Ken Nguyen: Republic – Bridging the Gap Between Investing and Startups #353

Transcript

this is epicenter episode 353 with guest ken gren [Music] hi i'm sebastian and you're listening to epicenter the podcast where we interview crypto founders builders and thought leaders on this show we dive deep to learn how things work at a technical level and we fly high to understand visionary concepts and long-term trends if you like epicenter the best way to support us is to leave a review on apple podcasts if you're on a mac or ios device the easiest way to do that is to go to epicenter dot rocks

slash apple we read every single review we receive and we love getting them today our guest is ken gwen he's the co-founder and ceo of republic republic is an investment platform that allows pretty much anyone anywhere in the world of any income or net worth to invest in private equity startups crowdfunding has been around for over a decade and most of you are certainly familiar with kickstarter and indiegogo but since the jobs act of 2016 these platforms were able to offer equity to funders albeit with certain restrictions which is something that was previously impossible in the us due to accredited investor rules so republic launched just after the jobs act was passed

and of course this was around the same time that companies began raising funds with icos and they were among the first platforms to offer a framework for security token offerings well with the ico boom well behind us republic is innovating once again with their republic note product this is a profit sharing token which allows investors to receive dividends when companies who raise money on the platform make an exit the tokens are issued by republic actually they're issued by a subsidiary which distributes a portion of the exit profits to investors in proportion to their holdings of course this is kind of similar to the binance token model which isn't surprising since republic was the first portfolio company of binance labs so what's interesting

here is that this is almost as if republic had gone public just not on a regulated stock exchange and so brian i spoke with ken about the long-term regulatory implications for this model and the opportunities that it opens up for startup funding this was a really fascinating interview ken is inspiring and he shares his vision with a lot of clarity so i really hope you enjoy this a little bit of housekeeping before we go to the interview about two months ago we launched epicenter premium here on the podcast and sadly we're gonna be ending that today and i'd like to share a little bit of the trajectory of how this came to be and why we're stopping this experiment at epicenter we've been thinking about doing

some form of premium content for over two years and about a year ago we did a small experiment with a handful of you know very close and loyal listeners to see if there was an interest for this and that experiment didn't go so well after some time we realized the content we were offering wasn't really that valuable to the people who had signed up for it so we sat on the idea for a while and in the wake of the coveted crisis as you know a lot of sponsors were backing out or there was reduced interest in terms of sponsorship deals i felt that it was necessary to revive this idea to try to secure new forms of revenue for the show and so we launched the premium

product once again but this time with the episode debrief as the sort of flagship thing that premium listeners would receive and my assumptions about how this would go were totally off based on the previous experiment i had anticipated that we would get at least a few dozen subscribers which would have given us enough momentum to keep this thing going and to continue growing it but that was far from being the case some of you did subscribe and i want to thank you for trusting us with this and supporting us but unfortunately there's just isn't enough momentum around this to keep it going so the main takeaway here is that monetizing content

is really hard you know i look up to all these other shows who have built a business around monetizing their content and it's something that i truly like to emulate but i think it takes a lot of work and something you have to start early but i'm curious to know what it was about epicenter premium that wasn't particularly appealing so if you have anything to share you can reach me at sebastian episode tv or on twitter so what about the episode debriefs what will we make of those well we really like doing them to be honest like it's kind of fun after we just spent like over an hour with someone to chit-chat amongst each other and share our own thoughts about the conversation

about the interview and so i think we'll continue doing them whenever we feel we have something to share and we'll put them out on the podcast for everyone to hear and with that here's our conversation with ken gwen so we're here with ken gwen the founder and ceo of republic and really excited to speak with you today again about republic and some of the super innovative things you guys are doing with crowdfunding and republic note in particular so thanks so much for joining us brian thank you so much for having me wonderful being here for some people uh i probably haven't heard about republic right but republic is

sort of connected with angelis and angelus of course had a big impact on crowdfunding i mean there's also coin lists right that has come out of that that we've had on the podcast before as well can you speak a little bit about like your background your time at angel list and sort of how that evolved into starting republic i started out my career as a securities attorney in new york and then over time went into asset management and back into academia so back in 2013 i got a chance to get introduced to naval um and the angeles team and became their general counsel when they roll out this new investment product called syndication right that everyone knows about but uh

angela syndication is only available to millionaires or accredited investors then under president obama there's a change in u.s law and this is very relevant for blockchain later on as well that the change in the law allow for non-accredited meaning anyone doesn't matter what what income or net worth to invest in private securities and that became fully legal in 2016 and that's when i left angeles to launch republic with angeles ended up invested in us so they're a significant backer among many other vcs so that's the the heritage between our two companies cool and yeah i think many people have

heard of the you know the jobs act and that regulation so tell us a little bit about like what was that change that happened in 2016 and you know what was the opportunity that opened up back then if i may take a walk down memory lane or history lane and go a little bit far back you know this uh the great depression in the united states back in the 1930s like 80 years ago after that well regulators in dc decided hey to avoid investors getting defrauded no one can invest in private securities in a private company unless they're really rich and if they're rich we assume that is

sophisticated and can you know tolerate the loss of capital so that went on for 80 years and even though in the us people spend like 80 billion dollars a year in lottery ticket and the same amount at the casino and yet you have to be a millionaire to invest in startup it obviously stopped making sense a while back but it took the obama administration and a change in the law for that to really now open the gateway so that anyone if they go through a platform like republic can invest in early stage google early stay facebook or you know a restaurant even

and we're a little bit behind compared to our european counterparts particularly the uk and other countries in the eu that had allowed for democratized private investing years before the u.s so what inspired you to start republic and was there anything that you saw during your time at angel list which kind of convinced you that there was a problem worth solving here the problem with solving i think goes a little bit back before my time at angel is so my family immigrated to the us from vietnam and we settled out in palo alto in the bay area and just because you are right in the thick of like innovation and

at the time amazon and google were like new startups and everyone wanted to invest but like we weren't accredited so we weren't able to invest and you know even neighbors who were accredited meaning millionaires doctors lawyers they still couldn't invest either so kinda like the teenage me was like man i wish i get to put a little bit of money into like amazon or google early on but couldn't and i think that catalyzed stayed with me and you know i went on and became a lawyer and worked in wall street and still couldn't invest privately so that desire to make venture capital private investing more accessible i think there's a little bit of a personal

background behind that and angel is it's just a model that when i knew about i was like wow these guys are making it possible for my older siblings who are physicians and engineers to invest that's really cool and so that's why i joined angel is back in 2013 that's only you know a glimmer of the possibility though what we do at republic is kind of like the hope that even a single mom in vietnam or ecuador one day can invest like five dollars in a startup in silicon valley and i think blockchain and ico fulfill that ambition to some extent i agree with the fact that like blockchain goes towards that vision i remember in the early days of this

podcast when we used to kind of you know think about where tokenization would lead us one of the things that would often come up is like any hot dog stand could basically tokenize his business and with platforms like republic it sort of seems like that vision is slowly coming in to fruition so what is your vision for republic and you know what does the future hold in your view in terms of like you said anybody being able to invest five dollars into business the vision and it's not my vision for republic i think that for the private markets overall i really see entrepreneurship as like a shared economy in this sense that it doesn't take that many years ago

that entrepreneurship only means two things either you're someone who's lucky enough to actually found a company and find your way to venture capitalist or you one of those venture capitalists that can invest that's the sandbox of entrepreneurship for people aren't founders with access and venture capitalists i do think that entrepreneurship gotta mean a whole lot more given that is going to define how we live and work in the future that means that everyone has a little bit of a stick in whatever it is that they believe in it may be a restaurant it may be a female founder it may be a technology like blockchain so the notion of amazon but for private

investing meaning millions and millions of people thinking of making small investment in things they believe in as quickly and easily with as many as options as buying products on amazon and that's a shift in spending behavior in financial investment activities but we think that within this decade it will become a mainstream uh concept and i'm hoping that will become mainstream in a couple of years and not 10 years how much of an impact you think u.s securities regulation has had in delaying that from happening the u.s not had accredited investor

rules do you think that this would have happened a long time ago or there are other forces at play here like technology or just sort of general trends it would be really difficult to predict that had u.s securities law not have a restriction around accreditation how things would mature because that parameter was put in place to protect investors 80 years ago right so but the thing is that with technological changes and social changes the law changes most slowly and so it takes a little bit of time for that regulatory framework to catch

up and it is catching up i think now the means for mass adoption of private investing is here it's just a little clumsy and it's gonna get refined over time but i do think very much that based on what we have currently and we have a very good public private dialogue with state and federal government i'm very confident that i don't see any major barrier that prevents adoption the number one barrier that prevents adoption is that people's attention span nowadays about nine seconds so it's really hard to get through the concept

of anything complex like private investing when people don't have that attention span so inadvertently covet and the pandemic has been very helpful because people have a lot more time right at home to watch webinar so uh yeah there's been a silver lining in terms of getting the message out thanks so much for explaining that and it's a really cool and clear vision you have you talked about like crypto also being one of the things that sort of enables that what sort of your interaction been from the republic side with crypto i mean initially it was started as like you know not a crypto company right and that the jobs act is like unrelated to crypto and then i think over time you've done more and

more things with crypto how have you sort of looked at crypto blockchain is a technology uh is many use cases uh and how i think it will become it will prove to be the most important technology of our lifetime i think that many people have written dissertations and and expounded on it the two attributes about blockchain as a technology that's very relevant to what we do but beyond that i think it will change financial services and investment products as we know of it two attributes one is automation the other one is fractionalization the ability to break any asset class or any share

down to smaller and smaller pieces and enabling people to transfer them and confirm settlement payment so seamlessly and at low cost it naturally lends itself to a lot more people being able to get into the sandbox by virtue of being able to invest small amount of money so from real estate to art to private investing i think this technology will underline all aspects of capital raising and investing in the future in a way that people probably wouldn't even need to know what it is you know in the way that you and i are using email now but i can't tell you exactly how emailing actually works it just does and i think down the road hopefully in a few

years that founders even for a food truck would be raising on a blockchain leveraged basis and they do not need to know what tokenization means you started doing republic crypto as well like what was republic crypto how did you sort of like move on from there in your thinking unifor crowdfunding or crowd investing as i call it when we started out in 2016 it was uh the vision is to be amazon for private investing but at the beginning it was really hard these campaigns only raised like fifty thousand dollars a hundred thousand dollars and then out of nowhere this ico boom initial coin offering in 2016-2017 in

many ways those were like the validation case of what crowdfunding could be you have new projects raising 50 million dollars 20 million dollars from individuals around the world on this notion of selling a coin but that was basically crowd funding except that it was done in a non-compliant manner these tokens generally under u.s law are all deemed to be securities but these icos didn't comply in any way with u.s securities law and that's why they were able to raise so much globally so we saw that and we're like hey this is a validation for what crowd investing can be but

it's very clear that the blockchain industry needs a regulatory framework a compliant way to do these things and so we roll out and we were very instrumental in the first few compliant icos in the united states file coin block stack etc but when you apply securities parameters to icos then naturally you saw the industry slowing down a little bit it became more difficult for founders to go through all of these steps but in short republic since 2017 2018 have been using the same legal framework that we

had for traditional offering of private securities and apply it to digital securities so essentially make the whole notion of token offering more compliant and more accessible so that's our edge in the space which is a legal tool to help token projects be able to reach their community in a way that you know makes sense uh from the regulatory standpoint so i'm curious about republic's customer base or investor base and also on the other side the startups that choose to raise on republic can you talk a bit a little bit about

those two categories of people and what they have in common so you know from the start side like what are the typical kinds of startups that you see raising on our public and who are the people who choose to invest in them and allow me to uh just define what republic does for the audience perhaps and in short we're an investment platform that allows anyone pretty much anywhere in the world of any incoming net worth to invest in some of the best uh startups and private equities that we curate now uh what is the difference between or the advantage of crowd investing compared to traditional capital there's a saying

in silicon valley that capital is cheap and that with money usually founders also look at the value add what comes with that money in the case of a vc like sequoia capital and recent horowitz it comes with advice and network of like you know be able to introduce you to the soft bank of the world when it comes to crowd investing the unique value proposition here is that when one of your customer invests even just ten dollars into your company she's gonna become a brand ambassador because it's so you know if you are a hundred dollar investor in sky vodka

that's what you're gonna be ordering for your friends when you're out at a bar that's what you're gonna buy for new year's you're gonna tell everyone that hey i'm an investor in this vodka brand that notion that psychological attachment applies across the board particularly when these are some of the very first private investment that any person has ever made given that this is so new so that marketing and community engagement element is why crowd investing crowdfunding is truly suitable for any consumer facing enterprise tech or non-tech all the way up until pre-ipo

to give you an example airbnb back right now airbnb's pre-ipo and back about a year and a half ago they even asked the sec for permission to give out a little bit of equity to those who list their properties on airbnb so that people feel more engaged they're going to list a little bit more they're going to tell the neighbors to do so the sec said hey no we're not going to give you any special exemption you got to use the current law and republic now we have a tool to enable them to do just that but it comes to demonstrate the value of ownership and community ownership so to answer your question

pretty much a company from precede all the way to pre-ipo as long as they have a community or have an interest in incentivizing a community crowd investing and at one point tokenization is in my opinion the most valuable marketing tool that they can do community is a key factor here so for example like if you're a sas startup building b2b tools the community aspect there perhaps isn't so present whereas let's say like a video game you have a platform you know specific for video games where there's like a pretty big community aspect there is one more suited than the other for republic

would you say certainly if you're fundraising from the crowd and from retail people the more relatable the business model or product the more likely the people are going to understand and invest that said though a good 30 or more of the companies that successfully raised on republic uh b2b or you know have a enterprise as customer model rather than a consumer facing because there are investors they're just looking at it straight up from an investment perspective like is this company something that i think is going to make me a lot of money because i believe in the technology even if they themselves are not users or potential users

of that product or technology but by and large yes consumer-facing businesses are most suitable for crowd investing let's talk a little bit about the republic note tell us what is republican note republic note token is uh the very first of its kind it's a digital token that pays out profit so out of every single company that fundraised on republic we have a little bit of an upside interest in that company when that company exits meaning getting bought out or you know goes public at a profit that upside potential is

realized in cash a portion of that cash will be paid back out to the note holders in essence as republic continues to grow and accumulate a larger and larger pool of upside interest in all of these portfolio companies the note holders naturally share in our growth and success and whenever a company exits they're going to see something back so we call it either a profit sharing token or another version of that is a revenue sharing token but that notion of tokenizing ownership or tokenizing economic interest i think we're the first but definitely will not

be the last and we hope to see a lot more of these launching in the next year or two i was reading through this and you know it's a very cool model one question that kind of came up is is republic note basically something where you say like all of the economic or the vast majority of the economic upside is sort of you know like captured in republic note or versus you know saying like there is kind of like this independent business you know and it has equity and value in that and then somebody goes to the note holder and so you might have this kind of like tension between those two sides as well the white paper describes infor because it is a rather complex model but to give you an example all of the

companies that crowdfund or crowdfunded past present and future on republic that is republic.cod.co a hundred percent of the upside potential that we have in those companies will eventually go back to the note holders we do receive cash revenue from different sources and that's how we run our business but the retail the amazon for private investing model those companies and the future revenue of that will go to the note holders so it really is a way for a person by virtue of holding a single note have a an exposure to an evergreen pool of innovations

and startups that go through the republic ecosystem since 2016. so basically the model right is like as a company i want to go on republic and i'm going to raise you know a million dollars and i'm going to sell 10 of my company that then there's some equity that goes to you and some of the cash also goes to you and with the cash you're kind of you know like funding your business and all and then all of that equity you know from all of the companies have gone through it and all of the future companies that all kind of goes in the pool whenever there's an exit right then from the exit at once some threshold is reached that's in kind of disbursed as a dividend to all of the holders of the node exactly and we do anticipate that a good percentage of

these companies will not pan out right that's the nature of private investing is that any single early stage company the likelihood of them just not working out is exceedingly high but here's a number game so to give a very concrete example there brian assuming that a company just closed a million dollars on republic out of that we hold a 20 000 worth of equity in that company say that companies currently value at 10 million dollars which is a typical you know very early stage valuation for a tech company in silicon valley say five years down the road they exit they get bought out by uber at

10 billion in valuation that 20 000 will see a 1000 x markup and that amount of money just from one single company can be a very meaningful distribution out to no holders now it's impossible for me to say which company in the portfolio has that potential but here currently we have 200 plus companies that we have helped fundraise and hopefully by this time next year that number will be 500 or more and so the longer someone holds on to the note token the more likely that future dividend payment back to the note holders will at one point should exceed

whatever it is that she or he spend to acquire that token just to understand the the mechanics of the token sale here can you understand how that went through and also the money that was raised in the token sale is that the money that you're then using to invest in those companies and that be the equity to redistribute to the token holders if there's an outside sebastian let me answer the second question first no the money that we raised from our token sale goes toward operating and technical and operational infrastructure the amount being invested basically comes from our growing community

and civil republic today has over nearly 800 000 users out of that a percentage of active investors the race is simply for um you know development and maintenance of the node token we the concept of this profit sharing token was you know came up in early 2018 and binance along with a number of other vcs backed this concept this development in fact we're one of the very first not the very first portfolio company of finance the exchange so we fundraise privately in that round then earlier this year we raised another round privately from strategic investors

less than 10 vcs and then most recently about a month ago we did a public offering that is we took in money or investment from accredited investor under something known as regulation d we also took in reservations and indications of interest from non-accredited investor and hold the allocation for them as we go through a regulatory process so that to make it possible hopefully in a couple of months to confirm and finalize the non-accredited investment as well so the unique thing about the republic note token is that it will be

fully accessible and held by accredited and non-accredited community members and new investors around the world up until now as far as i know all of the so-called digital securities or you know revenue sharing securities have been sold or made available to millionaires only and obviously you can't really get mass adoption if that's the case many people will not be that familiar with especially the next step reg a i think reg d most people are familiar with i think for reg a we we've done a podcast with gabe shapiro as well where we talked about it but do you mind talking a little bit about like what does it look like when you've gone through a gay and you know in what

way is it different from let's say a public equity of something like apple today that's a great question uh brian and uh if i may answer this question obviously in the context of u.s law and regulations i mentioned a little bit ago that in order it used to be that in order for non-accredited non-millionaires to invest in a stock that company used to have to be a public company going ipo but ever since in the past few years there's other framework regulatory frameworks that make that possible so let me use just an analogy real quick let's say if going public the cost of that is like buying a

ferrari once you go public anyone can buy your tray similar to apple or google a rec d which is only available to millionaires and an institutional investors is very easy to do it's very quick and easy almost anyone can do it within a week from the regulatory standpoint it's like a bicycle quick and fast but you know very limited rex cf crowdfunding which is what we do at republic.com primarily that anyone can spend about five thousand dollars in three weeks to launch a rec cf campaign but currently you can only raise up to a million dollars max from

non-accredited investors but it's you know low cost and relatively quick there's only one audit here in between rex cf and going ipo and that's reg a and that's like buying a honda civic or like a toyota in that it takes about at least three to six months and about two three hundred thousand dollars or more in order to launch a reggae campaign if you successfully get your application qualified by the sec then you can raise up to 50 million five zeros from accredited and not accredited so the threshold is a lot higher it's just more expensive and takes longer to go

through that process and the ipo process costs about two or three million up to 15 million dollars to do an ipo and then after that it takes about a few million dollars a year to maintain so obviously it's only suitable for like the biggest of corporations and there's no cap those are like the four tiers basically cool that was that was super clear explanation thanks but in terms of this this thing you receive right when you have done the reg a like how does it behave differently in practice you know how is the the republic note token for example going to be different from you know if apple went to

to tokenize their shares yes uh the questions uh is did this about the distinction between rec a securities and like a public securities well there are too many it's not so much distinction but you should look at uh private securities or public securities token or non-token in the context of trading restrictions what parameters uh regulatory parameters that limit people's ability to buy and trade because if you can't really trade then you know it loses that that liquidity that that appeal right so rack a securities is interesting in that the moment that is qualified then

is immediately treatable similar to an apple stock or a google share the question is where can it be traded so when a company like apple or google go public they naturally get listed also on an exchange and so people will know exactly where to go to buy and sell with reg a uh whether it's a token or a non-token you a company like republic would make that initial offering and then we have to separately figure out secondary solutions for that and so it's not as clean or not as so immediately you know self-explanatory

like buying an apple stock and knowing for sure that it will be a secondary market when you buy a reggae token or reggae security you do have to question where is this stock going to be traded right i mean i think that ties into of course uh you know great topic which is the topic of security tokens and one of the issues that security tokens so far seem to have had is exactly that right that there's like a lack of liquidity and you know basically i think the few companies that have sort of tried that you know it is not had nearly the scale and success as as the kind of ico token so how do you think that's going to play

out with like liquidity and security tokens and like what's your sort of take in general on where we are with security tokens uh and brian sebastian i think you both would agree that sto has been underperforming compared to like the hype that it was getting a year or two ago and there's a reason why there's been this um slow maturation of security tokens overall a two-fold one is that people haven't found a way until very recently to make it accessible to non-millionaires so you can't really have active trading

if it's just 500 high net worth individuals owning a bunch of tokens you know you can't really have an active market in that way uh and now there is that legal framework a republic is one but you know before that block stack and props already use reg a to to make their tokens available to to the masses the second at the reason behind that is due to the fact that there hasn't been a credible enough and by credible enough i mean a large an enterprise or a business or a project with large enough of a user base so the best that i have seen of securities token before 2020 were like tokenized

real estate projects but it's like a class b real estate project some in some random state and again only held by a few hundred millionaires so of course without a community without you know hundreds of thousands or millions of participants in the ecosystem and without credible tokens you couldn't have that adoption a little bit self-serving on our end but you know we have a very large user base 800 000 is probably larger than most exchanges and we've been around for four years with a business model that i think people understand

so we hope that the republic note token over the next six months will move the needle forward when it comes to sdo adoption but are there currently exchanges like for example where you can actually trade let's say the block stack token or like when reggae happens for republic note in the fall where are we going to be able to trade the token yeah so legally here in the u.s there are already a few exchanges that have allegedly have the licenses to to list and trade um and there are a few names you know open finance i think shares post and a few more now they haven't had

too many credible tokens or projects to trade but we are working in dialogues with a number of them and we do fully expect for the republic note token to be um to have secondary liquidity by the end of the year one of the questions we had was with regards to the payouts and so the no token has a dividend feature which you've explained earlier where if there was an exit uh then the no token holders would receive a dividend how does that work in what form do they receive dividends is it cash or is it some kind of stable coin or how does that work uh yes the the no token will be uh you

know launching on the algorand protocol and when it comes to digital tokens there are a couple attributes that make it very different than so-called utility token in that among other things you gotta control know your customer anti-money laundering you know accreditation verification but also if you're gonna pay out profits or economic interest or dividends you got to be able to issue this payment through stablecoin right so there are a few uh chains that enable that stellar eos ethereum and of course algorand so algorand is also a backer of the republic note token

but we of course will be planned to to make a dividend payment through you know usd uh tether uh stable coin back to the underlying note holder okay so this requires that algorand has some sort of stable coin launched on its platform yes okay so it's sort of dependent on that happening or yeah they they already have uh i mean there are more than one options on the al grand protocol currently uh and i think binance we will be issuing a wrapped token on binance chain which currently doesn't accommodate securities token just yet but will be at least we hope that they will be very soon cool uh which brings up the question uh

about algorand so we recently had el grande uh the al grand team on the show and so i'm curious why you chose to build an all grant in what ways does it differentiate from building an ethereum i'm such a big fan of the algorand team for a number of reasons i mean technically the the founding team the technical founders of algorand is needless to say like mit professors some of like the most respected names uh in in tech in the industry but in short compared to the alternatives in our subjective assessment it is stronger faster and definitely cheaper so just those three elements alone would make algorand a preferred protocol for us but they

also invested in republic and the republic token so that alignment of interest you know really made it uh even easier for us to to strike that partnership i mean al grant is a a new platform sort of relative to ethereum what was like building the no token on algorand and can you talk a little bit about i know that al grand is sort of targeting you know the security token market can you talk about some of the benefits of using algorithm from this perspective not only that algorand is focusing on the security token market they have like a specific commitment dedication to servicing financial product

and investment sector so out of that is you know even though they're new they're very focused and on the business side they have in for the past you know year to build relationship with traditional financial you know institutions in the us and outside so that focus uh and that enabled them to do a number of things from both the security standpoint the pricing standpoint the speed of things that makes someone that make them highly attractive to someone like us which operates entirely in the investment industry and aim to disrupt that space out of

that focus i think their ability to invest in building the ecosystem and supporting their projects naturally is going to be a bit more helpful to people like republic compared to something like ethereum which is you know far wider in its intention and in its role map so in our case the the novelty of it uh is an easy trade-off for for the the focus that the algorithm team um you know had in mapping our data project yeah really cool i'm curious you mentioned kyc and anti-money laundering before and of course like one of the kind of

question that comes up for me here is so you have this republic note token you know to what extent will it be possible to you know like integrated into like d5 and different types of applications i know there are some people who've done security tokens in europe and there it seems to have been the tendency that you know they'd have to do kyc when selling the token but afterwards it's kind of there's no kyc needed and i think even that dividends could be paid out to like you know whoever holds the token at that point what kind of ongoing restrictions will there be under tokens the d5 world is definitely operating in this gray area

of the law it doesn't matter which jurisdiction is in whether it's with respect to u.s laws or german laws or uk law the republic note token is definitely not fully decentralized in that we plan out of necessity to be not in a gray area but so clearly complying with u.s securities law first and foremost so that requires us to take responsibility for making sure that no your customer anti-money laundering accreditation jurisdictional barriers are like fully compliant with so there is a heavy degree of centralization or like central monitoring

and so the network you know the different protocols that allows for white listing features that from our perspective as the issuer the entity that offers token have the ability to maintain a white list to vet and to clear people not just during the primary offering but thereafter when two parties are buying or trading selling tokens that they have to clear through kyc and aml on our end and not only that we have the ability to freeze and burn tokens as well in so far that a transaction turns out to not meet the relevant countries kycml standard

so we currently operate not in the same gray framework as many other d5 project but we obviously are keeping a close lens and we intend to collaborate later on where relevant but i think for 4d5 trading at one point there got to be a clearer regulatory landscape because right now i can't say as a securities lawyer that transaction being done uh you know the d5 transactions are truly compliant just because there hasn't been a slap down or smackdown by the sec or various entity it doesn't mean that there won't be

so we're very cautious about the whole concept of truly decentralized finance for now probably good to be cautious in this in this regard um i want to come back to d5 in a little bit but first i wanted to come back to a question that i wanted to ask earlier which is about we kind of touched on this a little bit but the republic is currently addressing i believe only the u.s market in fact to be an investor i think for certain types of products that you offer you also have to be a us citizen what is your view on the eu market and do you plan to start addressing well startups in the eu and also eu investors as our listeners will will know you know eu securities regulations are

often seen as somewhat simpler and they're open to non-accredited investors so there seems to be less red tape in the eu market what's your general thoughts on that as a crypto enthusiast but even before that i'm a firm believer in a more global economy and the whole promise of blockchain is to make the jurisdictional boundaries you know blurrier over time and then at one point removing them together so whatever we do or have been doing it republic there's always a long-term global ambition uh so today even though we only actively operate in the u.s any investor outside of the us that passively

come to us to make an investment generally we're open to them but we at the same time have been working with partners in different continents and countries to make sure that down the road and not too far out maybe even in early 2020 that we can legally work with um you know different uh jurisdictions i'm gonna pick uh the eu as an example back when the uk was still part of the eu we struck a partnership with a platform comparable to republic but more established they've been around for longer

in the united kingdom and that does allow for non-accredited investors to invest in private securities obviously with a brexit we now are eyeing other partners in perhaps germany or france to make that possible we have an informal partnership with a platform in australia and are looking very actively at the middle east as well as asia but surely it's clumsy the good thing is that the u.s securities legal framework is so strict that if you comply in the u.s with u.s laws you're like 90 in terms of like compliance in most other countries you just need to

find the right partners go through the right regulatory approval process but the framework of kyc of aml accreditation of sophistication you know similar enough so it's just a matter of time a sebastian when we when we make this much more actively possible globally i'm personally looking forward to it thank you you mentioned finance before and of course the interesting thing about binance was that you know we had people doing all these icos and then binance came in they basically did you know an ico but for private a centralized company of course you know over time finance became a bit more like you know decentralized and now

you know it's it's just sort of hybrid thing but what you know what we saw in binance was this just insane amount of growth and you know still i think one of my favorite episodes we've did on here was with cz talking about like exactly that uh and you know the binance token played such a big a big role in this and now i think you're you're basically doing something like quite similar so i'm wondering like to what extent you see like finance as like an inspiration like what what are the biggest learnings for you from binance and you know what are some ways that maybe you're going to go a different path uh i personally feel incredibly fortunate that we get to be part of like a couple

a powerful ecosystem angelus being one that's you know when we started out um with with the investment and when we got that backing from binance binance labs and then became a member of the binance ecosystem that's just another you know stroke of luck that not only gave us the capital but really just the inspiration uh to to uh you know to enter the space and to build and to do what we do but to answer your question brian i have no doubt that not just by nan's but other major uh players in the space are taking the notion of tokenized equities or securities token

with renewed interest and given that in the us republic is probably a leading if not the leading brand in in the tokenization and sto space that you know we have been consulting with the binance team on the road map for 2020 and how hopefully together we can be you know we can collaborate more meaningfully i probably have a lot more details to share uh in the coming months on what that conversation or collaboration may look like but i think it should bode well for sto as an industry overall because right now there still hasn't

been a major brand a major player like the binance of the world making a statement saying that now is the time that we see the writing on the wall and that we're willing to invest and go in and build this and hopefully we'll see that soon so when you have seos you know let's say now with republic you'll have maybe after the reg a you'll have some you know tens of thousands hopefully of you know sort of like of owners of this business in a way how do you think that will change how people you know build companies and run companies the uh framework for tokenization

will raise a number of issues that only over time can be fully square out to give you an example you raise an amazing point in that how would a founder having tokenized equity and ownership and now have 50 000 investors i mean imagine the if you just deal with 50 investors and the hassle that comes with that how do you deal with 50 000 investors what's the standard practice the expectation communication channel forget about cap table and all of that if something if there's like something bad in the news how do you make sure that people just don't lash out and like go crazy on telegram and twitter

so all of these things are what we are validating and testing at republic and we hope to deliver options for people who come after us and look at us and our learning and use it so you asked earlier brian what will we use the proceeds for my own token sale for it's about portfolio management about investor control it's about laying out all the compliance as well as just you know accounting best practice for this i have a little bit of a background corporate governance i was a fellow at uh the center for corporate governing at stanford university about you know almost 10 years ago and that the issues that apply to a public

company oddly enough at a smaller scale is very much relevant here uh it's just how to make it feasible because if you make it too complex then the catalytic defeat the whole point of tokenizing uh you know simply and cheaply right so there's a there's a balance somewhere that we're still working on so before we wrap up we wanted to talk a little bit about accredited investor status in the us and i think it was jim bianco who came on the podcast recently who who talked about the need for credit investor status to change in order to kind of stimulate the economy in the in the wake of of covid you mentioned earlier that the this regulation is over 80 years old it is changing now with this these

different reg a rugby etc regimes what other changes do you think can and should happen which would be you know a welcome change to the accredited investor rules in the us you know having spent a little bit of time in europe and i study law in england i think there's a common um generalization that americans are less nuanced than our european counterparts and it definitely is true when it comes to the notion of accreditation we are the only country as far as i know developed of the you know developed countries that defines accreditation straight up

based on wealth in every single country in europe there's a sophistication you know definition as well so here's an example under u.s law the law actually assumed that if you're an mba grad from harvard and an analyst at goldman sachs since you just graduated with debt you're not accredited but that that person is less suitable to make investment decisions than someone who's 85 and has been a history teacher and just save over her life to just exceed that threshold that person in the u.s law is suitable to make

highly risky investments compared to a government analyst that clearly is not the case i think there are learnings that u.s legal system can you know can can borrow from um you know other countries like germany and in the uk that said though i think the current legal framework in the u.s that enables non-accredited investor to participate under rex cf and rank a adequate can things be better yes but there's no question that now in 2020 pretty much everyone has the ability to participate in private investing the issue is less regulatory and just awareness

and sebastian if i may share like a fun fact this is a study from a major consulting firm in the u.s that in 10 years fortune 500 companies in the year 2030 75 of them have yet to exist today so if you consider the fact that the vast majority of the companies that would dictate how one lived and worked in the future i like in someone's head or someone's garage today it definitely begs the question that why wouldn't you if you can even if you're a student for a price of a pitcher of beer not take an interest and have a stick

however smart it may be in whatever products investment or story lines of founders that you believe is worth backing it's kind of like voting are you just going to leave it to the big banks and the financial capitalists to to dictate your future or would you cast your vote in this case with a little bit of capital and so that notion of private investing the ability to vote with your money i think is still unknown to 99 of the world accredited and not accredited so the biggest challenge and also the biggest potential is in exposure and and getting the message out which is why i'm so grateful for to be on on programs uh you know

like this due to that you guys have me on uh more so than any tweaks that would come out of washington dc or other federal agencies yeah i know i mean thanks so much for for this note and these comments and i think it's really amazing what you're working on and i'm so excited to see you know this is kind of like developing city republic note publicly traded and all of that process to happen but i i mean i fully agree with you i think this idea that like democratizing access to this to like everyone in the world this is amazing and super excited that you're working on this thank you so much brian thanks sebastian for for having me and for having our story

thank you so we just wrapped up our interview with ken gwen of republic and it was like i thought it was a really kind of inspiring story and kind of a really interesting story about like how he started republic and his whole vision for you know how startup funding should you know move into this more like community um community-based model i'm curious what you thought of the interview yeah i mean i think they're doing really cool work you know at one point we were at course one we were also kind of like looking a little bit into thinking oh could we issue some token and actually at the time we were like looking at it from legal perspective too

and i came across republic note this was like a year ago and i was like wow this is a very uh yeah it's a very innovative and cool way of approaching it and it's great that now like they've advanced so much and it's out so yeah i'm very excited about it and i think his vision of like actually making this something that you know is accessible to anyone in the world and you can invest as little as you know five dollars yeah it's very inspiring and i'm i'm certainly very impressed with republic yeah it's interesting how you know in in the early days of you ethereum and even before ethereum when you know when we're talking about primarily about bitcoin how you know this idea of tokenizing any

business or allowing anyone to invest in any business you know was kind of going around and the counterparty days you'll remember and and this is kind of that coming to fruition but it's you know i don't i don't think that back then we envisioned that some kind of a centralized platform would be the issuer of these tokens we kind of thought it would be more like on a decentralized flavor at least for me and you know it's kind of interesting that in the end well you know since companies have to build this infrastructure and you know it's not necessarily some dap you know or some like dao that's kind of leading the way on this on this um new model yeah i mean i think the the regulatory issues are obviously there and so from that perspective it you know

it kind of makes sense that you know that you have to do it maybe to centralized platform with kyc and all of that uh of course at the same time and we didn't speak about that in the interview we do have a lot of similar things happening in the decentralized space right where you have you know all these like let's say ethereum default protocols i was like tokenizing and you know people can earn tokens um and of course you still have token sales of like various types happening or maybe people like privately raise and then list the prod projects on exchanges and you know people buy it so i think there's still like many many

ways that projects are fundraising that you know maybe don't take this like direct security uh token path and i i don't think they're gonna succeed in shutting those down and of course you know the finance which uh being the best example of that right by nanza that has been some of the inspiration uh perhaps for a republic but at the same time i think it's it's really great that there is this you know kind of clear compliant path as well and it seems like that path is becoming you know more viable and more accessible option it's also interesting if you if you just look at uh the complexity you know i mean he did

a great job of explaining the different you know regulatory regimes in the u.s but the level of complexity in u.s securities regulation in order to do what you know here in europe is fairly easy i would say like if one wants to launch a security token like depending on your jurisdiction like it's i mean i don't know if this is quite true like you know i mean of course complex issue right but like in in germany for example there is an active crowdfunding scene but i think it's all debt-based so to have like equity crowdfunding is something that i think doesn't really exist in germany so i think here as well you know there are some uh regulatory complexities that

that have kind of like made that impossible or impossible or at least so hard that it hasn't been done yet so i think those issues probably exist too in other places although i guess the uk that he mentioned is certainly one thing where you've seen you know equity crowdfunding for many years now yeah i mean it also exists here in france and i mean for one to do a security token sale here in france it's i'd say like relatively easy there may be some legal costs associated to it and you do have to do a perspective and this sort of thing but from an investor point of view you know the rules are much much easier like across europe and you know i i'd be curious to see like what what they're

going to do here and like how they will deploy and the you know the types of products that they're going to be able to um propose here uh in europe uh as opposed to the us and this will be different i don't think they even need uh particular products right i mean they've is mentioned right like this is this is available right now republic for non-americans as well um i mean maybe they will need different offerings i guess they will need different offerings for the company side right to like cater to european startups but i think european investors or like non-american investors you know they'll be able to use republic as well i mean i think you have in any ways you have this kind of

unusual thing that you know the u.s is willing to like go after platforms outside of the u.s that they think violate u.s securities law but other countries don't tend to do that so much yeah the distribution model and when we were talking about this before the show you you mentioned something that we didn't really talk about on the show which was that essentially by doing this no token republic kind of went public and i wanted you to elaborate a little bit on that and from a sort of functional perspective they did go public but like from a regulatory perspective they didn't but like what what do you think that entails like for the way that startups you know might try to raise funding in the future

yeah i mean first of all i guess the the public thing is going to be more in the fall with the reg a right where it's really accessible to anybody i i guess you know it's cool that that's an option although you know the caveat is still what what he mentioned right that there is uh i think at the moment he said two to three hundred thousand dollars in like legal costs and you know you still have this public reporting requirement so there's still you know significant overhead maybe around this reggae offering but you know that's probably still a viable option for you know maybe startups at like a little bit later stage you know like a series b series c uh serious d so i think if those become more like

public accessible by you know everyone i think that's really amazing and and he's right what he's pointed out there i think like having this ownership in you know the products you use and companies you hear about like that's that's something powerful that like builds communities and i think binance with finance coin is like the best example of that so i think if that's accessible to like many more companies and yeah maybe they're like the grocery store too and the restaurant and the bar and that would be really cool i mean i would love to buy like some equity in like various you know businesses or that actually use or around here i mean just you know think about it like

imagine a world where this exists for uber for example and so you just like open up your uber app and they're like hey you want to invest in our next funding round you can do it with your credit card and it takes you know a few minutes and there might be some kyc or there might be some kind of onboarding process but like you know you can do it in the time that it takes you to get to your destination kind of thing like i think that would be immensely valuable to the companies but also like to the people investing in and just the the reach that you know i think like for for a company that's in a sort of series maybe series b c d phase where they already have potentially tens of thousands of users and already have that reach even things like social networks like a

snapchat or where the reach is even bigger like the potential here to create like this new type of public company with like secondary markets that isn't like you know the ipo at the ipo level i think is like immensely fascinating yeah cool well thanks thanks for doing this thank you for joining us on this week's episode we release new episodes every week you can find and subscribe to the show on itunes spotify youtube soundcloud or wherever you listen to podcasts and if you have a google home or alexa device you can tell it to listen to the latest episode of the epicenter podcast go to epicenter tv subscribe for a full list of places where you can watch and listen and while you're there be sure to sign up for the newsletter so you get new

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