Dave Hendricks is the CEO of Vertalo, a connections, compliance, and cap table company for digital asset issuance. Dave started his career at Arthur Andersen & Co. where he built securitization and remediation databases for real estate and other clients. After Arthur Andersen, Dave led tech teams at a JE Robert-Goldman Sachs joint venture than securitized real estate assets seized by the Resolution Trust Corporation. Before founding Vertalo SEZC parent company SeriesX in early 2017, Dave was the cofounding CFO, President, Treasurer, and Corporate Secretary of LiveIntent, a $100 million ARR people-based marketing firm headquartered in New York, where he led the company through 6 major fundraising events, culminating in the company’s latest $35 million Series D.
Vertalo is a liquidity enablement platform that was founded by a team that was frustrated with the difficulty of complying with and managing wallet and KYC data for its own security token holders. So we decided to build the system ourselves. Informed by our own experience, and by our team’s knowledge of securities law, Vertalo built a platform designed to take the pain out of managing a crypto cap table.
The Vertalo platform is designed to be used by issuance platforms, issuers, broker-dealers, ATS’s, exchanges and the market participants that integrate with and depend on them, like Custody platforms and KYC/AML providers. Vertalo’s easy to use system makes managing security token investor data easy, and helps security token investors access the liquidity providers that they need.
Hey everybody. It's me Adam Chapnick with the Security token Academy. And I'm here at Security token Industry Launch Week. And joined by a very special guest is the CEO and co-founder of Vertalo, none other than, the one and only, Dave Hendricks.
Hey, Adam. Great to see you.
Thanks for joining us. Yeah, you too.
Yeah. Thanks for having me on.
So, okay, as you know, we are fans of what you are doing at Vertalo, but not everybody's heard of you. So, what is Vertalo?
Okay. So, what Vertalo is, it's a compliance and liquidity enablement platform. We help issuers, BDs, and custody platforms bring assets on board. And then we help those issuers and BDs manage a stakeholder registry, that means everyone who holds a token. And then furthermore, we help investors manage their own holdings of those tokens. We do both of these things on chain. We take the ownership of the issuance and we put that on chain for the benefit of the issuer and the investor. We take KYC, AML, and accredited investor status or qualified investor status and we put that on chain too. Why do we care about the chain for these two things? We want to create portability of ownership and eligibility to enable liquidity. We think it's very, very important for people to be able to bring these two credentials, something they own and their eligibility to buy or sell, right to a trade. And that's why we're here. We're partnering with so many of the other companies here who are members of the Security token Academy. And, you know, we are here to meet new partners and new clients.
Great. Yeah. I'm sure you're going to have a lot of success with that. So, tell us how you got into this? This is a super narrow slice of the industry, but it's obviously, totally important. What made you decided that this was where you would be?
So, over a year ago, in September of 2017, we were looking to raise money for our attestation platform. We had created an attestation platform that proved employment and academic history using a smart contract. So, our co-founder Gautam Gujral, who spoke earlier, he and our securities lawyer said "Well, we don't think you can do an ICO to raise money, and we don't like a SAFT because that doesn't seem like it's a ..."
Right, there were problems with the SAFT.
Right, lots of problems with SAFT. So, in September of 2017, long before all those problems made it to the front page, we decided to do a Reg D security token offering. So, we went through the process of working with our securities lawyers, understand how you'd create a token and all the issues related to going from a legal document to the production and distribution of a token. That took, from September to April, okay.
That's a long time.
A long time, but we went to school. And so, while we did this, we learned all of these interesting holes, all of these, kind of nagging issues that would cause problems for BDs, for issuers, for custody, and when we came out the other end with a 117 page PPM, we said "Wow, that PPM represents all of our learning. Let's focus on security token infrastructure."
And we took our ledger, which was actually well built for this, a two-sided ledger, issuers and investors.
Right, that's what you need.
And we created a compliance and liquidity enablement platform from what we learned.
Because, we're an issuer. So, we felt it from an issuer perspective, it's not abstract to us. And once we did this, we started talking to all the partners in the space, here all the issuance platforms, the broker dealers, the custody platforms, and the exchanges, comparing notes. And we said "Bridging the gap between primary issuance and secondary trading is a huge business." So, we created Vertalo.
Liquidity enablement platform, it looks like a cap table for crypto.
That's great. And it's great timing, because we're at a point where there is issuance, but we're in that gap before the secondary can happen. So, you're ... It's actually a perfect time.
So, what are the most interesting tokenizable things for you? What are the opportunities for you that are most interesting to you?
So, I think everyone agrees that assets that can be fractionalized or that are already fractionalized, like real estate, that's a great category, it's not our specialty.
We come from the world of VC funded technology start-ups. In 2009, I co-foundered a start-up in New York, it's gotten to be pretty big, but like so many other start-ups, it's too big to be easily acquired, like at a tuck in investment, because it's more than $100 million in market cap and it's not quite big enough to go public. Because it's doesn't have like a 600 for 700 million dollar market cap. Between those two spaces...
There's a lot of companies there.
A lot of companies. I refer to it as the gulch. There are thousands of venture funded companies, which are too big to be acquired and too small to go public and they're cash flow positive or mildly profitable, but they're not going to raise another round of funding or something, okay.
Yeah. They might not be on a hockey stick anymore but they still get ...
So, how do those companies, how do those private technology companies that can't find an easy acquire or can't go public easily, attain liquidity? How do the funds get out of them? How do the early investors, the early angels, the early employees, how do they take, you know, get some value, after they've created so much value themselves, how do they get liquidity?
Yeah. That's a great question.
I believe that tokenization of a mid to late-stage, venture funded start-ups is a real opportunity in the market. It will unleash capital, it will unleash talent like no other event that we could see. It's not simply taking paper securities and moving them to digital securities. It's bringing new capital and restructuring capital in a way, but again, unleashes creativity, unleashes entrepreneurs, unleashes capital.
Yeah, I mean, I think you and I know that very personally, but here at the conference, I know there's probably more than a dozen people that have that exact issue, where they've been locked up in some private shares forever and they just wish they had some way out.
That's what I'm saying, yeah. I love that you bring that up. And I haven't heard that horn being tooted, you know, enough, because I think that is a great call to arms because those are very motivated people that are in our space.
They're motivated, okay. But also, when you've got a company that's say five, six, seven years old, it's got real financials, it's a business with clients, it's easy to value. They may be throwing off cash, it's got a track record, this is the kind of asset which lends itself well to tokenization.
Yeah. Absolutely, that's a good point.
You don't have ... The price discover issues are not that difficult and then there are investors out who like this, but they're not VCs maybe or you know, they're not going to buy into a late round of a private company, but they might buy into, invest in the tokens for a company that is successful and throwing off cash in like an area they understand, technology area they understand.
Yeah. Absolutely, I think that's brilliant. So, what about the, we call it the industry, the Security token industry, it's maybe not the right word, but at large, where do you think it's going? I mean, it went from what's that to everybody's talking about it, but it really still hasn't quite started. What do you it's going to look like, say a year from now, is it going to still be grinding slowly forward because of regulation or is it going to be through the roof or somewhere in between?
I think it's going to look a lot like this conference. We were here in June.
In June, we filled a small room. Almost everybody at the conference knew each other. Fast forward, you know, four months later, this conference is a blowout, it's three, four times the size. And you've got real companies, you know, big financial institutions, law firms, big companies looking at the space. The amount of talent, the amount of capital that's coming into the space, the amount of brains, to me is predictive of a year from now, success. And what does success mean?
Yeah, what does that mean?
Success means, some real companies, maybe later staged, some real, real estate projects, some real investible assets, maybe even debt or derivatives coming into the Security token landscape and being ... if not being traded, having been issued and in lockup waiting to be traded. I mean, 2019 is a big year for security token. 2020 is really the year when more issuances come out of the restriction.
But, here's the important part, we cannot wait until issues come out of restriction to have all of the pieces built for ...
To deal with the secondary, yeah.
To deal with the secondaries. So, what we're working on and having discussions with other companies about, are creating sandboxes to model trading, okay.
To model liquidity, to start working through the kinks of the industry, because interoperability is not a nice-to-have for the security token industry.
No, good point. Right.
Interoperability is a must have. There's going to be overlap in players. There's going to be competing issues, there's, you know ...
Yeah, it's a friction that you need to get the old model into the new model and if it does ... We don't have the interoperable exchanges, it's going to be a problem.
Right. So what we have in one year is, a bunch of partnerships, a bunch of companies working together to make, to actually fulfill the liquidity promise, okay. Which is what everyone's doing this for.
They're doing this to take illiquid assets and make them liquid, and it begins next year. But it only begins if people invest in the fundamental foundational technologies that enable compliance, okay, legal trading, legal sales, and trading.
Amazing. So, any concerns that you see? Any warning signs? And things you're hoping that we avoid?
I think that we will avoid ... this crowds differ, I think we'll avoid mooning too early, I think there's ... it builds in anti-mooning features in Security tokens.
And you know, I think we'd all love to see the industry moon, okay. I think what we need to do is try not to compete over small pies, but rather partner to make the industry successful. And then we can get ... Once we build it up, yeah then let's go compete really, you know, let's fight over deals. Let's demonstrate that these deals can be done.
Yeah. Amen. Well, as usual, it's great talking to you. Thanks for joining us once again, Dave Hendricks from Vertalo.
Thank you, Adam.
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