Dave Hendricks, Co-Founder & CEO of Vertalo: The Benefits of Tokenizing Venture Funded Companies

Dave Hendricks is the Co-Founder & CEO of Vertalo. In this conversation, Dave and Anthony Pompliano discuss the structural issues in the legacy system, how we can fix them, what it means to tokenize venture funded companies, and how you at home could benefit from this movement. -----BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. ----- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at:https://www.blockworksgroup.io

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

• 0:01Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:13Speaker 01

  Dave Hendricks is the co-founder and CEO for Tala. In this conversation, we discuss the structural issues in the legacy system, how we can fix it, what it means to tokenize venture-funded companies, and how you at home could benefit from this movement. I really enjoyed this conversation, and I hope you do as well.

• 0:34Anthony Pompliano?

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• 1:12Speaker 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.

• 1:38Anthony Pompliano?

  All right, guys. Bang, bang. I'm here with Dave. We've got a bunch to go over. Thank you very much for doing this.

• 1:44Speaker 02

  Yeah, it's great. Great to be here, Pomp. Fun week here, Blockchain Week in New York.

• 1:48Anthony Pompliano?

  Absolutely. Let's start with your background, for those that don't know. How did you get here? Who are you?

• 1:54Speaker 02

  Well, you know, I got here in a funny way. I got here through databases, I think, is kind of what I've been doing my whole career. I started working on databases when I got out of college. I worked for Arthur Andersen. And I had done some database work in college. And so I helped work on securitizations for a bunch of projects they're doing, taking assets and doing securitization of assets. I left Arthur Andersen and I went to work on the real estate cleanup, like the Resolution Trust Corporation. In the early 90s, the SNL crisis happened and all these unsecured loans are out there and all these people defaulted. And so the government had to create this agency called the Resolution Trust Corporation,

• 2:39Speaker 02

  and they had to take all these, you know, real estate assets and then sell them to people. So I got into the securitization business. We created databases that ran over fractional T1 phone lines. It was totally janky and primitive, but I got into securitization and kind of creating these database products. And then I went to work for Oracle, got into more databases, and then I started working in startups. How I really got into the so-called blockchain space and this crypto environment was that my last company raised a Series D in 2015.

• 3:22Speaker 02

  In the middle of that round, the VCs asked us if we could provide a spreadsheet, a listing of everyone who'd worked for the company and all the documents that they signed. Well, we had most of that information, but it wasn't complete, so we had to reconfirm, like get consensus with everyone who worked at the company as our agreements. It almost blew the round. It was a $35 million funding round. And 40 days into the diligence, it almost blew the diligence. So I never forgot that. And when I finished working for that startup that I co-founded, I started working on this idea. The idea was, what if organizations could get consensus and connect with the associates,

• 4:06Speaker 02

  the people that work with them, and have a shared understanding of the documents they signed, like the stock agreements, the options, et cetera, in a system that both parties could access? So in 2017, I started building that with my with my co-founders Gautam Gudral, who's a former SEC attorney, and William Baxter, who's a PhD from Berkeley, who's our CTO. We built that for my last company as this ledger, a distributed ledger for human capital. And we we looked at using an ICO to raise money for it. And this is in September 2017. But Gautam, who is a securities lawyer and, you know, really kind of, you know, by-the-book

• 4:51Speaker 02

  guy, he said, "We can't do we can't do an ICO." So we went to our lawyers at Lowenstein, Sandler, and Deloitte, the tax guys we were working with, and we started figuring out how to do a security of you create a fundraising object that wasn't an ICO because we wanted to raise equity. So we started in October of 2017 to do a Reg D, SEC-compliant, security token. And no one had done this before. We had couldn't find anyone doing it. And we had to build all this stuff. Well, we were doing this to raise money for this project that we had come up with and build technology for.

• 5:31Speaker 02

  By the time we issued in March 2018 this this Reg D security token to the investors in the company, I had fallen in love with the problem of solving this for other companies. I said, you know, "Everyone's going to need a way to manage equity on a blockchain. If they're issuing a blockchain-native asset, they're going to have to manage the holders on blockchain because they're going to want to trade on exchanges. They're not going to want to trade paper, they're going to want to trade tokens." So 15 months ago, we decided to jettison our old idea of, you know, like a HR, you know, HR data ledger on blockchain, and we said, "Let's just focus on..."

• 6:16Speaker 02

  Self-servant ownership of securities on blockchain. And that's kind of where Vertalo, the company that we created, kind of just dive headfirst into, you know, the digital asset space.

• 6:30Anthony Pompliano?

  Got it. And so let's talk a little bit more about the structural issues in the traditional world, right? I think a lot of people, when they think of these tokenized securities, they're just thinking of, oh, there will be valuation changes. It'll give people outside the United States access to certain assets. But there are these structural issues here in the US and the private companies, right? And I think that two components of it. So one is there's really, really long lockups, right? We just saw recently both Uber and Lyft go public. There's more companies that are kind of coming down the pipeline. Some of these employees have had illiquid wealth for almost a decade.

• 7:07Speaker 02

  Yeah.

• 7:07Anthony Pompliano?

  Right? I mean, just a really, really long time to have access to wealth that has appreciated a lot, right? So there's an element that by holding it, they were able to get appreciation, but also they could not get any form of liquidity, right? They were kind of locked in there. That's one piece. The second piece also is the investors, right? There's many investors who say, hey, look, I don't believe that the company is going to be worth more in the future than it is today, or I think that it's overvalued, or you know, whatever it is, they would also like some liquidity. How do you view those issues? Are those just things that, you know, they come with the territory because we've got such a great private markets and access to so much capital? Or are they things that can be fixed? Like, just kind of talk me through how you think of the structural issues.

• 7:52Speaker 02

  Well, this can definitely be fixed. You know, you spoke a couple of weeks ago to John, I think, from Shares Post.

• 8:00Anthony Pompliano?

  Yep.

• 8:00Speaker 02

  And before that, Second Markets, you know, they were in this business of providing secondary liquidity for venture-funded assets. So it's not a new thing. What's new about how digital assets can positively impact that is by programming the liquidity into the asset itself, programming the rules into the asset.

• 8:28Speaker 02

  The current way that stock is managed and securities are managed or options are managed on cap tables is disconnected from markets. It's typically in a spreadsheet or it's behind a firewall connected to nothing. In order to access that, well, first of all, you don't even own the shares. They're not in your possession, so you don't have the right or the physical ability to even move them. They're not bearer assets. You have to get permission to sell them. And so, what we're doing across this, in this industry, if you call it an industry,

• 9:10Speaker 02

  it's pretty nascent right now, is trying to find ways to introduce efficiencies into this market. And the efficiencies really come from proven ownership of the asset. Self-sovereign ownership in your wallet as opposed to proxy ownership on a cap table or something else. So what you're able to do, in this case, is during the course of a lifetime of a company, like the 10 years of Uber, you can make a decision, if this is done correctly, as an early investor, that once you've got 20x return, like you want to sell now. You're good with 20x. Yep.

• 9:50Speaker 02

  You know, you could stick around and wait for 30x or 50x, but you know, a lot of people are going to be pretty happy with 20x. Today, you can do that. I mean, SharesPost and some other venues offer trading, but not every company enables or allows you to do it. I think the revolution comes in companies understanding that not everybody wants to get locked in forever. And that there needs to be a status between private company and public company of a semi-private or semi-public company, where you say, "Look, I should have the right to sell this, once

• 10:33Speaker 02

  it's vested, to someone that fits a criteria that you agree on. And I should be able to do a cashless exercise and then sell it to someone that meets these criteria and get out."

• 10:49Speaker 02

  Here's where that idea, that idealistic idea meets reality. A lot of boards, a lot of investors, a lot of CEOs like myself, don't necessarily want their employees to have that kind of flexibility because the lock-in is critical for a lot of people for valuing a company. They say, "Look, we don't want people to be able to come and work here for two years and leave and take gains. We want them to stay much longer." Why do you think they don't want people to do that? I think because, one, they don't want to have a valuation for the share that's different than the 409A. So if you're probably familiar with it, but for the listeners, if the listeners don't

• 11:33Speaker 02

  know what the 409A is, every year, or once a company gets going, every six months, they have to run through a valuation process. The valuation process is an IRS requirement to help value the underlying shares. That valuation process is called a 409A. It takes a look at the investment in the company, the economic conditions, the market that the company is in, discounted cash flows. There's a basic professional process and they come up with, "Hey, the company is worth X price." Right. And then that is the price that's used to set common share price, which is what's granted as options, and it underscores the preferred price in the last round.

• 12:15Speaker 02

  Now, when you do a 409A, there's always a risk or a chance that you're going to be valued lower than you were last time or higher, but this is a regular process. What a private sale does, however, is sets a different price often than a 409A price. And so some investors are leery about letting there become an unfettered market in shares that they're invested in. They'd prefer to control the price, especially bigger, more sophisticated investors don't want there to be a reduction in the share price. How does a reduction in share price happen in a private transaction? It's called the illiquidity discount.

• 12:57Speaker 02

  So because there's not a market for your private venture funded company shares, if you go and sell it to somebody else, they're going to say, well, this is not a liquid share. I'm going to pay you 20% less than the last valuation. Well, now that creates a lower valuation for the share. Now, of course, some investors don't want you to do that. That's the kind of cultural impediment to the free flowing exchange of private venture funded shares, as I've heard it said from VCs and as I understand it as a CEO and a guy who runs a company. That, I think though, that the benefits of having,

• 13:39Speaker 02

  of getting investors off of your cap table and giving later investors the opportunity to buy more into a company, it outweighs those pricing considerations. I think that, I think there's a lot of talent in the market that's locked up in companies that could either go and take their talent to another company and help grow another company and not rest invest. I think you could create a lot more entrepreneurs that way. I think that the funds for, you know, you're an angel investor. I think that, imagine the companies that you're, that you're still in, that you haven't been able to get out of. Imagine being able to recycle your funds. You have an angel, you got your 10x. Now you can go and invest in 10 companies instead of that one.

• 14:23Speaker 02

  You can go right, you know, you put in 25,000 and you get 250,000 out. Now you can go make 10 or 20 more investments in more companies. I think that if we can, if we can free some of the capital and some of the talent from these venture funded companies, we'll actually see a blossoming of more.

• 14:42Anthony Pompliano?

  What about entrepreneurs who say that there's a huge concern about employees start paying attention to the stock price rather than focus on building the company?

• 14:52Speaker 02

  When I was at Oracle, there, I could tell you, public companies, there is a tremendous focus on price. People, before 1999, people would, would trade options ahead of earnings announcements. There was a lot of inside information. It was, it was rife in public companies. Private companies. There's no, there's no real price. No one really understands the price. Most employees don't.

• 15:25Speaker 02

  I, I think you do, you do want to avoid mercenary behavior. But I think we already see mercenary behavior. We already see people who come in and negotiate their option agreements as X. And we see people leaving after one year. They'll take their, they'll take a quarter of their grant. And they'll exercise it one year after they, and they'll go to another company. This in the valley, this happens all the time. A lot of people go work at companies for a year or so. They get some shares and they go and work on the next hot company and figure that one of those bunches of shares is going to pay off. For sure. So there are people, you know, there are people who are playing this game already.

• 16:05Speaker 02

  You know, my, you know, my, my argument is that companies can control this process better. They can incentivize their employees better. If the, if the regulators start opening up to the idea of letting these companies take some of their common and, and offer in things like Reg A plus. And, and then open up these markets to exchanges like something like L T S A, which I think we should talk about. Where you can say, say this tranche of, of shares is now going to be sold on L T S A.

• 16:46Speaker 02

  And that regular investors, you know, say just, you know, mom and pop investors can get into Uber or Lyft or something at $10 a share. And then $35 a share is a home run. Okay? And I, I think the mechanics are there. There's, I don't think there's anything holding this back.

• 17:12Speaker 02

  Other than it's not been done before.

• 17:14Anthony Pompliano?

  Well, let's talk about the long-term stock exchange, so LTSC. This is a relatively new thing. Eric Ries started this company. Maybe describe just a little about what it is and why you think it's interesting.

• 17:27Speaker 02

  So LTSC is a project that Eric Ries, who's the author of The Lean Startup, started working on in 2016. And the idea, as I understand it, and it was really under wraps for a long time, is that there needs to be a more venture-friendly, more entrepreneur-friendly stock exchange than the incumbents of the NYSE and NASDAQ. Interestingly, the LTSC is invested in by Andreessen Horowitz, who themselves have made some very interesting investments recently.

• 18:04Speaker 02

  There is definitely a role for new-fangled, re-hypothecated exchanges. We've already seen this with Binance. I mean, Binance is a really, really interesting exchange. We've seen this with Coinbase, where you've got these new models that are buying and selling digital assets. You've got Binance issuing its own coin so that projects can do initial exchange offerings and do essentially IPOs right onto Binance with a different kind of underwriting and diligence process. There's no reason why we need to continue to run the exchanges exactly the way NYSE and NASDAQ have been run.

• 18:49Speaker 02

  Why don't we run one that's meant for, you know, venture-funded companies to onboard and get liquidity sooner? I think that's the idea for long-term stock exchange. I think that with the tens of thousands of companies that are venture-funded, having another path to public markets that doesn't require them to be a billion-dollar company that enables them to maintain governance that, you know, like they have as a private company, a little different voting rights. I think that's fantastic. I think it's really, really cool.

• 19:26Speaker 02

  Initial coin offerings and initial exchange offerings allow projects to be private while raising funds. That's what's super interesting about those types of fundraising models. They weren't selling equity. And because they weren't selling equity, they weren't selling voting rights. Companies like Facebook did things like creating different classes of shares so they could issue shares to the public, but they weren't issuing voting rights to the public so they could still run their companies. So how do you keep a company thinking about its long-term business plan without having

• 20:09Speaker 02

  to kowtow to the street or worry about activist boards or people coming and diverting its mission? I think that's the goal of the L T S A. That is, I think, what the projects raising via I C O, S T O, or I E O have the same capabilities. If you raise with a non-dilutive instrument, you're not giving away any rights to vote, you're not giving away board seats, and then you can do whatever you want. That doesn't always work out. But I think that's a kind of a caveat emptor with the investor.

• 20:52Speaker 02

  The investor should say, okay, well, I'm going to invest in this company even though I don't have voting rights.

• 20:56Anthony Pompliano?

  We see it in public market.

• 20:58Speaker 02

  Oh, yeah.

• 20:59Anthony Pompliano?

  Right? People are still investing in equity without voting rights.

• 21:02Speaker 02

  Right. And so having a founder-friendly governance model, a faster path to public-scale liquidity, getting a currency from going public in that way to make strategic acquisitions, that's all great stuff. I think that what they're doing, and I don't think any of us know enough yet, I don't think Eric and the team has fully disclosed what the grand master plan is, but if...

• 21:37Speaker 02

  Bringing liquidity to venture funded companies while letting them retain control and focus on the long term, if that's their business model, I applaud it. I think it's fantastic.

• 21:46Anthony Pompliano?

  And how do you think this affects the public markets, whether it's tokenizing these companies early or it's a long term stock exchange? How does that have an effect on the public markets?

• 21:56Speaker 02

  Well, the public markets are, well, you know, the big exchanges are still competing for marquee names. That model hasn't changed. Maybe it causes them to introduce efficiencies that they don't have right now. Maybe the listing requirements change. You know, as soon as unit economics change, you know, this is an innovator's dilemma thing. So LTSC, I think, is probably classic innovator's dilemma type of company. They're going to

• 22:33Speaker 02

  go after like a segment of the market that NYSE and NASDAQ doesn't look at. These are smaller market cap, mid-market cap companies that they haven't pursued. And, you know, funny enough, if you look at innovator's dilemma companies, they go after these segments that big folks say are too small. It's a monster and a baby thing. But what happens is that everything inverts eventually. This is the same thing with paper certificates versus digital assets. Right now, a lot of big companies and, you know, big banks, et cetera, are not focused on issuing digital assets or thinking about digital assets because they're like, oh, the market's too small or there's no liquidity or anything like

• 23:18Speaker 02

  that. Well, suddenly what happens is there's a flip of it. Right now, 1% digital assets and 99% paper certificates. But there's going to be a time in the next couple of years when that's going to switch and no one's going to want to invest in companies that are not.

• 23:34Anthony Pompliano?

  Don't have liquidity.

• 23:35Speaker 02

  Where they don't have liquidity, where the asset ownership is by proxy. They're going to want to have control over that. Companies, it's not going to be an odd thing anymore. So.

• 23:48Speaker 02

  LTSC, like every other smart applicant to SEC and FINRA, has not mentioned the word token. If you look at their filings, and I read them looking for telltale signs of digital asset tokenization. I didn't see any there. My understanding is that you don't want to put those into your application because then they get put in a special drawer, okay? And that drawer doesn't get opened a lot. So... Because you could always add it later. You could always add it later. And by the way, my company, Vertala, we recommend that companies when they're raising money to begin with,

• 24:33Speaker 02

  don't mention or don't say we're raising using a token. We say we're raising money. And then what you want to do is optionally later on, in your documents, you say we may issue our preferred shares, our certificates in digital asset form at a later date. And then you actually provide optional tokenization. Because eventually, just like anything else, we're going to move from carrier pigeons to wires, okay? That will happen. But if you tell regulators that you're doing something with a token right now, that lessens their willingness to approve.

• 25:16Speaker 02

  If you tell investors that they're buying a token, that winnows down the number of investors right now. And so I think you've seen this yourself firsthand. What you have to do is you have to say, hey, look, this is a great company. Go invest in this great company. LTSC is saying, we're going to make a great new stock exchange. It's got some modernized governance capabilities. And we're not saying, hey, look, we're going to make this thing that if you don't love tokens, you don't want to be involved in this. Because immediately, you introduce the word token in there, and there's a binary element there. The people either can't invest because their bylaw is saying they cannot invest in a token or something. Or they're just scared because they don't understand.

• 26:01Speaker 02

  They don't know, is there going to be an exchange for me to trade this on? So...

• 26:06Speaker 02

  So I expect LTSA, when you take a look at what Andreessen's done with their hundreds of millions of dollars of funds, with their investment in Karta, with Karta's focus on creating Karta X, which is private exchange, with, you know, Andreessen invested in Harbor, you know, I think you know the Harbor guys really well, there are all these little pieces, if you take them, if you just look at them singularly, they don't really mean anything. But when you take a look at their, Andreessen Horowitz's investment, I pay a lot of attention in the fact that they re-hypothecated their firm into registered investment advisors.

• 26:46Speaker 02

  I see, I think you see a trend there that reveals itself as saying, the path to venture-funded liquidity is through a digital asset strategy, but we're, but it's just not, we're just not walking around the sandwich board on the street telling everybody that, we're putting together the pieces.

• 27:05Anthony Pompliano?

  Yeah. How do you look at what Karta's doing?

• 27:08Speaker 02

  I think what Karta's doing is, it's, it's smart, you know, but in full disclosure, Vertalo, my company, is a digital asset, we use blockchain as the database for cap tables. It's, you know, it's still a cap table for any kind of company, the database happens to be blockchain. Karta is a cap table company, they happen to use a centralized database behind a firewall as their database for their cap tables. Karta is creating a, something called Karta X, I'm not sure if you saw their fundraising deck.

• 27:44Anthony Pompliano?

  I did not.

• 27:45Speaker 02

  But they're, you know, what they're doing is they're, they're primarily VC company-focused right now, and they, they see the trillions of dollars of assets that could be put onto cap tables and then sold on private exchanges, a private exchange that they're going to manage called Karta X. You know, I think that Andreessen sees and understands cap tables to be the key asset for any companies who owns the stock and how much they own.

• 28:15Speaker 02

  I think what Karta is doing by creating an exchange to sell private assets at scale is a great idea. And I applaud Henry and their investors and Tribe and Andreessen and all these other folks. I applaud them going in this direction. I still think it's not a zero to one improvement, though. I still think it's kind of point five. If that exchange is private, it's still gonna keep a lot of people out of being able to buy and sell these things. It's certainly gonna keep non-accrediteds out because it's gonna have those kinds of restrictions.

• 28:59Speaker 02

  But the concept of bringing those assets that are on a cap table in private companies and putting them on an exchange, just like, conceptually, is great. We, Vertalo, our business is predicated on connecting those cap tables directly to exchanges like Binance or T zero or Open Finance or any, or a broker's ATS, broker-dealers' ATS, directly. The difference in the databases is who owns the stock, okay? Do you own it in your wallet? And do you have the right to sell it? Today's cap tables don't enable you to have that capability. You still have to go make a request. You still have to go through a very inefficient process.

• 29:43Speaker 02

  I think Karta needs to fix that inefficient process of the proxy ownership of the stock and move it closer to the investor. And in our system, it's, we have a smart contract that connects the investor and the issuer, like the company and the investor. And the investor actually possesses the stock in their wallet. And if they can, if it's not restricted, if it's past its Reg D date, will they, it's got program, it's programmed with its selling restriction. What's Carda gonna do like this? I don't know. The deck doesn't say a lot. I'm sure they've thought about this a lot. They're really, really smart folks. Yeah. And what are you guys doing at Vertolli?

• 30:27Speaker 02

  So what we do is we help onboard investors and their wallets in an AML compliant fashion onto cap tables, which use the blockchain like Ethereum or Hashgraph or any chain as the database. We then give investors a lens to see what they own. And then we take tokens that either we produce or that any issuance platform produces, store them in that cap table, and then connect them to exchanges so that they can be sold when the restriction's up, subject to the liquidity that's programmed into the token. So what we believe is that spreadsheets and firewallled cap tables

• 31:12Speaker 02

  are disconnected from secondary exchanges. What we do is we take the assets, we put them into control of the investor, and we connect them directly via API to exchanges. We make it a lot. We bring the assets one step closer to secondary liquidity. And we also solve this other problem, which a lot of employees don't really know is a problem. Contracted knowledge of ownership. Like you might have thought you got granted stock options because you signed an offer letter to a company. And you show up and they told you you were getting 100,000 shares. You don't even know if those things were ever granted

• 31:56Speaker 02

  because you don't know what happens in a board meeting. Yep. So we think it's super important for people to know what they own and have possession of it. We're working with one chain right now. I can't tell you which one it is. They have 1,000 contributors who've been granted their tokens, their coin. That protocol's coin as compensation.

• 32:23Speaker 02

  They can't use a cap table to manage the vesting and distribution of those coins to their contributors for building this chain. So they're coming to us because what we're able to do is manage the vesting and lockups and transfer restrictions for like basically a blockchain ESOP.

• 32:44Anthony Pompliano?

  Yep.

• 32:45Speaker 02

  You can't do that in these third, in these firewall'd cap tables.

• 32:52Anthony Pompliano?

  Yeah. How do people at home benefit from this, right? Like, let's say that I see that if I'm sitting at home, I'm a retail investor, I see the trend that's happening, I believe that this is where the world is going. How do I benefit, right? Or how do I participate in this?

• 33:08Speaker 02

  The first folks that are running these deals are broker dealers. We, Burtalo primarily works through broker dealers. Because broker dealers are the ones, there's 3,000 of them in the US. Broker dealers are the ones who are really going out and soliciting the public. Republic is a broker dealer. Circle just bought SeedInvest. SeedInvest is a broker dealer. You've heard of maybe Antoro or US Cap Global. They're all broker dealers. Goldman Sachs is a broker dealer. Broker dealers are the ones who solicit investors for funds for projects or companies. The first place where most retail investors are going to see digital assets are through broker dealer solicitations.

• 33:49Speaker 02

  Crowdfunding, Reg CFs, Reg As, Reg Ds. All these things are being offered through broker dealers. So my partner Gautam is a broker dealer, securities lawyer. We got involved in the broker dealer community from the start because we thought that the broker dealers were the force multiplier amplifier for digital assets. And what the broker dealers are looking for are ways to reach the public with compelling things to invest in.

• 34:22Speaker 02

  What they say on their deal pages is this deal is a security token, or this deal is equity, or this deal is debt, or this deal is a coupon. The investors are going to get introduced to these deals via broker dealers, who are, for lack of a better word, peddling these offerings on their site.

• 34:49Speaker 02

  The ones in our community here, the folks who are listening to you, the ones that they would be most familiar with are Republic, which is an angel list affiliated company, and the other one is Seed Invest, which was just bought by Circle. I think that those kind of crowdfunding businesses are the businesses that are most likely to introduce the concept of a digital asset to the public. But, you know, truth be told, Coinbase has already done this really, really effectively. I mean, that's the real, you know, kind of alpha digital asset, obviously, is Bitcoin. And that just isn't an equity element.

• 35:29Anthony Pompliano?

  Yeah, it feels to me like a lot of the people sitting at home, they want access to innovative companies, right? So imagine if you could own Uber early on, etc. But there's got to be some guardrails, right? There's got to be access to information, there's got to be...

• 35:46Speaker 02

  Diligence.

• 35:46Anthony Pompliano?

  Yeah, the ability of diligence, you know, all that kind of stuff. And so there's a balance between a young company still trying to figure things out, and what they want to share, and how public that is, and what the nature of it is, who they're sharing it with, all that, versus that retail investor who would like to provide capital, right? Kind of, you know, where's the benefit and where's the cost there?

• 36:07Speaker 02

  This method, using security tokens or digital assets for capital formation for a company that has no track record, is dubious. I don't think... A token doesn't make a company with no track record more investable. It makes it less investable. I think that's... I think you've said that in various ways yourself, I think.

• 36:38Speaker 02

  The broker dealer, the reason why broker dealers are so important is because the broker dealers provide, do the diligence. The reason why Votala works with broker dealers is because we don't want to have to go and do diligence on a whole bunch of companies and then to win them on to our platform. We're also not a broker dealer, so we don't solicit funds. Broker dealers take a look at a project and if you trust the broker dealer, your means are trusting their diligence and their project selection. Because broker dealers take the risk upfront. They have to spend a lot of money before they bring a deal to their investor base. Yep. So I think that, you know, the, these companies, the SeedInvest, the Toros, the

• 37:20Speaker 02

  USCap Global's, the, the Republic's are the place where the retail investor are going to see these companies and they're going to see companies that have gone through a very, very extensive diligence process before they show up on someone's site. And, um, like, no one should expect everything to pop like Zoom popped a couple of weeks ago. Beyond me, etc. Beyond me. I mean, you know, um, the, the notion that, like, Facebook, you know, you know, you're a Facebook holder. Facebook dropped, Alibaba dropped, um, your Twitter dropped.

• 38:04Speaker 02

  These guys all dropped, you know, they all had semi, semi failure IPOs in a way. Because suddenly they went public and they had to disclose. The difference with that and these digital assets is that there's going to be, like you were asking before, there's going to be a bunch of information A SO here. They're, they're still private companies. Yep. And a year after the, after you buy their digital assets, you might have the right to sell them after the restriction comes up. But you might not, there might not be enough information for you to price it to figure out whether you're, you know, that's, that's yet to be, that's yet to be determined. Those are part of the rails that need to be built.

• 38:47Speaker 02

  But, you know, just because there isn't massive liquidity right now, doesn't mean that there's not going to be improved liquidity later. The one thing that digital assets have... That is an improvement on a paper certificate, like an early-stage investment is that a digital asset, a Reg D digital asset, in one year, you will have the right to sell it. It will be liquid before an asset, like before some angel investment you made last year in some company. That company's not, you have no control over liquidity of that company. But if you invest in a digital asset-based instrument, you at least have a hope that there's some way out of that position after the restriction gets out.

• 39:31Speaker 02

  And that's the alpha feature of digital asset is programmable liquidity after a restriction or lockup is ended. Yeah. That's a feature. And that's not a feature that you find in traditional assets where you, where you like make an angel investment or early-stage investment. You're like, you're on the, you're locked in there. You're, you're going to be there along for the ride and it's very, very unlikely that the, the investors, the board, et cetera, are going to let you out unless you want to take, unless you want to like take 50% of, you know, of the price that you think it's worth. For sure. Where can people find out more about Vertalo?

• 40:13Speaker 02

  So come to vertalo.com and It's V E R T A L O? Yeah, V E R T A L O dot com. We're Austin, Texas-based company. If you come to, if you ever visit, visit Austin, Texas, you know, give us a ring. You can have taco for every meal in, in Austin, Texas. It's fantastic. Absolutely. And, and we're growing our presence here in, in New York as well. So thanks for having me on the show. Oh, we're not done yet. We've got to do rapid fire questions. Oh, shoot. Oh, man. What, what do you think the most important crypto company is?

• 40:52Speaker 02

  I have to say that right now it's got to be Binance from on the exchange side. I think that those CZ is just a wicked wickedly smart person, very, very transparent. And very innovative, super, super smart. You know, for all the trouble that Ethereum has had, I think that Ethereum as a movement has been surprisingly resilient. And that and so I'm I'm I'm I'm I think people have some people have written off Ethereum

• 41:37Speaker 02

  a little too early. They don't understand that there's a there's such a big developer community and there's a there's a there's a switching cost, even in this decentralized world, there's a switching cost. Certainly, Dharma, the MakerDAO project, some of these staking projects are state super interesting projects. It's really hard to put a list together because there's so many people innovating in so many different areas that I'm impressed with. I just love that this is a experimental industry and it's in and people can change. It's okay to change your mind.

• 42:19Anthony Pompliano?

  For sure. What's the one regulation you would change or improve if you could?

• 42:24Speaker 02

  I would I would change the accredited investor laws. I would I would lower the I would lower the threshold to, you know, some just some income, just like not a test necessarily. But you're if you can buy, if you can invest in public equities, and there's a lot of information asymmetry in public equities, and it's super hard, you should be able to invest in some of these private companies. I think the reason why people PE doesn't want non-accreds in is because it's too expensive. You can't it's it's hard to have someone invest a thousand dollars in a private company. It's very expensive. The mechanisms aren't there to make thousand dollar investments in private companies.

• 43:09Anthony Pompliano?

  For sure. What um what's the most important book you've ever read?

• 43:15Speaker 02

  I really liked The Power Broker by Bob Caro. It's about Robert Moses. It's kind of about the recreation of New York. I think that's a super interesting one. I also think the, it's about this thing. It's the first book that Robert Caro wrote. And Robert Moses built all the bridges and parkways and tunnels around New York. It's really the way New York was formed. There's another book, if you're an entrepreneur, which is super useful. It's called The First Tycoon. It's about Cornelius Vanderbilt. It's about how he changed unit economics in transportation. And started first with ferry service between Staten Island and New York and then went to trains.

• 43:57Speaker 02

  And that guy was just a, he was brilliant on so many different levels. So that's a great book. Aliens, real, not real? How could we be so arrogant as to think that we are the only sentient beings in the universe? Well, because we've never seen any other ones. Well, we don't, you know, we may not be able to perceive them. I think that the math, if you believe in math, if you're in this business, you're definitely a believer in math. The probability that there are other beings is very, very high.

• 44:37Speaker 02

  I, you know, I joke that Bitcoin was a gift from aliens for us to re-hypothecate our financial system. And, you know, I think one thing, though, I think that every, every other society must have had oil. I don't think that any other planet, oil is the magic, is the spice. It's the magic. Substance on this planet. Which creates chemis- chemicals, medicine, transportation, energy.

• 45:17Speaker 02

  I don't, I, I think that any other alien civilization we find must have also had oil. Because I, because the, without oil, none of this that we're doing here is possible without hydrocarbons. Yep. So we look for hydrocarbons and I'd be interested to find out from alien, other aliens, how they went from hydrocarbons, which are the most amazingly portable source of power that we found other than the atom. And how they, how they evolved safely from burning hydrocarbons to other forms of energy. I just think that hydrocarbons would have to be the air breathing, water, hydrocarbons.

• 45:59Speaker 02

  Those are the, I have to expect, I'm not an astrophysicist, of course, that that's the commonality between all advanced industrial societies in the world, in the, in the universe. That they would have to have. Those things. They have to have hydrocarbons and they had to have started with hydrocarbons. I don't think aliens breathe.

• 46:22Speaker 02

  I think aliens are gonna be, are gonna be really, really similar to us. And, and, you know, I think DNA is the most amazing programming language ever. Yeah, of course. And, and, you know, why wouldn't that be, you know, do, you know?

• 46:38Speaker 02

  You know? I love, I love the topic, I'm gonna go on this one for days. What one question do you have for me? So.

• 46:50Speaker 02

  Bitcoin not blockchain or Bitcoin and blockchain? Uh, I think Bitcoin is a blockchain. Right? Yeah. So there's no. But do you, but do you believe that blockchain has a value as a, as a database or as a, as an underlying layer for applications or business on top of it, other than Bitcoin? Well, Bitcoin is.

• 47:18Anthony Pompliano?

  It is the database of Bitcoin, right? So I, I forget all the nomenclature. I just think that there's gonna be digitally native assets that need digitally native accounting, right? Because the assets are their computer files and for them to be financial assets, triple entry accounting. And then there are digitally native contracts that will govern all of the transactions that are involved. But it's just, this is all around automation and it's for the machines, right? The whole idea of like Bitcoin not blockchain, blockchain not Bitcoin, I think it's all stupid.

• 47:55Speaker 02

  Right, that's exactly what I was hoping you'd say.

• 47:58Anthony Pompliano?

  I, everyone knows I only hold Bitcoin. I believe that's where, you know, a lot of this will get built eventually in terms of both on the protocol and also as a, as an asset. I don't know a better store of value asset in the world, if you have a long time preference, than Bitcoin. And so that's where I choose to store my wealth. At the same time, I think that there's a whole bunch of different ways to digitize, you know, value and the transactions of value. Some of it will be on blockchain, some of it won't be, right? So we don't even need blockchains for some of this stuff. And so I think that, you know, there's kind of two very separate things that aren't mutually exclusive.

• 48:37Speaker 02

  Yeah, that's good. Yeah, we built Vertalo as a, on blockchain as an asset ledger because we think that there's no better ledger for asset ownership than so-called blockchain databases, distributed ledgers with consensus, where there's no double spend capability and where, and self-sovereign ownership and the ability to, and the ability to sell via this exchange model. So it's, we're, we're excited for the, the basic applications in order to Bitcoin or.

• 49:11Speaker 02

  Or game changing and I think you're right. I think it's a fantastic store of value. Did you, why didn't you ask Kevin Leary about how he values bottles of wine though? You know, how, how come one bottle of wine is worth a thousand and why another bottle of wine is only worth thirty bucks?

• 49:27Anthony Pompliano?

  Kevin O'Leary is an entertainer when he's on television. I wasn't too worried about trying to convince him to, to buy Bitcoin.

• 49:33Speaker 02

  That was a great segment.

• 49:34Anthony Pompliano?

  I, I think he is much more bullish than, than he lets on, which is, which is fine by me.

• 49:40Speaker 02

  He has a good character.

• 49:41Anthony Pompliano?

  Anytime that we can create content on the national stage like that and then have it go viral on the internet, I think is good because it just, again, it just, it presents the digital asset in the conversation in a very kind of.

• 49:58Speaker 02

  Legitimizes the conversation.

• 49:59Anthony Pompliano?

  Well, it's, it's just created in the same conversation as other assets. And so it demystifies it, I think, right? Which is, which is important. So, all right, listen, I appreciate you doing this. Um, I think that there's a whole bunch here to unpack in terms of the tokenization of assets and how, you know, kind of the ownership of that will change, uh, and also how the governance of businesses, uh, will change over time. Um, so just a lot of work ahead.

• 50:25Speaker 02

  So we'll work.

• 50:26Anthony Pompliano?

  But, uh, but thank you very much. We'll have to do it again in the future.

• 50:29Speaker 02

  Thanks a lot, Pop. It's great.

• 50:30Anthony Pompliano?

  All right, guys. Thanks so much for listening to that podcast. Before I let you go, one more word from our sponsor, BlockFi. Their new interest account allows you to securely deposit your Bitcoin or Ether at BlockFi and receive 6% annual interest paid monthly in cryptocurrency. This rate actually compounds, so you receive a 6.2% APY, which is very attractive given the alternatives. So you can actually take your Bitcoin, you can deposit it with BlockFi and get paid an interest rate of 6% in return. Go check out blockfi.com/pomp. Again, blockfi.com/pomp to sign up and start earning interest on your crypto today.

• 51:09Anthony Pompliano?

  Hey, everyone. Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.