownership to tokens as a primary form of evidencing ownership. The good part is it's theoretically more efficient way to package and trade securities. It's theoretically going to support innovation and securities formats. I'm going to give you a little bit of the benefit of my 20, well 14 years running an equity capital markets group, and raise the first money for Blackrock back when it was still for Larry Fink, when it was Blackstone Financial Management, closed and fun packaging real estate investment trust packaging. The market pays a premium for securities that offer monthly distributions, dividends, as opposed to quarterly ones, because retail prizes the money coming into their account on a more frequent basis.
When you start to look at smart contracts, and tokens, you start to see an opportunity to pay, cost effectively, to distribute income more frequently. Monthly versus quarterly was worth, when we did the analysis many years ago, about 6%, a 6% premium to net asset value. It was real. In theory it should be able to drive down your cost to capital as an issuer. I think the innovation that we're going to see in coupons, dividend frequency, revenue strips, payments and kind securities, [inaudible 00:09:08], all of this stuff can be effectively set up so the securities are basically deposited into someone's cyber wallet. You're going to see a, I think, a spurt of innovation in the kinds of security tokens that you see in the marketplace.
The bad is that today there's still a limited reach to the investor universe. You'll lack for the institutional side of the business, custody solutions, and institutions are not going to come into the marketing side until the custody problem is solved. There's a lack of cyber wallet integration with traditional securities accounts and if you think about it, right, Morgan Stanley, UBS, Merrill Lynch, these firms each have about on the order of 18,000 retail financial advisors. They are not going to stand still, I think, and see more and more assets owned as tokens instead of securities. We're going to see an integration of cyber wallets into securities accounts at major Wall Street firms. What that is going to end up doing is then opening up this pool of assets so it can be made available to the token market. That's important. Both of those things are essentially dating items that are going to bring cash into the market and that will fuel back to the internet chart, probably another leg up in these markets.
The legal hurdles, and I'm going to get a little technical here for a second, but under the Jobs Act once you hit 2,000 plus shareholders, and a lot of these token offerings have had many, many, many token holders, if you will. You have to register. You have to become a fully reporting company with the Securities and Exchange Commission in this country. If you are not, then in the aftermarket you start to run into a blue sky problem. Because if it's the exchange listing, a national exchange, which is right now the NYSC and NASDAQ that confers upon a company an exemption from state registration. Okay, that's important. Okay.
There's also a transfer agent requirement in the rules. It's rather interesting when you think about it, because in theory the block should remove a lot of the need for a transfer agent. Right, until they amend the rules, and until the SEC gets comfortable with the token version of transferring tokens or securities, you still have to check that box. It means you have to go to one of the big transfer agents, where you have to register as a transfer agent yourself if you want to get listed on a major stock exchange to enjoy the aftermarket blue sky exemption. I hope you follow that.
The bad is, is there's all sorts of platform vulnerabilities. Let me just fish this out, I got this thank you Oscar of Core Connects who, by the way, I'm going on his board of advisors. There are platform vulnerabilities. There's a lack of governance on quality of tokens, and smart contracts, there's minimum standards for contracts, the ERC-20 standard only deals with that access and query type of functionality. You go on and through it, and you start to realize that there is going to have to be real scrutiny on the technical side paid to these platforms. If you think about it, if you securitize a company through the issuance of tokens, how is somebody going to acquire that company? Does the token essentially allow you to do that, rationalize businesses, and have they really thought through that kind of corporate governance piece of things.
I'm not sure most of these platforms were set up to do that. Maybe the one that, right now, kind of springs to mind is the Hyper Ledger Fabric that was put up by IBM, I think, is probably moving in that direction from what I understand. I'm not the expert. That's the one that DTC is actually working on, just FYI. There's no support for managing securities tokens throughout their lifecycle.
A couple of things, and I went to the general council of FINRA with this, FINRA is the Financial Regulatory Authority, early on because when you're running an investment bank, you have to make sure that your bankers are not trading on inside information. You typically want to watch list, and a restricted list, on securities. Well now all of the sudden I got a cyber wallet, and I have no account statement that can be forwarded like you could in a securities account, forward it to the firm. How do I know what people are actually doing? I think that we're going to have to see cyber wallets that essentially create audit trails that can be shipped around the street before people are going to adopt this. Because otherwise it just facilitates insider trading by securities professionals.
The Patriot Act, and this one really concerns me. I'm not sure what these guys are doing right now. If you take a cyber wallet, the way I understand it, and you purchase a bunch of value, and it's not clear, it may be traceable to your IP address, you get rid of the IP, you put it in a cold storage, you move it somewhere else, very hard to trace. It's going to facilitate, has the potential to facilitate, bad actors, terrorism, money laundering, drug trades. I think that I would expect, and hope, that the US Congress would pay particular attention to how that is going to be addressed. Because to date, most of the financial crimes enforcement choke point in this country, and monitoring through the Office of Foreign Asset Control, has been through the financial intermediaries, and of course, block chain disintermediants, the financial intermediaries. I think that's very, very ... should be of concern to everybody.
You know, I was quoted on Coin Desk, in an article, misquoted, saying that tokenization of securities, tokenization of assets, tokens were going to solve the liquidity and IPO crisis. I did not say that. I think that's nonsense. I'm going to tell you why. There were some instances where you've got many, many, many steps, and you may be able to replace many of those steps through smart contracts, that's going to help. The fact of the matter is, is that there is ... markets are not structured in the United States, today, to support micro-capital liquidity. Most of these tokens are going to the equivalent of micro cap small issuance stocks.
Give you an understanding, which is that academics talk about asymmetrical book securities, which are big seller, no buyer. The professional money needs to put size to work. You need financial intermediaries, or people in there making commitments, providing sales people, to break up that block of 500,000 tokens, 500,000 shares of stock, and then to hold that price there, in place, while you create what I call episodic liquidity. Find buyers to offset the seller. A lot of times you would break up, in the old days, that block of 500,000 shares into 500,000 share orders. That's how liquidity was manufactured for small cap issuances. There's a consequence to the loss of that structure in the United States. We've actually see a collapse in the IPO market. I'm going to show you some statistics here. As a consequence, valuations on micro cap issuances have largely lagged the larger capitalization issuances. That's really one of the reasons why we have to solve for that problem if we're going to really bring back micro cap and small cap markets. It's not going to be any different in the token business than it is in the securities business.
You have to have the economic incentives that are required to provide research. You must have economic incentives to support sales. We've got a market structure right now that really sort of enables, and facilitates speculation, not investment. By the way, we're working on a bill in Congress right now, it's called the Main Street Growth Act. It is sponsored by Congressman Emmer from Minnesota. The idea is to create a new form of venture exchange, which would bring back a lot of what's required to actually make markets. I'm sure it will be ultimately equally applicable if it goes through. It will be equally applicable to tokens as it is to securities. That's going to be essential to kind of getting America back in business to doing small, $25 million, $50 million, float public markets.
This is some of the work that we did that let up to the jobs. Actually it's been updated, I apologize because we ... what you would see is if we cut ... these are IPOs all the way back to 1980. IPOs up through 2017. You're looking at the gross domestic product is the line chart. You can see that the IPO market sort of fell off a cliff back in 2001 in the way of what we call the Bubble Rubble. What I would tell you is that if you saw a breakdown between sub $50 million IPOs and IPOs that were over $50 million, you would see that the entire decline is in the smaller IPOs. They just collapsed. They went from 80% of the market down to 20%. It happened in 1997 and '98, when the SEC implemented two rules. They were the order handling rules and regulation ATS, Alternative Trading Systems. What it did was it took the trading spreads, and it collapsed it from a quarter point down to first 3.125 cents, or 32nd decimalization, then further collapsed it in 2001 with decimalization down to a penny.
Not enough money for people to get in there, grab, and position stocks, and do what I said before, which is take that block of 500,000 shares of stock, or tokens, and break it down, and find 500,000 tokens worth of buyers on the other side. That's what the Main Street Growth Act is hopefully going to allow us to get back into the business of doing, assuming it goes through. If anybody from Congress is watching this, what I would say is it's really important to both Democrats and Republicans. Why? Because more money, into more entrepreneurial stage companies creates more jobs, there's multiplier effects. Professor Enrico Moretti at the University of California Berkeley said that for every technology job created in the economy, there's five service sector jobs. Most job creation occurs because getting capital into smaller companies, and if you can start to do that you create a velocity of capital money, we start engaging, or paying for, restaurant workers, hotel workers, and it just feeds on itself.
What you see now in this particular chart is the number of listings in the United States. This was, again, work that we did. We actually had an index chart that we used in Congress leading up to the Jobs Act. It was actually very influential in Congress. It showed that the number of publicly listed companies in the United States declined precipitously beginning at that point that we implemented electronic markets. Other countries were seeing percent growth, including China, and most of the Asian countries, Europe was actually ... we were the worst out of 13 countries that we actually track. That got Congress pretty motivated.
What you can see here, and I want you to take away one thing, is that the number of listed companies in 2017, these are the operating companies. Take out all the noise, which is the exchange created funds and these are operating companies only, the kinds of companies that actually find cures to cancer, okay? Change quality of life for the better, all that social impact, and we have fewer publicly listed companies in the United States today, in 2017, than we did in 1975 on the far left, despite the fact that our GDP, right? Has gone up dramatically. Okay? On a GDP weighted basis, these charts should be completely correlated. That's the punch line.
When you look at opportunity costs in the US economy, we've left an amazing amount of personal income, GDP per capita employment, on the table. We have left, because of the quality of companies that we have not financed in this country, the types of companies, we have left tax base, tax revenues, on the table. Our deficit is larger than it should be. We have undermined US competitiveness, and in turn, national security, because our capital markets are not function to support small public issuances. If you do one thing, or take one message away from this talk, this is something that everybody in this room needs to advocate for, which is better market structures to support real liquidity, where salesmen get on the phone, research analysts can get paid to write research, and market makers can actually get out there, and take a position to provide institutional caliber liquidity. That's what's going to cause this market to go from one which is highly speculative, and high volatile, to one which is infused with the discipline of fundamental investing. You need that to be able to drive more efficient allocation of capital as opposed to speculative excess where you end up with everybody chasing PETS.com.
Now if you remember the Wizard of Oz. I like to say don't be a scarecrow, think it through, okay? It's a beautiful, exciting, technology that is going to really improve lots of lives, but it's got to be done in an incredibly disciplined, technically tied down way, disciplined way. I think everybody in this room needs to think of themselves, in part, as not just a capitalist, but a steward for our quality of markets, and the quality of the opportunity that we're going to create. Not just for this generation, but for the next generation. This stuff is enabling infrastructure. It's go out long and loud, throw a hail Mary, it's stuff that we need to be incredibly cognizant of, and nurture, and do it in the right way.
I'm actually really thrilled with Aubrey, the work that you're doing in terms of these ... taking some leadership in terms of trying to educate people in the market. This is how we're going to make sure that these markets do what they're intended to do, which is support entrepreneurship and economic growth for the long term.
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