342: Kendrick Nguyen on The Future of Digital Securities

Kendrick Nguyen is Co-Founder and CEO of Republic, a crowdfunding platform with a mission to democratize fundraising and a vision to become a true marketplace for private investing. In this conversation, we discuss the state of digital securities, COVID-19's impact on early stage fundraising, how the Republic Note works, and how Kendrick believes digital securities are likely to evolve over the next five years. =============================== The BTSE exchange allows you to trade confidently. They are the leader in futures, which means they are pioneering Futures 2.0. With BTSE, you can trade next-level futures: freely choose and combine your margin and settlement assets and trade with up to 100x leverage. You can also sign up for a BTSE Elite membership that gives you unbeatable discounts and bonuses across the BTSE Exchange, OTC platform, and more. Go to BTSE.com/pomp to get a 10% discount on your BTSE Elite membership. =============================== Crypto.com is the only all-in-one platform that allows you to BUY / SELL / STORE / EARN / LOAN / INVEST crypto all from one place. Join over 1 million users currently using the Crypto.com app. Download and earn $50 USD using my code ‘pomp2020’, or use the link https://platinum.crypto.com/r/pomp2020 when you sign up for one of their metal cards today. =============================== Pomp writes a daily letter to over 50,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Kendrick Nguyen is the co-founder and CEO of Republic, a crowdfunding platform with a mission to democratize fundraising and a vision to become a true marketplace for private investing. In this conversation, we discuss the state of digital securities, COVID-19's impact on early-stage fundraising, how the Republic Note works, and how Kendrick believes digital securities are likely to evolve over the next five years. I really enjoyed this conversation with Kendrick, and I hope you do as well.

• 0:38Anthony Pompliano?

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• 1:15Anthony Pompliano?

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• 1:56Anthony Pompliano?

  So if you want to use futures, go to the Bitse Exchange. If you want to use the retail product, go to Crypto.com. And when you go to Crypto.com, use their mobile app. You can buy, sell, store, or earn, loan, or invest. They got So many things you can do, I can't even say it. So buy, sell, store, earn, loan, or invest crypto all from one place. It's literally a mouthful full of product functions. Crypto.com, dope URL, and also where mass adoption is occurring. So lastly, don't forget that I write a daily letter to over 50,000 investors about business, technology, and finance. I break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry.

• 2:37Anthony Pompliano?

  You can subscribe at pompletter.com. Again, pompletter.com. All right, let's get in this episode with Kendrick. I hope you guys enjoy it.

• 2:46Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 3:11Anthony Pompliano?

  All right, guys. Bang, bang. Kendrick is back for, I think, round two, maybe round three, but I think round two. Thanks so much for, for doing this, man.

• 3:22Speaker 02

  Thank you so much for having me, Pomp. It's such an honor and always a pleasure.

• 3:26Anthony Pompliano?

  Absolutely. So for those that didn't listen to the first one we did together, maybe just let's start with kind of 60 seconds on your background and kind of the things you did to get to Republic and start that business.

• 3:38Speaker 02

  Yes, sir. Started out as a securities lawyer. I was an angelist channel council and launched Republic about four years ago. At first, nothing to do with blockchain. In 2017, helped angelist to co-found Coinlist, set that up. And Coinlist is a phenomenal team. They didn't need me anymore. So I went back to Republic. But we basically a investment platform, one of the largest by now, 700,000 community members. And investing in from seed stage all the way to like pre-IPO, some of the projects, crypto projects. But, you know, most of our deals still are in traditional equity.

• 4:25Anthony Pompliano?

  Got it. And so one of the things that's really interesting, I think, about what you guys have done is, and you really gave me kind of the crash course on these Regulation A plus type offerings versus other types of offerings. And so maybe give us a quick update, just what has gone on at Republic for the last kind of two years or so? How much of that is through Reg A plus versus maybe other types of regulations where the fundraising is occurring?

• 4:49Speaker 02

  I'll start with an offering that we have right now is a combination of Reg D and Reg A, which is our own token for the Republic note token. But why don't we just give a very quick overview of all of these regulations in a way that is, you know, for mainstream consumption? So there are really only three ways for which non-accredited investor in the U.S. can acquire private securities or digital securities. Either the company has gone IPO, gone public, and there's a really high hurdle. Obviously, very few opt for that route. There's a Regulation CF, stands for crowdfunding, very easy, couple thousand dollars, any project or company after

• 5:33Speaker 02

  two, three weeks can go through a platform like Republic and raise. But there's a cap, a million dollars right now, soon to be five million, meaning you cannot take more than a million dollars from non-accredited investors. Then there's Reg A, which is between Reg CF and going public, costs about a couple hundred thousand dollars, probably about six months to prepare for. And then either a company or a project like Republic or Blockstack or Props can raise up to $50 million from non-accredited investors. And I say non-accredited investor loosely, but it essentially means anyone and everyone. You can be a student, you can be a,

• 6:13Speaker 02

  you know, Bill Gates, and you can invest openly into the campaign. So how is relevant to digital securities, a token offerings in the U.S. is that I do very much believe that the challenge, the roadblock for industry adoption up until now has been the lack of everyday folks participating. And there are a couple of reasons for that, one of which is that most people are not accredited, right? In the U.S., like 95% of everyone are not accredited, and so they have not been able to compliantly get in, which is why you see the industry more or less the same as it was two or three years ago.

• 6:54Anthony Pompliano?

  Got it. And so when you guys work with companies that want to raise funds, are they doing both or all three Reg CF, Reg A+, and Reg D? Or do you just work on the Reg D and Reg A+ side?

• 7:09Speaker 02

  The different exemptions, the different tools, gotta be like case by case analysis on how they come to apply. And that's why they isn't really anytime soon like a SaaS model that hey, you come to us, no human touch or advice is needed and boom, you launch. No, because it depends on, you know, what your customer base, you know, look like and how much money you're looking to raise. So very few projects would do all three of them. Either you do Reg D, which is what any company and token offering in recent years have been doing, and you add on the Reg CF or Reg A component for non-accredited.

• 7:54Speaker 02

  And interestingly enough, in the United States today, still there have only been two Reg A offerings for token offering as far as I know, which is Blockstack and Props, and Republic is working on the third one.

• 8:08Anthony Pompliano?

  Got it. And so when people are coming into Vetis, what's the type of information that they're getting today? And then what does that look like in terms of, you mentioned 700,000 kind of people on the platform, what does that look like in terms of capital raise so far?

• 8:21Speaker 02

  Yeah, if you go to Republic today, you see the public arm of Republic, which is companies we have onboarded under either Reg CF or Reg A, meaning anyone can see, even a student can invest as little as $10 or $20. Now, the information that each company posts goes through our standard process. So they kind of like the same, there's a video, there's a little bit of like a few bullet points on highlights, and then there's a link to their financials posted on an SEC website, which is very different than deals done privately. We do have a private arm deploying private capital under what is known as Reg E. And that is similar to how the venture ecosystem works, very opaque.

• 9:03Speaker 02

  Not a whole lot of information, only for sophisticated investors that can look at a company and make their own assessment on whether or not this is a deal worth doing. And on that side, you only see a deal once we're done with it, unless you're invited as part of the network. We've deployed capital into Carter, SpaceX, Relativity, you know, Robin Hood most recently. So the profile of the projects are very different. One leaning later stage and the other one is on the earlier stage.

• 9:38Anthony Pompliano?

  Got it. And then maybe talk a little bit about some of the projects themselves in terms of what those companies do. For those that are just listening, you're sitting and you have a Zoom background and the two posters, one of them says investing crazy ideas and the other says investing crazy visionaries. So maybe talk a little bit about what are some of those things that you've seen come through on the platform and be successful?

• 10:00Speaker 02

  Yeah, you know, I want to share a fun fact. And up until recently, I think our industry, people think of like blockchain as like a standalone, you know, completely bifurcated from the rest of the world. And I don't think so at all. I think blockchain is just a technology that's like interwoven with fintech, you know, necessarily. So the investment and the products that we do, even on the surface, seems to have nothing to do with crypto or blockchain down the road. We are working on tokenizing all of them and there will be DeFi products, you know, on the back of the investment that you're seeing right now. But diving back into to your question right now, you know, there's a company called T O, T E O O H,

• 10:44Speaker 02

  and it's essentially Zoom 3D, right? And while they were raising on Republic, they also closed a investment from Spark Capital, which is a, you know, a top tier VC. But technology is that people understand because you're talking about mainstream.

• 11:01Speaker 02

  A presentation and people typically take less than two minutes to look at the deal page and make an investment. So it has to be technology that people generally understand. So we see a lot of deals in that framework and I think Snowball Money is the deal that most recently closed and that's a blockchain company, but in a way that's very relatable, you know, work, obviously in finance. I think the Blockstack, the traditional protocols probably won't get mainstream adoption just because it's harder to understand and so the adoption will come later. Whereas I think DeFi and tokenized securities are things that will drive the industry forward quickly.

• 11:43Anthony Pompliano?

  Got it. And then maybe talk a little bit about how much capital has been raised on the platform or kind of what the average deal size looks like so people can understand that?

• 11:51Speaker 02

  Yes. Again, it's still breaking down into the public platform and the private platform, but in the aggregate, we've done over a hundred and fifty million dollars since inception. Much of that, which is over a hundred and twenty-five, came in the past eighteen months, right? So it's just a snowballing effect for what is an nascent industry. But this year, we do hope to close the year at over two hundred million in total investment volume.

• 12:17Anthony Pompliano?

  That's awesome. Congratulations on that. There's a lot of people who say, hey, digital securities, I've heard this narrative before, right? I thought that this was going to be a massive thing in 2018, 2019. It doesn't feel like it kind of accomplished what I thought it was going to accomplish. Not saying that it won't in the future, but just it kind of didn't happen as fast as I thought it would. How do you talk through that with investors or kind of think about that, given that you kind of have a front row seat to this every day?

• 12:46Speaker 02

  It's a great question, Paul. And I have been getting that question, you know, a few times in talking to institutional investors as we were looking to fundraise about six months ago. And the answer is this, if you have this notion of so-called digital securities that change, I mean, eighty years of financial ecosystem, financial products, Wall Street. Talking about making it possible for the masses to participate easily by in sale, bypassing the NASDAQ, you know, the O C O T C desk of the world. Naturally, it will take a little bit of time. Everyone thought that like, hey, back in twenty seventeen,

• 13:28Speaker 02

  I certainly thought by twenty twenty, uh, the world of of of finance would be much more decentralized. Blockchain would have played a a a bigger role, and I was wrong. I was definitely a little bit too early for a number of reasons. One is that technically, the the the functionalities, the feature sets that would enable this didn't quite exist back then. That is, how do you conduct, know your customer, anti-money laundering? How do you verify accreditation? How do you block jurisdiction barriers? You have to do all of these things to be in the good grades of the S E C and Finra and all of these regulators. So when it comes to to digital securities, you do have to account for government and regulations

• 14:13Speaker 02

  and that whole compliance framework. The technology did not have adequate features to make that possible or feasible. Now, as of like the end of last year and earlier this year, everything is there. Even the the the legal and business framework, we had it back then, but no one has gone through it. Back in twenty seventeen, there had never been a reggae involving digital securities. The S E C finally slowly went through that process. So there were a few missing components for the industry that that necessarily prevented adoption uh technically and legally. And then, there hasn't been, I think, a major asset that people look at it.

• 14:57Speaker 02

  Your and your doctor, who's retired now in Milwaukee, didn't know very much about blockchain. People look at the asset and say that, huh, I get it. This is relatable. We haven't seen anything like that. We've seen real estate properties, you know, some like class B property somewhere uh being tokenized and available to accredited investors only. How can you have active trading, active market and adoption with that kind of uh nascent emotions? Uh, that said, though, now I do very much believe that over the next twelve months, you're gonna see a renaissance of sort when it comes to S T O and digital securities.

• 15:38Anthony Pompliano?

  And so when you think about that, what type of asset do you think could be kind of the breaking of the dam in demand? Like, what type of asset would that take?

• 15:48Speaker 02

  A little selfishly and self promotional, but I obviously think that Republic token, which we launched the public sale a few days ago, and glad to share that the soft cap that we put was over subscribe within just a couple of days. We have a very large community and our token, I should describe it a little bit, is a profit sharing token. That is, when a company on Republic sees an exit, we realize some proceeds and we pay that proceeds out to the token holders proportional to the token that they have. So if someone buys a Republic token and Robinhood or Space Act goes public in two years, there's going to be a very small amount, but an amount being paid out to the

• 16:32Speaker 02

  token holders. That is relatable, meaning people can look at it and say, here's a regulated business with clear revenue, with over $150 million has been invested, and they have upside in these deals. And we have this community, which is 700,000 and growing. So we do think that our user base alone is larger than many exchanges. And so we have the ability to, in a private sale, feel that liquidity and demand. But we are just, you know, basically the first of many to come. Our goal is to identify major movies, sport leagues, studios,

• 17:12Speaker 02

  real estate portfolio, help them tokenize and make it available to the masses. But yes, I mean, the use case for tokenization, I think, are just countless. And the concern is, once the floodgate has been opened and people see the value in it, how can the system accommodate, you know, let's say, all at once, 20 different very large enterprises wanting to tokenize? But that's a good problem to have.

• 17:43Anthony Pompliano?

  For sure. And maybe explain a little bit more about the Republic note token, because I saw a couple of announcements online. But my understanding is an investor can come in, they buy the token, all of that money gets pooled together. It gets invested into deals that go through the Republic platform. And then as there's profits, it gets distributed back on a pro rata basis to investors? Or am I misunderstanding that?

• 18:07Speaker 02

  Yes, no, no, there's no reinvestment in this one sense. I think of the easiest way of looking at it is this, if I may use an analogy. You know, back in 1996, if Amazon were to say that, hey, we're going to issue pre-minted fixed 100 million token. And then we're going to put 25% of our revenue from there on. Whenever 25% revenue is generated, they're going to make a distribution out to these tokens on an evergreen basis. At the time, probably was a modest distribution. But obviously, fast forward 20 years, each of those tokens would be, I don't know how many hundreds of thousands of dollars in value.

• 18:49Speaker 02

  The same concept here, which is we pre-mint a fixed pool of token. And then on a perpetual basis, we will make distribution of profits back to the token holders. What are those profits? We have an upside. We, every company that raises on Republic, we have an upside potential. Whenever a company sees an exit, that upside potential is realized in cash. That cash is payback through a stream, an issuer, and going back to the token holders. So one way of, another way of looking at it is that when we started out with this project and we're, I think we were Binance's first portfolio company.

• 19:30Speaker 02

  We had done only about 15 raises and we've raised less than $6 million. And even at the time, Binance was like, there's a potential for this. What a pool of future profit and asset over a year and a half, two years. Now it's over 150 millions in total amount raised. And the pool of asset is probably worth at least 20 times what it was in 2018. So if we continue for two more years, it's just increasingly amplified on an evergreen basis.

• 20:03Anthony Pompliano?

  Yeah, that's awesome. And what's really interesting about this is the profit share is basically the profit of all of the successful companies that go through the Republic platform, right? Because if they're unsuccessful, there will be no profits. But when they are successful, it's a way to kind of almost index your exposure to a bunch of different companies, it seems like.

• 20:23Speaker 02

  Correct. So the unusual attribute of that, and you know, you being one of the most prolific and known venture capitalists in the space, whilst, you know, generally speaking, we all know that if you just invest, even if you were to just invest in one or two or three deals and no more, I mean, there's a high, high risk of you seeing very little of that money back, right? So the name of the game is obviously a number game, even among the very best venture capitalists. So what's unusual about the Republic note token is that it gives note holders indirect exposure on an evergreen basis, meaning at one point, say 10 years down the road, Republic has done 15,000

• 21:06Speaker 02

  deals through Crowd Capital, that every note holder, as long as you hold a note, when a company out of that pool exits, you're going to see a payout, which lends itself to a very unusual token economics issue. That is, people will be reluctant to sell because the moment that if I hold a note token and I will sell it to you, and all of a sudden Robinhood sees an exit, the payout will be to the new note holder, not me. So out of that psychology of wanting to hold on for long-term return rather than plummeting them, I do think that it's going to introduce an interesting, but probably a positive dynamics to token economics compared to what we have seen in the past couple of years.

• 21:52Anthony Pompliano?

  Yeah, it's super interesting. And I guess, how does this impact the traditional markets, right? So we see like a Coinbase, for example, that's been talking about, or at least rumored to be talking about potentially going public. I know that Brian Armstrong previously had said that like the most on-brand thing would be to digitize or tokenize the equity of the business. It sounds like maybe now they're exploring the traditional side. At some point, it feels like those two markets, like they meet, right? And either they merge together and play nicely, or one ends up winning and the other ends up losing. And so just kind of how do you think about digital securities versus traditional market over like a very long period of time?

• 22:28Speaker 02

  I'm obviously gonna guess, make a guess here on the decision-making process at Coinbase. But I think at one point, the management team at Coinbase made the decision that, hey, we're so large now, we're an institution, that it's easier to go through the IPO, the traditional going-public process, than dealing with digitizing and digitized, tokenized securities, given that the traditional process, there's a clear roadmap, there's less of a risk, there's less of a gray area. It comes with a lot of hurdles. But it's exactly what, you know, they are what they are. Everyone, people have done it before.

• 23:09Speaker 02

  And yes, it is a way to provide, you know, public access. That said, there are still limitations to the traditional model in that once and if Coinbase is listed on NASDAQ, it's not easy at all for a Chinese resident, an Ecuadorian resident, Peruvian Vietnamese to participate. Those people cannot easily buy Tesla today and they will not be easily have access to Coinbase in the future. I think down the road, I think it will take probably at least five years for the traditional public market to be digitized and modified by what we will see in the STO world.

• 23:50Speaker 02

  But over the next year or two, the change in STOs and digital securities for early-stage companies and projects, I think will pose a serious, or at least raise a serious, conversation for the NASDAQ world, because they know that in five years out, they won't have candidates to go IPO, given that people would already opted for digital offerings much sooner.

• 24:18Anthony Pompliano?

  And so it sounds like it's fair to say that people can go from traditional, non-digitalized equity and digitize at any point, right, in the kind of life cycle of the business. But it's much harder if you start out with digitized equity and kind of this token structure to go back to the traditional world, right? So at some point, once you cross over, it's hard to go back and say, if I raised money early on through a digital token structure as equity, to then go get listed on the NASDAQ or the NYSE would be pretty difficult.

• 24:48Speaker 02

  Well, it is rapid and difficult, I would say is an unknown. And within that kind of highly regulated world, any unknown poses a risk. So I would say that it's rather than it being difficult, as long as in your structuring of your digital offering, you know, your SDO early on as a private company, built in there a framework that is good for investor, good for token holders, but gives you the ability that if you so choose, it becomes so crucial for the company to go public traditionally, that you have a way to give return back to note holders and basically be able to claw back those tokens in a way that, that, you know, token holders are happy with and, you know, random shares in return.

• 25:33Speaker 02

  So there's still ways for you to go, you know, to reverse and undo things. At least, you know, we do see a path for that. But that is a big unknown and, you know, a question in my mind is whether or not the IPO model will continue to exist five years out, 20, 25 and above and beyond. I don't know that you will see the kind of like, you know, Uber and Coinbase IPO that we are seeing now.

• 26:02Anthony Pompliano?

  And we already see in the traditional world, there's definitely some movement or change, right? So we've seen the, you know, Spotify's and the Slack's do direct listings. We've seen the Virgin Galactics go through these kind of SPAC acquisitions. And so there's definitely some pressure there or some change. It feels like digital securities is kind of further out than just a one or two year thing. But to your point, if it can solve some of these problems, there's a lot of companies say, why wouldn't I do that if it's just a better path?

• 26:31Speaker 02

  And not only that, truly, the SPAC and the IPO process is only for the Coinbase of the world. And even then, compared to the 90s, the number of companies, you know, the number of public companies out there in the US, I think something like 50% less than it was like 30 years ago. So it has been a trend that's like less and less, you know, companies choose to go public. The notion of digital securities and STOs is such that it's usable, applicable to even seed stage companies and projects. So I do think that currently, in the near term, the two models serve very two different demographics.

• 27:14Speaker 02

  Coinbase is probably the only company that I imagine that it was ever a war conversation of, should we tokenize our equities and make it available that way or should we go public? And they seemingly chose to go public. But for pretty much everyone else, that's not a dilemma that they have to deal with. I don't think.

• 27:36Anthony Pompliano?

  Yeah, it's absolutely fascinating to to kind of hear like, what is your pitch to entrepreneurs as to why should they do this? Especially the earliest stages of the business, rather than just raise through the traditional means?

• 27:49Speaker 02

  The easiest way to think of it is just, I mean, Republic is an example. Why do I answer that question in the context of why we decided to issue a digital securities? We are a fundraising platform. And the reason why we ended up, you know, choosing to launch as a crowdfunding or crowdfunding investing platform is that we think that if a customer, consumer, community member has skin in the game, he or she would be that much more, you know, ardent in eventualizing and buying more product and telling people about it. And that value proposition is played through and through. There's no clearer example of community ownership than the fact that Airbnb and Uber before they went IPO

• 28:33Speaker 02

  asked the SNC permission to give equity to the drivers and the people, you know, the listener and.

• 28:41Speaker 02

  FNB at the time, the SEC said, no, no special exemption. If you want to do it, use basic standard regulatory framework. So the value proposition of community ownership is very much there. In our case, there are two routes. One is that we can run another crowdfunding campaign for Republic ourselves and bring in 10,000 of our community members, each of whom hold a PDF or a save or prefer share in Republic. The second option is figuring out a digital security to make it available. If I were to have done or conduct a crowd offering for Republic, it works for those who get in right away, but it doesn't allow them to transfer these things easily.

• 29:26Speaker 02

  It doesn't allow me to make a distribution of $2 per share of the token back out. If someone holds three shares, how, what am I going to wire, do an ACH, you know, payment? So the automation behind payment settlement, transferability, KYC, AML, and international transaction, none of that would be possible with a traditional crowd investment campaign. So that's why we opted for it. And we have seen even just in the past few days and the months leading up to it,

• 30:04Speaker 02

  the engagement that a token model can drive and how it incentivizes people to be more active is undeniable. And we believe that that's, that value proposition is applicable to pretty much any business model with a community, may be a sports league or a new project or a digital exchange based out of, you know, Somalia. Whether it may be, if you have a community, digital tokenization and a token model can apply to amplify it.

• 30:38Anthony Pompliano?

  Yeah, it's really interesting, I guess, too, because what you guys have seen is you've basically brought this to some of the most innovative types of companies in the world, right? We know that unaccredited investors have a very hard time investing in startups, right, in technology companies. It's very much of an insider's game. And so it feels like this is one way to kind of break down some of those walls or democratize access to some degree. How have entrepreneurs responded to the fact that now they've got a whole bunch of equity holders or kind of new partners, and those people may have access to certain types of information that's considered sensitive or confidential? How does that play into this?

• 31:14Speaker 02

  That's a great question, and I want to clarify one thing is that the note holders have indirect access to these companies. We only provide information that is public information. We would never provide information that the company hasn't released publicly for a couple of reasons. Deference to them is one thing. They also may be inaccurate. If I hear that the company might have done something and I'm saying that, oh geez, company acts about to get acquired and turns out that they didn't or aren't, that's going to be a major problem. So we only provide, you know, thorough but public information only.

• 31:54Speaker 02

  At the level of a crowd investing or crowdfunding campaign for a company like Republic to take on a thousand new investors, we have to go through a pretty creative legal process to make sure that that's manageable. But one example at how manageable that is, is the fact that Republic now, through the Republic note sale, now have more than 6,000 new investors coming in and counting. So if we can make it manageable, you can trust that we, you know, make available that same process to the companies going out on our platform. But it's a little bit too boring and archaic of a legal deep dive on how exactly that is

• 32:39Speaker 02

  achieved. I'm more than happy to go in, though, if anyone is curious.

• 32:44Anthony Pompliano?

  And obviously, all of this has occurred during a global pandemic that has led to a recession, but is seeing stock prices explode. And we just live in this like really weird, complex, kind of uncertain time. How have you seen COVID-19 and all of the the kind of impact of that affect fundraising for companies or even companies wanting to go and use the platform?

• 33:05Speaker 02

  First, I want to share that even fundraising during the pandemic, I'm sure is not as challenging as planning for a wedding during a pandemic. And so on that note, just want to say congratulations again. The the past six months have been, obviously, an unreal time for all of us. I do think that companies looking to raise from venture, raising venture capital or traditional institutional capital have been going through a hard time, meaning the public stock market has been performing better than anyone had expected, perhaps irrationally so.

• 33:44Speaker 02

  But that doesn't mean that institutional investors looking at private capital haven't slowed out a lot. And, you know, you may, you may be a far more experienced, you know, person than than I am to share a view on it. But from my lens, I think a function of that is, given the volatility in the public market, a lot of family offices and institutional investors are delaying and are much more cautious about investing and providing more exposure to the private market, right? So the process, at the very least, has been dragged out longer for founders and projects looking to raise a traditional venture capital or institutional

• 34:26Speaker 02

  capital. On the other side, though, retail capital has been doing very well. Like, April was our best month yet, then May was much better than April, then June was like a banner month for us. And it's the same for other players in the market. It's not a story that's unique to a public. There's one clear solution, there's one clear answer. One is that people have a lot more time now. So the value of like private investing and quite frankly, of blockchain as a technology in general. Most people up until now have too little attention span, like nine seconds online. Like by the time you finish saying equity crowdfunding or, you know, staff, you know,

• 35:06Speaker 02

  simple agreement future tokens, people lost interest, now they're stuck at home. So they're like, we're, you know, between webinars and podcasts and newsletter and all of these things that they have more attention to follow. And I think the value proposition of private investing, which is obvious. There's one interesting stat, I think it's from the Boston Consulting Group, that in the year 2030, 10 years from now, 75% of Fortune 500 companies in the year 2030 have yet to exist today. So you're talking about a huge swath of technologies and household brands and change how we work and live.

• 35:51Speaker 02

  And yet in someone's garage or in someone's head today, the notion that you can put, you know, $10, $20, a pitcher of beer worth in some or more of these potential ideas and play a role in it, I think it's naturally compelling. I don't think that anyone should be expecting to get rich out of private investing because they hear it in the news, which is a wrong way of looking at it. But it's a really compelling thing to say that you gotta be a bit more of a direct participant in entrepreneurship, given that it's changing how we are as a civilization. So I think that the message finally is getting through and because of that, retail capital

• 36:35Speaker 02

  has, and I predict will continue to do very well, probably at one time larger than institutional capital.

• 36:42Anthony Pompliano?

  Yeah, it's crazy to see the impact and how institutions kind of froze up and retail invested a bunch. And in the public markets, obviously, that was very beneficial for retail investors because stocks exploded kind of with all the Fed's yet reaction. In the private markets, it's a little less obvious, right? In terms of our companies doing better or worse, just because there's not kind of that daily stock price to associate it with. Help me understand, like, where, or go ahead.

• 37:08Speaker 02

  I add on another point there is that after the last great recession of 2008, that's when you started to see, I think Airbnb launched in 2009, WhatsApp, Stripe, Square, like, major companies, corporations now, launched right after, following the recession. So that's the value of private investing is that it's not as affected by near-term psychology and volatility, and it only time will tell. And I do think you're gonna see a similar batch of household brands coming out of today's pandemic.

• 37:46Anthony Pompliano?

  Yeah. Help me understand where we're going, right? Digital securities, you guys have obviously helped pioneer this. You're be able to show that there is a community of investors. You're able to show that there is a community of entrepreneurs that want to use this as a way to get funding for their businesses, kind of continue to build. How does this evolve over time? And where do you see this going kind of over the next five to 10 years? And then what are the obstacles in the way from where we are today to kind of that milestone?

• 38:17Speaker 02

  Two answers for that. And that's a, that's a hard question, is forward looking. And I was wrong about how quickly SDO would be adopted back in, you know, 2017. But I'm very optimistic that you're gonna see that in the next 12, at the latest 24 months and seeing what, if that's the question. I think the easiest way of looking at a, or the signal of maturation in this space is when you have like the Spider-Man, the X-Men movie franchise, or something comparable in sports, with clearly many millions of fans around the world. And when they're looking to raise to finance the movie or the athlete.

• 39:02Speaker 02

  And make it through the only way to do that still and will be in the near future is through this blockchain technology, make it possible so that, you know, a student in India can invest five bucks, two dollars into this movie to be produced because, you know, she loves the the the people. And there's a non-fungible token on her phone that shows that, hey, she's, you know, an investor in this new Superman movie. And if she goes back to her her school and can sell it to her plasma, you know, very quickly for 10% more and the token would come with it. And that's a new mark of being an engaged citizen. That's like the equivalent

• 39:47Speaker 02

  of like wearing a Chanel bag. Like, what do you get in on and what what do you own? Just a little sliver of it. That happening at scale, I very much hope to see that in 12 months and no later than like 24 months. Now, once that's doable and once you see something like that happening, um, the the iterations of tokenization naturally will come. It's very hard to predict the full scale of it because I fundamentally, I mean, I believe that that this technology will fundamentally change private investing or

• 40:28Speaker 02

  private asset classes as we know of it. First is people getting in at the primary level, and then the secondary market will develop. That will naturally unlock, you know, the the gold bars that people have in Africa and Latin America, in Asia, that up until now they're high in the debate. That's the only way, that's the best way to to save because they don't believe in the national currency and they don't believe in the banking system. Once you unlock all of that, I I, yeah, I do see a vastly more prosperous world and that perhaps we, I don't know, we may not see another recession again. Uh, they will really throw traditional economics, um, you know, completely off its rail. The challenge is and will be.

• 41:15Speaker 02

  How fast and how aggressive regulatory framework can adapt or hinder this process? DeFi is a very good example. So you see, I mean, something like over two or three billion dollars worth of assets now locked in various DeFi instruments, still largely unregulated. And so people take these various positions on whether or not it's even regulatable, given that it's a direct transaction between, you know, two parties. That said, you know, you have yield in double digits. I think some instrument yield over a hundred percent, you know, annually. This bound to be, you know, fraud and harms and all of these things.

• 41:57Speaker 02

  So the SEC and FINRA and their equivalents in various country, I think, will come in and will operate, will collaborate and will hinder. And how that conversation or these conversations will take place in each country, I think, basically is the one single factor that will enable one to predict how accurately, more accurately, how fast or how slow this industry will mature. But that's something, that's why, you know, I very much believe in the conversation with legislators and regulators rather than ignoring and pretending that they're not there.

• 42:39Anthony Pompliano?

  Absolutely. And then maybe talk a little bit about the international nature here, right? And kind of how this opens up accessibility. You hinted at it a little bit with the DeFi stuff, but maybe just touch on that.

• 42:49Speaker 02

  In the case of finance, it's a straight up, up until now, it's not a globalized world. It is a national world. That's why Tesla, if you're in Vietnam or Ecuador, you can't really buy a public share of Tesla. It's crazy, but you cannot. And so these, you know, territorial or national borders.

• 43:12Speaker 02

  A function of it is that up until now, these governments are unable to stop, you know, the cross-border transactions. And so over time, with so much activities going on, that they have to find a way to legitimize it. And so a function of it is driven by technology and a function of it is going to be driven straight up by conversation and that in smaller countries, seeing how this technology can improve lives of people in their country, allowing them to invest in things that are not organically available locally, but available, you know, on a global scale. That I do think that that these borders lie will get blurrier and blurrier over time.

• 43:53Speaker 02

  When it comes to financing, particularly, you know, private investing, which is what DeFi is by definition, which is truly decentralized.

• 44:02Anthony Pompliano?

  Yeah. What's next for you? What do you think at Republic in terms of what are the things you guys are focused on over the next kind of six to 12 months?

• 44:10Speaker 02

  Yes, after we're done with our public sale and we, even though we oversubscribed now, we're gonna, I think, open a small allocation just to make our community happy. And after that is focusing on a few more things, which is, you know, qualifying our Reg A application to make sure that we formalize the process of getting non-accredited investor in. After that is really around community engagement, the whole process of making sure that we provide information for the new holders. But beyond that, I would say the next 12 months, using the framework that we applied, that we created and now apply for the new token for other businesses. We're already working with a few.

• 44:51Speaker 02

  So you hope to, you know, we hope you will see more digital securities issued by major enterprises with very clear value propositions and a massive community issuing tokens to those communities in the same way that Republic is doing to our own community. And so my interest and effort, I think, focused squarely, probably 100%, just on the notion of making tokenization, you know, hopefully mainstream at last. Still a little bit of way to go, but we think it's there.

• 45:27Anthony Pompliano?

  I love it, man. You continue to push the pace of innovation, so it's impressive to watch. I've been super excited about what you guys are doing and obviously the Republic note token, I think, will go down as many people will say, hey, that's a pretty good idea and they will end up copying that type of mechanism. So congratulations on all the success. Where can we send people to learn more about you or Republic?

• 45:53Speaker 02

  First of all, thank you so much, Paul. Coming from you, it really means the world. You've seen everything in this space and advising guidance over the years have been so crucial for us. Yeah, we at republic.co.co.co/note, N O T. Pretty much the entire white paper and all relevant information can be found at site. And I do want to clarify that as all things related to private investing, high risk, don't invest money that you, you know, that you don't expect or can't afford to lose in its entirety. And if you do invest in something new, like invest a very small amount, like think of it as like having fun with it and make sure that you read everything that is

• 46:33Speaker 02

  available to make that important decision. But I hope you enjoy and have some fun.

• 46:41Anthony Pompliano?

  Absolutely. So republic.co/note, please, guys, go check it out if you think it's something that you may be interested in. And then Kendrick, thank you so much for doing this, man. I'm super excited and glad that we got caught up in terms of just where digital securities are today. And hopefully, the path that you laid out moving forward, not only one kind of occurs, but happens even faster than you think it will, which would be fantastic for innovation in the finance industry. So fingers crossed and I'm cheering you guys on.

• 47:10Speaker 02

  Thank you so much, sir.