Episode 4 – The $1 Trillion Opportunity: Building Liquidity Through Innovation

Theme: Secondary Markets / Liquidity
Moderator: Devin Thorpe (Founder, Superpowers for Good; Founder & CEO, The SuperCrowd)
Panelists: Chris Lustrino (Founder & CEO, KingsCrowd); Scott McIntyre (Co-founder, WEconomy; Vice-Chair, CfPA US; GECA Steering Committee); Nora Szeles (Co-founder, Tokeportal.com); Neera Patel (Product Lead, Dacxi Chain)

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Devin Thorpe — Moderator Founder of Superpowers for Good and CEO of SuperCrowd. A seasoned author and speaker focused on impact investing, social entrepreneurship, and sustainability. Devin has interviewed 1200+ thought leaders and innovators, organizing industry events and building global networks around positive change and accessible capital markets.

Chris Lustrino Founder and CEO of KingsCrowd, the leading data and analytics platform for equity crowdfunding. With deep expertise in investor behavior analysis and market transparency, Chris provides Morningstar-style insights for private markets, helping investors make informed decisions through comprehensive company ratings and market research.

Scott McIntyre Co-founder of WEconomy, Vice-Chair of the Crowdfunding Professional Association (CfPA) board, and GECA Steering Committee member. Scott champions trust, transparency, and investor protection in alternative finance while implementing equitable social and financial movements through innovative tools that establish thriving regional economies.

Nora Szeles Co-founder of TokePortal, one of Hungary’s first equity crowdfunding platforms with expanded presence in Malta. With a capital markets background as former derivative trader and fund manager, Nora brings practical insights on making liquidity solutions scalable and accessible for both entrepreneurs and retail investors.

Neera Patel Product Lead at Dacxi Chain, a technology company focused on enabling crowdfunding platforms to scale effectively across global markets. Neera specializes in frameworks that balance investor protection with innovation, working extensively on legal infrastructure requirements for global secondary market implementation.

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Andy Field: Hello everyone. I’m Andy Field, and welcome to the Architects of Change Think Tank Series, a series of five roundtable discussions, all with subjects that align with one of the GECA core pillars. Now, GECA stands for Global Equity Crowdfunding Alliance, and our supporters all share one vision, which is a truly borderless, global equity ecosystem.

One of the biggest deterrence to investor participation is lack of liquidity and exit options. One of our pillars detailed in a manifesto is to strive for a thriving secondary market right across the globe where investors can trade their equity and liquidity unlocks bigger participation, higher reinvestment rates, and long-term sustainability.

So we’ll be exploring in this conversation how liquidity can strengthen platforms by boosting the investor retention, increasing deal sizes, and enabling long-term growth. And in doing so, we’re going to discuss practical solutions and the legal frameworks that can make all of this possible. And we’ve called this session the Trillion Dollar Opportunity | Building Liquidity Through Innovation.

That’s more than enough from me. I’d like to introduce our moderator for today’s discussion. Please welcome Devin Thorpe, who as well as being a great friend of GECA. Devin’s a seasoned author and speaker, and he’s built a global reputation around the themes of impact investing, social entrepreneurship, and sustainability.

He’s the founder of SuperPowers for the Good Show and podcast. He’s interviewed more than 1200 thought leaders, innovators, and change makers from around the world, and organized many industry events as founder and CEO of the SuperCrowd. So his expertise and passion make him the perfect person to guide today’s conversation.

So welcome, Devin, and over to you to introduce our participants today.

Devin Thorpe: Thank you so much, Andy. It’s really an honor to be here and I really appreciate the opportunity and the invitation. Good evening everyone, and welcome to this round table in our Architects of Change – Think Tank series. Today we’ll be diving into that liquidity topic that Andy mentioned and for a lot of people, I think this is the barrier. This is what’s keeping them out of the pool, both as investors and sometimes even as issuers, raising capital from the crowd fearing that there won’t be sufficient capital there because of that locked in nature of it. And the statute, even in the United States, anticipates a secondary market that really hasn’t developed.

So this is really an intriguing topic for conversation to explore what are the barriers, and figure out how we break those barriers down and deliver a genuine secondary market. Now, let me introduce our panelists. We’ve got. Wow, this is a powerhouse panel. You’re going to be thrilled and enjoy this discussion because we have some of the world experts on this topic with us.

Chris Lustrino founder and CEO of KingsCrowd. There are not many players, bigger and more important to the crowdfunding industry globally than Chris Lustrino…he’s a big deal. He brings deep insights into investor behavior, data transparency, and has been watching the market with the savvy of Morningstar himself personally for years. And so this is really, I think, a tremendous asset to the conversation. Chris, thank you for being here.

Scott McIntyre. Who long served as the chairman of the crowdfunding Professional Association as one of the earliest members of the board, and has been helping to lead that charge in the United States for a long time now leads, as the co-founder of WE Economy an Ohio based Nonprofit implementing an equitable social and financial movement, powered by a revolutionary set of tools that help establish thriving regional economies and today serves as the vice chair of the board of directors of the CfPA. He has been a leading advocate for trust, transparency, and investor protection and alternative finance, and brings a deep perspective on how these standards can shape secondary markets. Scott, thank you for being here.

Nora Szeles is here from, she’s a co-founder of TokePortal, which was one of the first platform in Hungary to launch equity-based crowdfunding and has since developed a presence in Malta as well. Nora will share how innovation can make liquidity solutions practical, scalable, and accessible for both entrepreneurs and investors. So critical. Nora, thank you for being here and being a part of this discussion.

And Neera Patel. Is the product lead at Dacxi Chain, a tech company working to give access to crowdfunding platforms across the globe, to scale effectively. Neera has worked extensively on frameworks that balance investor protection with innovation so important and she’ll help us understand what kind of legal infrastructure can make global secondary markets a reality.

With this powerhouse panel, we are, we’ll, explore some of the theory of liquidity, but also I want to get into some of the mechanics, the nuts and bolts. Let’s figure out how this will work from a regulatory standpoint, a technology standpoint. Wow, there’s so much to dig into here. Let’s get started.

I think we have set, we’ve sketched already. Something of an overview of what the problem is, but if someone invests in a deal on Wefunder or any other portal around the world, if there is no way to sell those shares until a liquidity event occurs and the issuer redeems or provides that return, that capital can be tied up for a long time, easily a decade in the extreme case or beyond. And many investors are just not in a position to make that kind of indefinite commitment of capital. And trying to figure out how to create the regulatory structure and the technology and in some cases, the need for cross border kinds of transactions.

We gotta just jump in here. I’m going to start with you, Chris. You have just such a tremendous perspective from your work at KingsCrowd. You built this to be a portal, a view into this new marketplace and so there are few people on the planet that have anything like your perspective. How do you see liquidity solutions making this better for issuers and investors.

Chris Lustrino: Yeah, it’s a great question. It’s a very loaded question. There’s a lot there, at the most basic level, right? I talk about a word called velocity, right? The velocity of the market. And what do I mean by that right now, money goes in and then to your point, Devin, it can sit there for 3, 5, 8, 10 years plus. And so what often happens is investors will make their investments. And then they’re waiting to see what happens. And especially the first go around. Often times they, no matter how much people tell ’em, it’ll take 10, 12, 15 years, they still think it should be one or two years MAX. And when the money doesn’t get returned. Now they’re like, I’m on the sidelines until this thing exits, right? Until I have some form of liquidity coming from this market. How do I know I should make more investments until I see a real return? All of these things come up, right? And so the velocity of the market is very slow today. A lot of people enter the market. And then they go back to sitting on the sidelines waiting for something to happen. And that’s just one of the many issues.

For those who are active investors, they invest in a business or maybe 10 or 15 or 20. But then again, until they start seeing even some returns, which often takes at least three to five years to see your first exits. And they’re not going to be the biggest ones. Maybe they’re returning 2, 3, 4, maybe 5X. And because of that, they just have to be careful with how they allocate their portfolio, right? So all of this is to say is as long as the market is wholly illiquid, then investors are going to be hesitant to continue to move money.

Now, when you create a functioning secondary market where you have a good amount of predictability that each year you can sell at least 15, 20, 30% of your overall portfolio. You’re not going to be comfortable moving a lot of money. What I believe will happen is that over the next 10 or 15 years, as liquidity becomes totally mainstreamed in the private markets, and you could post your shares at any time and sell them whenever you feel like it after you’ve held them for a year is we’ll see an incredible increase in the number of deals people are investing in because they’ll be investing into and out of deals all the time. And by the way, people will be okay to take a loss at times if it means that they can reinvest somewhere where they see now better potential than that other deal they did three years ago where they just don’t see it anymore.

So I do think that as we see liquidity increase in this market in a really substantial way, you’re going to see way more participants in the market and those who are participating in the market will spend a lot less time sitting on the sidelines. And all that means is more primary raises are going to be getting better funding along the way as well. So to me there’s a lot of exciting characteristics. I didn’t even get into all sorts of things around. I think better reporting will come about all sorts of stuff, but I’ll stop there.

Devin Thorpe: That’s great that really helps us to put a little color on that sketch that we’d created. Nora, from your experience with TokePortal, what key things play a part in making liquidity solutions practical and affordable for the issuers and their investors?

Nora Szeles: Yes, my background is in capital markets. I used to be a derivative trader and the fund manager where liquidity took it all. So when the liquidity was at, what came first place. So it was extremely important to provide liquidity, to enter liquid markets, etc to be able to close out the position anytime and realize the value or they trade, etc.

However, I’ve always been conscious about the differences between these market segments. So I believe that most startup investors are expected or are definitely aware of their long-term dedication to these startups. Although of course, absolutely agree that they cannot be locked up in this, in these investments and that liquidity is absolutely self-evident issue.

However, the approach and the investment strategy or the investment decision making, has different, based, it’s based on different arguments and how, but to be competitive also from more crowdfunding service providers. This is also a driving force behind behind making secondary trading available for investors.

So I absolutely, so in the end of the day, that matters a lot. However, I do believe that education should help make and to help investors make informed decisions and conscious decisions. And but what is extremely important to emphasize that crowdfunding as a result of micro investments create mini portfolios. And to that extent, any transaction that costs a lot more money or either in costs or in a timely manner, can absolutely decrease or eliminate any prospect profits. So if you don’t, if we don’t offer them an efficient secondary market, then the whole concept is is broken.

So in the end of the day, so to say, I totally agree that the liquidity and the service behind that to create to enable trading secondary trading for crowd investors matter a lot and technology comes into play because without, if it was handmade as it was in my broker time, so to say, not only, They not even Demat securities were as common as today. This would’ve been completely ruined. So thanks to crowdfunding, thanks to regulation and thanks to digitalization. Now we are in a position to really, first. Participating panels that discuss the importance of this and technology enables us to do so regulations should be good enough to give a framework which, where crowdfunding service providers can create the market. And I will have other things to add at the later point of time of this discussion. I think so.

In general, I think education comes first and technology shall help investors realize their exit, but that also, most investors should be aware that startups are long-term investments. And the textbook case always happens that whatever, a nine out of 10 or 19 out of 20, what whichever you like, would then fail. And in case of bad news, liquidities anyway, even, even much less or doesn’t exist at all if the startup doesn’t perform well. So it has several pillars. The same problem has to be considered or approached from several points, perspective, so to say.

Devin Thorpe: That’s, I really appreciate that take Nora. I think, starting with education is really vital and that’s a great segue to the question I have for Scott. Scott, you’ve been long focused on building trust. That’s just so important to your work both at the CfPA and WE Economy. It’s about transparency. How do these kinds of standards, rating systems, etc, feed into developing a secondary market?

Scott McIntyre: That’s a pretty deep question. Devin, so I have a lot of thoughts in the matter. I wanted to start with trust, though, and this is what the first subject that really came true is that when you’re building with trust and as with all buildings, they require a solid foundation. So I’d prefer to first address the foundation of any investment. Which is trust and we’ll get to transparency and obviously the issues of standards and and accountability that that follow.

But to illustrate what I mean, one of the things that has kept me volunteering, as you mentioned for the last 13 years now, much to the bewilderment of my wife, is that the CfPA’s role in helping craft an equitable marketplace, especially in the light of a somewhat shadowy world of finance at times, one’s intent is very easily concealed as to who pays you to sell their wares. So one thing that I’ve really enjoyed in the last 13 years of service to our new industry is that I trust my partners at the CfPA because their self-interest is not related to money. It’s not related to what they’re getting paid or who’s paying them, but rather the epic of shared access to opportunity. Really is the base of our opportunity to spread the opportunities for crowdfunding to more nations than currently have it. And that’s the work of GECA, which is what attracted me and Andy called.

So as an all volunteer trade group, I hope that the CfPA is a good model for providing nothing but truth and transparency to the crowd. So in respect to trust, trust is the actual currency. Of any marketplace, and this is after 10 years of research in my other nonprofit, on the nature of currency and how it underpins, sustainable, equality and opportunity for communities, to sustain themselves.

Ratings and transparency are what makes trust. Tradable. So without them, trust is a very fleeting ethic. And we started with the belief that trust enables opportunity and currencies are just the vehicle. And I think that’s why they’re called fiat for a reason. In a lot of cases, they really are valueless. Without that trust, without that agreement. So in over a thousand years, looking in the rear view, lacking any confidence in the veracity of information, I think particularly with investments, liquidity simply won’t flow.

But there’s also the issue of values and we don’t have to just mitigate different languages in this new goal for GECA, but cultures as well, which are based on values. So if anything has become brilliantly clear, at least in the last decade, there’s a lot more difference than just languages that separate us as nations that are hoping to collaborate in this new marketplace. So standardized data is a huge component of that, Devin, and it’s frankly what allows secondary platforms to price their securities efficiently, reduce asymmetry that you find with information that comes from different cultures and different perspectives, and typically disadvantages, especially small investors.

These things can be accomplished. Standardized data can be accomplished in both. The public marketplace and in the private sector through participation of associations like what the CfPA has shown in the US and hopefully as GECA now aspires to. So that’s a little bit, I have a lot more on the subject. I don’t want to…

Devin Thorpe: I appreciate you bringing that, Scott. ’cause I think you know, this concept of trust is essential and part of, I think what establishes trust. My view is some regulatory infrastructure. So Neera, I want to turn to you to look at a little bit at the regulatory hurdles that are impeding secondary trading and crowdfunding in the United States and in the EU. And to the extent you have the ability to foresee what’s a model that might work from a regulatory standpoint within borders, and then eventually what might work across borders. That’s a big. Big thing to tackle, but can you get us at least started in that direction?

Neera Patel: Yeah. Yeah. I think there are three sort of major, big hurdles that we need to overcome. And the first is obviously, the biggest hurdle is the global legal patchwork, as you call it. So you know, as a platform you must have to navigate across different sets of security financial laws, and that differs across different markets as well. So then that adds more and more complexity and I think the other is around whether you knew you, whether you want to be an exchange versus a bulletin board. That problem in itself, and regulators are very sensitive to whether a platform could be considered as an unregistered exchange. And so there’s a legal distinction that we need to overcome, whether you are a forum of buyers and sellers, such as a bulletin board. Or an automated trading venue, which is a very fine line and I think platforms have to be very careful on how they navigate through that.

And I think the third would probably be compliance and custody. when you come, when it comes to secondary markets, we, there is a strong requirement to build out a robust KYC and AML checks for every single participant on that secondary market. And so platforms have to also solve that complex issue again across different jurisdictions on how they actually hold and transfer assets within a regulated environment. So I think those are the three big, sort of big hurdles to overcome.

And when it comes to the models around which model is a really strong global roadmap. I think the EU has set a precedent around this. The EU’s ECSPR passporting is probably an exist, one of the best existing models out there at the minute and what they’ve actually done is created a unified legal framework. Together with a single license, which allows platforms to passport their services across EU member states. So I think, they’ve started off this journey and it’s working very well. This kind of model where you’ve regulated harmonization and clear cross border rules is a very strong blueprint for building trust and scaling those global markets. I think,

But there are still some restraints, even with under ECSPR. In order to remain compliant, platforms have to actually operate bulletin boards across a manual process, to remain compliant. And this is where human intervention is necessary, to complete the trade, or the deal. So even though you are avoiding regulatory burdens, it provides liquidity benefits, but it creates an inefficient marketplace. And we’re unable to deliver the alternative trading systems as the US have today. I’m sure that ECSPR is working very closely with MiCA (Markets in Crypto-Assets) bring this about and advance this further. So I think that the EU is a very strong case for this.

When it comes to the US, the US framework is a little bit more fragmented. They rely on a mixture of regulations from Reg CF and Reg A and while there’s no single passporting in the US, like they have in the EU, the framework for alternative trading systems is very strong and it’s very concise set of rules. So I think, they provide a very clear, albeit centralized path towards liquidity that I think other countries could really adopt. But there are still issues around the US. So for instance, you have to have a broker dealer license to set up an ATS platform, you have to become a member of FINRA and those are added costs. It also adds time to the development of your network or platform and in the SEC has actually brought about actions across a number of ATS platforms in the past. So there is a lot of regulatory uncertainty, but that being said, in August, just last month. SEC has announced the launch of Project crypto which is highly focused on really changing and diversifying and advancing the digital financial revolution for the US and with the mindset to fast track newer technologies. To really advance this space. So I think we need to keep a very close eye on what they do but in an ideal world, you’d want a bit of the passporting as well as automated trading systems or, to advance secondary markets going forward and to provide those exit options to investors and improve that liquidity.

Devin Thorpe: That’s a really good foundation for our discussion and I look forward to digging deeper on that, thank you. Chris, I want to come back to you. I’m intrigued by a notion, as likely certainly. I appear to be the oldest person alive certainly the oldest person on the call today. I’m not quite as old as I looked, but I’m intrigued by the differences that, that the perspectives that different individuals have at different points in life. And you’re really watching the investor mindset perhaps closer than any of us. I’m intrigued by what you might see in terms of that, those generational differences that folks my age are approaching retirement, thinking about that liquidity with some intensity are the young folks more open minded to keeping their investments for indefinite periods of time? Or are they as anxious about liquidity as we are?

Chris Lustrino: Yeah, I think the simple answer is they’re as anxious as you are and maybe even more anxious. I think this is more situational rather than age related. I think in aggregate, the most number of people in the market want accessible liquidity. The perfect example is it’s like, why is crypto, which, there’s so many facets of it that are fundamentally broken or maybe don’t have a ton of really good backing as to why it’s a good fundamental investment, but why does everyone down to invest in it? Well it’s gotten large and a big part of that is that there’s extreme liquidity you could buy and sell it at any moment in time. So when you see the value of your investment, go up today and you could sell it tomorrow or sell it in the next two minutes. You feel good about that? I just made money, right? Versus this is a buy and hold for a long period of time. There’s just far fewer people who are comfortable with that notion and the reason I say it’s situational is. We see older individuals that I’ve spoken with who say, I’m doing this for my legacy. I’m doing this for my kids and my grandkids. That’s what I’m making investments for. I probably won’t even be around to see this company exit, but I’m okay with that. And then you have older individuals who are saying, no, I need liquidity. I’m not going to hold on to anything because I’m never going to see it. And then there’s younger people who say, I’m investing for the long term. I have a long term investment horizon. I’m using my 401k or my IRA dollars to do it because I believe in long-term investing. And then there’s that larger group who say, no, I want to be able to buy and sell out of these things whenever I feel like it, because that’s how I invest in crypto and stocks. And I don’t even really realize the difference between startups in this. So you better give me liquidity and a better feel like by public equity and crypto investments. So very much situational, but the largest bucket of people, I’d put it 80% or maybe 70% of people, they want liquidity.

Just to hit on one thing that, I think Nora and Neera and even Scott hit on, that trust element, how important that is. But, to break that down at a more, real level for us, we see a huge opportunity at Kings Crowd. And this is not to promote us, but we look at, like there, there’s posting boards on StartEngine right now. You can post your shares for sale on StartEngine as long as that company has an up to date annual report on file, StartEngine can allow you to post those shares. And if there’s a buyer who agrees with the price, they can basically buy up your shares. And we do see transactions occur, every week on that posting board. The problem is just go and check it out yourself. Look for their kind of pseudo secondary market that’s been built. And it’s in the early days. It is like, how do you know, there’s a name and there’s a share price and that’s it. And it’s how do you know if this is a good investment or not? at that share price at one share price. It might be the best investment ever. At another share price. It might be a horrible idea and so one of the things we’re working on at KingsCrowd is bringing far more information and transparency around that. Providing a place where we could say, Hey, listen, based on their latest annual report, based on how other companies that are currently raising a primary round of funding are doing financially, looking at all the key fundamentals. Here’s how the company scores at this valuation, here’s how the company scores at this valuation. If you’re an investor, it makes sense in this green zone. And then once you go beyond the share price, you probably don’t want to make the investment it’s overvalued and help people really be able to look at the underlying numbers and get a better sense of could they make the investment or not.

And I think that actually is one major unlock to the market. Moving more is people feeling like they have an ability to make an informed decision right now. A lot of people say to me, it’s cool that I could see these shares for sale, but I have no idea whether or not it’s a good idea. And by the way. It’s great that I have these shares to sell, but I have no idea what would be a good price to sell them at. And so we need to start providing information and research around the secondaries. And that comes in the form of trust then, right? Because now they’re like, okay, I have the information to actually thoughtfully think about buying or selling on the secondaries. So that’s a huge piece of the equation that we have to build out, whether it’s us, someone else, or a mix thereof.

Devin Thorpe: Yeah, that’s a fascinating point and you can see how this connects to all the different aspects of the conversation we’ve talked about before. Scott’s trust and, Neera’s regulation, Nora’s technology. You can just see it over and over. These all connect. So I really help you. I appreciate you helping to bring some additional perspective to the discussion Chris.

Nora given your work in compliance and FinTech, do you see regulators warming up to blockchain-based liquidity models, or is that still a barrier? In the United States, it’s starting to look like the regulators are getting ready to embrace it, but maybe that’s not going to happen here and maybe it’s not happening anywhere else. Give us an update.

Nora Szeles: I’m not that not expert of blockchain and based regulation and neither of the technology, but I wouldn’t say regulators are embracing this, but they accommodate this. So there are very many regulations that are being prepared and being, the efforts that this will be harmonized, etc. However, I would like to reflect to also to Neera a little bit. I was really shocked that she would say that the US is fragmented from per, from the European perspective. It’s totally, different, looks totally different than Europe is fragmented. The ECSPR is of course, It’s not a fully harmonized regulation, so it it still falls under national jurisdiction, yeah, from very many aspects. And that is, that’s really a pain point. That of course, that’s the same for blockchain based, for blockchain regulation, etc.

So there, there’s a very important elements missing from this, otherwise seemingly. Bright idea and the whole, from the perspective of the European Monetary Union and the savings, union that now nowadays how they call it, but de facto, we feel it in, in under our skin. That how much extra cost and burden this fragmentation causes to us and that’s actually really a block to cross border the growth. And this panel is about how to in enhance cross border trading, in secondary trading when the issuances are fragmented the national regulators, the way how we experienced is that they how they implemented ECSPR in, issuing a license, because it falls under, it’s always a competency of that national regulator, is that sort of what I started to call it, that they deleted every 10th row from the, for example, ICT requirements of the brokerages. Let’s say every 10th or every fifths, and then maybe they deleted one compulsory position that the crowdfunding service provider must maintain. Because they’re used to those, incumbent market participants who never had liquidity problems, who could always grow, for example, usage and fund management companies when they were segregated from banks and brokerages. They were not independent startups that needed, that need to first go, cash flow positive and then build capacities. They were funded by banks and brokerages and so they could mediate capacities too. Comply. And then to educate the market about the new market products.

That’s what I started to call the ECSPR paradox, that the regulator created the market. The Europe, at de facto, it is still an incumbency, in infancy. And we are, we as service providers, most of them in Europe are independent startups. Most of them still cash flow negative. We are expected to create the market and educate our regulators, which is a huge challenge. And that’s a very tricky question. It’s good to learn from you guys how you do this and it’s, I wouldn’t say it’s a relief to hear that Yes, even you complain here in the US it’s not, I would say that it’s good news, but it’s it’s rather a call to unite forces on the global level.

Devin Thorpe: Yeah, it certainly is. It certainly is. and it is intriguing to me that blockchain has the potential to eliminate some of these border issues from a technology standpoint, but the regulators are standing in the way and it’ll be interesting to see how we eventually harmonize that. I don’t see the. it seems like that has to be resolved. I’m interesting to see what happens, but let’s Scott, I want to come back to you. You’ve talked often about and I would like to say I share your passion. I think that one of the great things about crowdfunding is that this democratization of capital, both from the standpoint of investors, ordinary folks can invest in, I love to talk about the, Portals where you can invest $10, right? You can invest SMBX and CLIMATIZE 10 bucks. anybody literally can participate, can afford to participate when that’s the minimum buy-in is so low. But one of the things that I worry about with the secondary markets. Is that for ordinary companies, not the SpaceX, not the companies we would all like to have invested in five years ago and would beg to be in now, but what about those companies that you’ve never heard of? The small businesses that are raising a hundred thousand dollars, $200,000, maybe just 50,000? there’s a, number. Go ahead. Are they hurt by, are they hurt by a secondary market when those shares start to trade?

Scott McIntyre: That’s a very long form question. I don’t know how I’m going to be able to answer that, frankly, until we start to see these secondary markets evolve and who they’re actually pursuing as investors. But that’s a it’s a complex one. As much as we’ve talked about the benefits for investors, really for founders, the presence of a secondary market increases the attractiveness right. Of raising through crowdfunding. So I think we’re going to probably see some ratcheting in that regard. It’s going to be a maybe a slower growth to the type of velocity of investment to Chris’s terms. But these opportunities expand their pool beyond just the elite networks that have previously funded private companies. There’s also to Nora’s point, we had fortunately several years between 2012, when we got the jobs act, passed and included crowdfunding regs in it. We had a couple of years to really prepare for the onslaught of interest in these equity markets. through Title III coming online in 2016. So we had years to to really get our heads around it, and frankly, that was where it cost most of our time. Devin, you weren’t there in those days, but our work was mostly educating people on what was crowdfunding they’d heard of, they’d heard of a portal, a rewards and donation portal, Kickstarter. But they really didn’t know much beyond that, and they certainly had no idea that it would impact their business the way that it has. So education to Nora’s point was huge.

But with the advent of regulated investment crowdfunding that we’re in now, the stakes are growing in kind with risk and also expectation of performance. And I think that’s the part where liquidity, as you suggest, Devin may hurt. Small businesses because getting rid of their capital or driving down their valuations are going to be something that they have to concern themselves with. And I think that’s a big difference between public markets and small, private listings are that that constant, that churn, that need of attending to your bottom line, your your market valuation or your stock price.

And so I think that is going to put a lot of undue pressure otherwise on investments that a lot of people, as we see in the space. Are investing based on emotion. And that is a huge part of what really drove the reward and donation space was, I just love this product, or that’s my nephew, or this is someone around town that I can help, circulate that capital, if you know about the multiplier effect, local capital obviously lasts longer. It multiplies many times more than than outside capital would. So I think there’s a lot of points that you’re about to make.

Devin Thorpe: Yeah. As Warren Buffett has shown, diversification on the investor side is a smart strategy and so liquidity. Kinda reduces the concentration risk for investors as well, especially the small investors that can diversify now across multiple local and sustainable ventures instead of being locked in to a big, long-term bet or playing the gamble that they do with with public stocks.

Yeah. Yeah. it’s hard to argue, investors aren’t well served by a secondary market. It’s easier to conceive of harm to issuers, the small. Poorly known, poorly understood, poorly followed issuers when someone needs to sell shares and, ooh. Anyway, it’s an interesting aspect to this whole discussion that that does worry me. I as an investor, I’m excited to be able to have increased liquidity. I worry about this as a potential issuer too.

Okay, Neera, let’s come back to you we’ve hinted at this already touched on it a little bit, but. You really have, I think, the best perspective on this cross-border liquidity and secondary markets. It’s so sexy and again, I’ve hinted at this, the blockchain might be the mechanism that could be used for that, but the reality is regulators have to have some sort of a structure for that. And I’m wondering what can we learn from these passport style regimes like in the EU to build trust in global secondary markets?

Neera Patel: Yeah, I think the big part is around learning from what the ECSPR has done like Nora mentioned, they’ve not done everything correct. There is still a long way for them to go, but the idea of harmonizing and reducing that friction and building that trust is really at the forefront, I think, of what they’re trying to build towards and what they’ve done is they’ve actually set a single standard for investor protection due diligence. disclosure across multiple different countries. And this gives both the investors and companies the confidence to transact across border. So I think that’s a big starting point but yeah, they have got various things wrong. There are multiple platforms that I’ve spoken to where they are not only ECSPR. Compliant, but they’re also managing the laws and security laws around their own country, the domestic market as well on top. And so there is a huge cost to the platforms as well as a result of that. So definitely, but I think the idea of harmonizing those those sets of rules, allows something like a French company to raise capital. Knowing that they can attract investors from Italy, Spain, etc, across the EU member states under the same sets of rules. So I think the idea is great, but they still have a bit to go and it’s a starting point.

I think additionally what they also have pulled together, the EU is a key investor information sheet. So again, this is an example of standardization that they’ve done where you have a single disclosure document, which makes it much easier for investors to actually compare opportunities, provide warnings about potential losses. So going back to Chris’s point, when you’re in secondary markets, you want to look at what kind of financial health that those companies are under. And I think, also they have a cooling off period for investors to withdraw from promises. And so for platforms to maintain compliance across all of these jurisdictions, I think it’s a quite a valuable document, that allows both investors to reduce their confusion as well as be, regulatory risk. It reduces that regulatory risk.

And I think the other big core component, which we’ve started to touch on is technology. I think, the use of technology to enforce these harmonized rules, and whether that be in the US or whether that be in Europe or beyond the. It’s really about how could you leverage the new age technology and I think blockchain enables you to do this very well. There are a lot of areas such as, so many countries are holding us back from being able to embrace it as we’ve just touched on. But I think the idea of embedding compliance logic directly within security tokens themselves and automating the rules across smart contracts really would help investor eligibility and the transfer restrictions around that making, global system much, much more efficient. You’ve got atomic settlement going on. there’s higher transparency, and essentially investors will have self custody wallets where they have direct ownership of their equity and are able to trade on secondary markets much, much more fluidly. And the atomic settlement on top will allow those efficiencies to make it a lot more friendlier market for investors to approach towards. So I think that there’s got to be a lot to still change but there are some really good things that have come out of the EU but there is a long way and a long journey to come towards enabling digital assets across both the EU, the US etc. There’s a huge pathway, but I think the technology side is very much there. The technology can do all of this. It’s just a matter of the regulators coming together and enabling us to overcome some of those regulatory barriers that we currently have.

Devin Thorpe: Yeah. Neera, you’ve really touched on something and gone deeper on something that I think is an important follow up conversation for the group. And I’ll put this question out to all of you to weigh in as you might wish. But one of the, I think, important questions for us to begin really wrestling with is whether blockchain is the technology that is the foundational global tool that we can use, or if it’s something more mundane, Visa is processing transactions all around the globe by the gajillions in nanoseconds, often with, validating the validity of the borrower, for the transaction. there’s a lot happening on that platform. So let’s talk about what is blockchain the likely solution or is it just the sexy person at the party that has all of our attention right now? While the infrastructure that we really would likely use exists openly. What? What do you think? Who wants to weigh in on that?

Scott McIntyre: I’ll just, volunteer by saying it’s, in my opinion, it’s unnecessary for a lot of reasons. Hold on one second. the issue, comes down to, I have an alarm going off. My apologies. The issue comes down to, is this the tail wagging the dog? Is this, markets following technology just because so much money has been invested in blockchain. I think there’s an unnatural push. To pursuing it. And I think that troubles me. ’cause one of the things that we’ve done, at the Sustainable Communities Foundation is to create a local marketplace, to enable a local marketplace using a local currency. This is a single simple ledger, a digital currency nonetheless, but it encourages a type of trust and the fact that there’s no massive confusion as to what technology underlies this transaction. It’s as simple as it gets, and that goes back a thousand years. There’s really no rocket science to it, so I’m a little bit troubled. I’ll just volunteer that and let the rest of you talk about the detail, but yeah.

Devin Thorpe: Anybody else want to weigh in on that question? I think it’s an intriguing one.

Chris Lustrino: Yeah. I’ll, say one thought on it is, globally, perhaps. I think infrastructure wise, having a standardized system that works across multiple different countries, and if there, if someone comes up with a standard and can build a wholly new system, I could see how that can create better kind of borderless access as we talked about here. But I think the more fundamental problem, like if we just look at a US centric approach, since that’s where we focus a lot of our energy, I think really. Transparency and distribution are the major items, right? So when I talk about transparency, that’s the things we’ve done before around better data and research on secondaries and then distribution. And this is frankly the same issue on the primary side. How I think we see this market go to the stratosphere and become mainstream is for the likes of the Robinhoods and the SoFi’s and the Charles Schwabs and Fidelity’s, frankly, adopting these alternative investment opportunities. Putting them directly into their brokerage account offerings and putting them into the hands of their RIA’s and their wealth advisors and their asset management services.

Right? The day when you could open up a Robinhood account and invest in a deal on Wefunder directly from your Robinhood account, the same as you would Google or Facebook, or whatever it may be, that’s the day where this thing is mainstream. And then same thing on the secondary side. You could easily trade into and out of these things directly in the brokerage account where you’re already making your investments in the public equity world, that’s when it becomes super seamless and that distribution to hundreds of millions of investors in the US and then globally at some point, that’s the game changer, right? That’s how you create real liquidity and movement is having tens of millions of people have access to this in a really seamless, easy to use way with real research alongside it. Until you solve that. It’s a real challenge just because there’s not enough distribution and users buying and selling to create volume to understand what pricing should look like.

Devin Thorpe: Yeah, good points Chris. Anybody else want to weigh in on this technology question before we move on? I’ve got another question I want to jump into, but.

Neera Patel: Yeah, so I just was going to add, I think one of the big key pieces around blockchain, so when we’re thinking about technology is the fact that you are able to use smart contracts to enable and build in that framework, the regulatory framework and so you can embed all of that logic. So one of the problems and the challenges that you have within, say, for instance, cross-border as a challenge, is you have to rely on the corresponding banking model. So you’re looking at two plus two, two plus three times, in terms of movement of money. So what the blockchain does do is provide a, enables you to verify the investor. You can use zero knowledge proofs to be able to do that and additionally, you’re able to move money much faster knowing who your investors are, knowing where the money is going to be moved and executing that trade within a matter of seconds or minutes even. So I think that’s where the efficiency comes in. And then to add to that, you have the transparent nature that blockchain inherently provides you with. So I think from that point of view, the technology has the capability. I think the industry and the globe as a whole has been very resistant to blockchain and I think, once they start to embrace it, we will start to see a much more faster movement of peer to peer trading around those this space, because the technology has the capability to provide that infrastructure. So I think, it’s very adaptable. And provides those efficiencies that I think investors are seeking. So when you’ve got investors who are very young, who are looking to move money to make money very quickly, when it is all about secondary trades, you want to provide that efficiency, which I think the corresponding banking, this is all to do with cross border is not able to achieve in today’s climate, as well. So I think that’s partly where I see it.

Scott McIntyre: Sure. I might add to that, Devin, if I may. Okay. because it occurs to me that the speed of a transaction, while beneficial, obviously, to people in the industry who make money by the volume of transactions that they can exhibit is one thing. But, caveat emptor does not really protect anyone ultimately, right? And secondary markets won’t thrive on enthusiasm alone, as we’ve seen, through the adoption rate of crowdfunding in general. Certainly on the equity side, despite its success, it’s still quite a bit slower, right? And they need confidence built on clear, consistent information before any legitimate liquidity will be on offer. And so I’m a little bit concerned and I’ll hint back. I’m not a Luddite in that case at all. I understand and perfectly accept the benefits, as Neera described, a blockchain in the underlying technologies are spectacular in the right environment. I just think that secondary markets can only scale if buyers feel that they’re protected from black box dynamics, that we’ve all become acutely aware of, as a result of numerous, at least in the United States, systemic level, fraudulent market collapses with nearly zero enforced accountability. So for me, third party, verifiably objective ratings, which we talked about earlier, although I have a lot more points on that, and then accountable transparency. Transparency is great, but unless it’s accountable and accountable to a singular method of law and enforcement, forget it, it’s meaningless because one more fraud and then the whole system gets wiped out because nobody trusts it and trust again, is where we started. So until these tools, are trusted, it’s just another, it’s another marketplace. It’s, saying technology, And I’m concerned that it’ll fog the atmosphere.

Devin Thorpe: Yeah, good point. I want to try and sneak in one last question here. When we talk about secondary trading, it’s easy to conceive of how this works in a way that’s parallel to public markets where primarily what trades is common stock. It’s not too hard to envision trading preferred stock, but when you take even a close look at that, you think about a venture fund when it buys preferred stock in a company, it gets a whole bunch of rights. Which of those rights would transfer with one share of that preferred stock or two shares that might have bought a million. So it’s, I don’t know that it’s even straightforward when we’re talking about preferred shares, but certainly it starts, all kinds of nuances come up when we start talking about how to trade safes, how to trade convertible notes that are short lived and converted 18 months or six months. What about trading advertising notes, and revenue based financing notes. So there are all kinds of different things, different complexities. Is the technology and the regulatory infrastructure capable eventually of handling all of those instruments? And if so, how? What do you think?

Scott McIntyre: I would think that AI is going to be a big advantage in that space. That is a place where technology may actually exhibit some real benefits to the end user, not just to the issuers, but to the investors to de clutter, to demystify a lot of these instruments, I think is going to be a huge benefit.

Chris Lustrino: Yeah, good point. Yeah, I certainly see it being able to handle that. And I think it’s really just coming up with standards, right? That we all follow based on if it’s a note or it’s a safe or it’s a preferred equity share. But there’s another part of this, which is if you go one layer up, is there a world in 5, 8, 10 years, if you see that offering liquidity is extremely powerful to raising primary capital and having secondary shares be able to trade after someone’s invested could provide the best form of liquidity for an investor. Does it dwindle the need for preferred equity and convertible notes and like it just becomes the most attractive instrument? I don’t know the answer to that. Part of me does believe at scale. If that’s the best way to provide investors liquidity along the way, and allows them an out, that might be the most attractive thing you could offer an investor, and that becomes the most attractive thing. So that’s what I think is like the long term but I certainly think there’s an easy way of coming up with standards for us to be able to follow for different instruments.

Scott McIntyre: Yeah, I have to agree with Chris on that too. Devin, I think, liquidity, while it will heighten inclusion and that’s again where I go back to you asked about democratization earlier. While liquidity heightens inclusion, it also creates the conditions for community wealth building. And this is a subject you and I are obviously very personally invested in. And I think that is one of the benefits of crowdfunding, that a lot of people don’t talk about.

Devin Thorpe: I want to thank all of you for this really amazing discussion. You think about the, there may be nothing more fundamental to the success of this marketplace than the creation of this secondary aspect to it in to complement the primary marketplace that we all love and participate in, one way or another. So I’m really grateful for the all the different perspectives and it’s amazing the insights I think I’ve received from listening to each of you. You all know things I don’t know. And I’m one of those arrogant turds who always thinks I know everything already. And It’s been delightful to to learn from each of you. And I want to thank you for each bringing your expertise, your capacity, your insights, your message to this great conversation. And with that, I’ll turn the microphone back over to Andy.

Andy Field: Thank you, Devin. Yeah, just to echo, that I’ve learned so much too. obviously TRUST once again, comes up as the key foundation to everything that we’re discussing. It’s come up in all of the round tables that we’ve got in this series, as well as education. Again, the need to help and inform in investors, make the informed decisions. And I think from that discussion it’s clear that standardized data, we’ve talked about that it’s a must. It’s clear that regulatory frameworks across the globe are going to differ from jurisdiction to jurisdiction. They’re a little bit from. Fragmented, they need to some extent to be harmonized and streamlined. And that’s just to be able to take advantage of the advantages that we’ve seen in technology that have designed, been designed to produce the mechanics of a liquid secondary market. And that’s going to benefit us all, the whole industry on a global level.

Scott McIntyre: Scott, you’ve you’ve just raised your hand.

I do, I just, I figured since we’re recording, you can edit this out later, but I did want to pay a special tribute to you, Andy, for reaching out and forming such an amazing group of people those that I’ve met with on the steering committee are awesome, and I hope to see more of you more regularly. But I did want one thing out because you really, I’m going to echo what you just said to a degree, ultimately a functioning secondary market can transform crowdfunding to what we’ve experienced, which we’re oftentimes one-off test the waters, all this good stuff that we do, and to a real self-sustaining ecosystem. Whereas we’ve discussed trust, transparency, liquidity, all combined, to drive a real equitable growth for companies otherwise wouldn’t never have had access to the capital they needed. But as we’ve also seen in the US, this requires an active ethical group of professionals to guide these new rules to guide these collaborations, especially at the national level. And as we’ve also seen in the US that formula requires more than politicians and regulators requires people like you. So thank you again for bringing everybody together.

Andy Field: No. Thank you. Thank you everyone. It’s fantastic. and I was just going to say, actually the conversation isn’t finished. We’ll continue this conversation with GECA All of the supporters of GECA are welcome to get involved in that. So watch this space for more on that. And if you need any more info, obviously the website is there. it has all of our latest publications, all of the latest content that we put out, it’s at thegeca.org. And I just remains for me to say thank you all again. What a fantastic conversation. Thank you.