Andy Field: [00:00:00] Hello, everybody. Welcome back to the second of the Doubleheader Global ‘Crowdfund Chronicles’ podcast. This is the second part of identifying the challenges of cross border equity crowdfunding. My name’s Andy Field. I’m the executive lead of the GECA Steering Committee. And once again, I’m going to be your host today.

I’m delighted to welcome back Ian Lowe to the Chronicles to continue our chat about identifying the challenges of cross border equity crowdfunding. And just to recap, Ian’s a member of the GECA steering committee, but his day job is that he is CEO of Dacxi Chain, who are a fintech company who are transforming equity crowdfunding by connecting platforms from different jurisdictions around the world into a single network.

Welcome back, Ian.
Hi Andy.
Hi there. So Ian, we talked last time, in some depth actually about some of the regulatory challenges that we need to consider as we strive to break down the borders of equity crowdfunding. And we also talked about how technology can help play a part in all of [00:01:00] that in facilitating our efforts.

I’d just like to move on a little bit from that just to continue the theme, and you’re working in this area specifically with Dacxi Chain. So I’d like to talk a little bit about some of the progress that we’re making, and I was wondering whether you would be able to give us any insight into perhaps some of the situations that you’ve experienced with Dacxi Chain, where platforms are looking to navigate around these cross border challenges.

Ian Lowe: Yes, certainly Andy, I’d be pleased to. So look, first of all, the Dacxi Chain infrastructure technology is built specifically to coordinate and automate this process. Okay, so a decentralized network infrastructure, a set of open APIs where platforms can collaborate directly with each other. So what that means in literal terms is I’m a platform, I secure a deal with an issuer, I expose that deal to my [00:02:00] crowd on my platform, but I can now also push that into a purpose built API.

And on the other end of that API, there are other platforms in other jurisdictions that are able to ingest all the parameters that articulate and describe that deal and present that same deal inside their own platforms. Okay. Now, once we get to that point, there’s really two ways in which this is able to unfold.

And both of these have been built into the technology. The first is what we call a referral model. And so this is where let’s just take a simple example of two platforms, platform one and platform two. So if platform one secured the deal with the issuer, they expose that deal through the Dacxi Chain APIs to the network and platform two is able to then ingest that deal and present that deal in their own catalog on their own [00:03:00] platform.

The referral model is where, depending on the type of investor and in particular retail investors, there are often jurisdictions—or there are often rather restrictions in certain jurisdictions, not all of them—that would prevent Platform 2 actually securing investment money on behalf of Platform 1, and then essentially transferring that money back. Okay? The referral model is just saying, okay, Platform 2 is exposing this deal, which originated with platform one, to their crowd. And then if one of their own crowd is interested in this deal, they click on “show me more” or “view offer document,” whatever it might be, and they are redirected to platform one where they can register and get full access to the deal and ultimately invest.

The second model is a model where everything up to the point where the investor [00:04:00] decides that they want to see the offer document is exactly the same, except they would actually place their investment on platform two, and then platform two will redirect those funds back to platform one where they can in turn be passed on to the issuer in return for the equity that is issued to that investor.

Okay, so we’re talking about a hybrid of different models working side by side, not just deal by deal. This hybrid would exist within a single deal where certain jurisdictions are operating under a referral model. Other jurisdictions might be operating on the decentralized model. And indeed, different investors from the same platforms might be operating on either of those models, depending on the restrictions that apply in both the market where the deal was secured and also the market or jurisdiction of the [00:05:00] platform that the deal has been shared with. Okay.

So what we’re really talking about here is work that is happening right now—working with established, extremely credible platforms that have been in market for a number of years, have a viable business. They operate under a set of regulatory rules. And they are, on that basis, an approved provider of equity crowdfunding as a platform—and allowing those platforms to collaborate through that purpose built infrastructure, share deals. And of course, by virtue of that, what we talked about previously, what we’re achieving is we’re going from a crowd of X to X + Y. And then as the network builds—and that’s work that’s happening right now—as the network builds, the size of that crowd increases [00:06:00] exponentially.

To answer your question—there’s a bit of background about how it actually all works. It gets a lot more complicated than that, which I won’t go into right now. But this is happening right now. So, there are platforms that are well established in different jurisdictions who are now doing this work to share deals with each other through the Dacxi Chain infrastructure via the APIs that sit within that infrastructure and, by virtue of that, significantly expand the crowd that is exposed to any single deal.

And of course, this is working in all directions, not just from 1 to 2 or 2 to 1. But as the network expands, we get that network effect where deal flow increases significantly, the size of the crowd increases significantly and ultimately the amount of capital that is, that can be raised successfully, is increased significantly.

Andy Field: So would it be fair to say then that in your experience there is a desire and a will to overcome some of these challenges? You’re working with people right now who are looking to do exactly that in various different ways. So there’s definitely—

Ian Lowe: Unambiguously. Yeah. So that, in many respects, would almost be an understatement.

So the platforms that we talk to—it’s important in these early stages that we partner with platforms that have a real appetite to get in the trenches and do the work with us because we’re really pioneering this in partnership with them. So there’s work being done in this process that doesn’t have to be done again. If you like, it’s being done on the basis that we are pioneering this. But their appetite to see this come alive is every bit as strong as our own. Okay, they see this as good for their business. They see this as good for the industry. And they see the bigger effect that this can have as it scales, whereby just quite simply more capital becomes available to fund more innovation. [00:08:00] Okay. And so in terms of equity crowdfunding’s participation in the overall funding of the enterprise economy, this is a complete game changer as we start to build scale into that network.

Andy Field: Yeah, that’s really interesting. And you probably won’t be surprised to hear that doesn’t come as a big surprise to me, given the aims and objectives of GECA as an alliance are to obviously navigate some of those potential barriers to operating in a truly borderless environment. So that’s really interesting.

And so regarding the future—because obviously you have two hats to wear. You are CEO of Dacxi Chain, but you also play an active part in GECA. Both yourself, personally (you are on the steering committee), and also Dacxi Chain are active supporters. So perhaps with both hats on, I suppose the next question I’ve got really is: what trends do you see shaping the future of cross border equity crowdfunding? How do you think that’s going to pan out?

Ian Lowe: First of all, we’re making the first steps in this [00:09:00] direction. And so the number of platforms that are willing and able to participate—we’ve already got a number of those that we’re talking to and bringing them into the fold. This is something that the industry wants universally. And I might add, whether you’re a really big player or whether you’re a smaller player, this idea of having access to a larger crowd is seen as universally beneficial.

Benefits all the stakeholders, benefits all the platform providers in all of the markets. But in terms of some of the other trends that we’re seeing more generally, one of the really interesting developments over the last 12 or 18 months—and we’re seeing more and more of this—is hybrid models emerging as it relates to raising capital through the issuing of new equity.

We’ve had these very distinct channels of capital with professional investors—let’s call them venture capitalists. [00:10:00] Equity crowdfunding is a very small part of the overall investment market. But what we’re starting to see now, as equity crowdfunding continues to develop and continues to grow, is we’re starting to see cooperation between these groups.

So venture capital sees equity crowdfunding platforms as a wonderful lead source where they can actually get access to interesting opportunities that they otherwise would never have known of. And they like to look at this in the context of the synergies or the themes that they already operate in—the way that they invest. So that benefits them. And then from an equity crowdfunding perspective, they’re realizing that this actually benefits their issuer and therefore themselves as well, because they might actually take a cornerstone investment from a VC and then run an equity [00:11:00] crowdfunding process in parallel with that—almost as a sidecar.

Now, it works the other way around where an issuer has a strong community with strong support. They want to go down the path of giving every one of those supporters an opportunity to own shares in the business. They do an equity crowdfunding round and they might do a top up through a professional investor. Okay, whether that’s an ultra high net worth or whether that’s a VC or anything in between. So these hybrid models are developing and they’re developing fairly quickly. And we see more of that happening, not less—more cooperation between these different sources of capital, which if you think about equity crowdfunding from a retail perspective is vastly different to somebody that actually gets paid to show up every day and look for and analyze companies that are looking for investment. So they’re really at very different [00:12:00] ends of the spectrum in terms of sophistication. But I think the issuers and the platforms that represent them in equity crowdfunding see the merit in some of these hybrid deals.

And interestingly, professional investors, including VCs, increasingly see that merit. So that’s one—sorry, a slightly long winded answer to your question—that’s one area or trend that’s developing. We see a lot more of that coming. The other is tokenization.

Andy Field: Yes.

Ian Lowe: So let me just quickly explain what I mean by this.

So there’s a number of crowdfunding platforms, not just equity crowdfunding platforms, but also equity crowdfunding platforms, who are moving into tokenization. And so what this means, simplistically, is that shares that are being issued to investors are being issued in the form of a blockchain compatible token.

So it becomes an immutable digital record of ownership, and [00:13:00] all of the same rules that would normally apply around an investment are enforceable through that token, through what’s called smart contracts that are buried within that token. So it’s just literally a digital record of ownership rather than a piece of paper—probably the easiest way to think about that.

Now, the reason that tokenization is becoming more of a focus for the industry is because it presents some really distinct benefits to various stakeholders in the value chain. The first is that for the individual investor, it’s actually much easier to take ownership of a token. For some, it might be a new way of doing it. But there are lots of tools that explain how this works. There are lots of tools that make this very safe if you follow certain easy to understand rules. So in many ways it’s easier for the individual investor. One of the much more significant benefits, I think, is that [00:14:00] tokens can be traded through what we call secondary exchanges.

If there are multiple holders of a token that represents shares in a company, that company is privately traded, so the stock is not tradable on a stock exchange, but secondary exchanges can actually fill that void. We have supply and demand on a blockchain-enabled exchange where people can bring their tokens and buy and sell those tokens. Okay. So secondary exchanges become a viable option for the holders of tokenized equity. And what that means, of course, is that their liquidity event—or the point at which they decide they want to sell some or all of that stock or shares in that business they’ve invested in—they can now actually decide when that is, okay?

And they can do that through these secondary exchanges and these secondary exchanges are popping up everywhere. In fact, a lot of [00:15:00] equity crowdfunding platforms also operate a secondary exchange for exactly the reason I’ve just described. It’s a very logical extension to the actual raising of the capital is the issuing of a token, and then allowing those tokens to trade on a purpose built exchange—secondary exchange. So for the individual investor, the benefit of this is that I can take ownership of those shares; if they’re not tokenized and it’s a privately held business (which equity crowdfunding 99.99 percent of the time, that is the case), then I can’t trade those shares. I have to wait for some kind of future investment event or something else that goes on—an IPO or something else that develops for that particular company I’ve invested in—before I can liquidate some or all of my shares. But with tokenization, that challenge has been significantly addressed.

There are some other benefits that are a bit more complicated and we don’t need [00:16:00] to go into today, but tokenization is another trend. We’re going to see more of it. Just from a Dacxi Chain perspective, our technology has been built right from the very outset with the intention of becoming fully blockchain enabled.

Which means that we will also bring a suite of tools into our platform that allows the participating equity crowdfunding platforms to actually access those tools and decide whether or not they want to issue—on behalf of the issuer and with their permission—equity to investors in the form of tokens instead of share certificates.

Okay. And then get access to all these other benefits. So that is something that’s in our near future. And we’ll be talking more about that in coming weeks and months.

Andy Field: That’s, yeah. That sounds like a game changer and it’s probably the subject for a podcast in itself—tokenization. So maybe we’ll get back here to talk about that in a bit more depth. So yeah, that’s really interesting. Thank [00:17:00] you. And just generally, how optimistic are you about the global interoperability of equity crowdfunding markets?

Ian Lowe: I’m incredibly optimistic about it, and the reason is because we have done the work to understand exactly what the restrictions around this really look like. Okay. Not just headlines. But digging into the detail of the regulations, understanding all the rules in a number of different jurisdictions where we’re focused over the next 12 months in particular—to understand what can be done. There’s always a lot of focus on what can’t be done, but what we’ve discovered is an enormous amount can be done.

In particular, like I said, there’s this distinction between retail versus sophisticated investors. In almost every regulated jurisdiction, the rules around what a retail versus a sophisticated investor can and can’t do are very different. So you’ve got quite a lot of scope to entertain this vision of the [00:18:00] future around borderless equity crowdfunding when it comes to dealing with sophisticated investors. In certain jurisdictions, you’ve got a lot of scope as it relates to retail investors. That’s not yet ubiquitous or universal, but I also think that part of the opportunity for groups like GECA is to come together as a global industry, understand what are some sensible, non controversial changes that might be proposed to regulators that would actually both improve the protections that they’re trying to introduce for investors—particularly retail investors—and at the same time, open or break the shackles and allow cross border crowdfunding to really turbocharge.

And so we’ve got some very clear thoughts on that. We’re sharing those ideas with GECA. We think that forum is enormously important to get the industry understanding the opportunity, [00:19:00] informed about what that looks like in different jurisdictions around the world, and then actually working together to progress that.

Which includes getting our hands dirty and working with technology like Dacxi Chain to actually start the process.

Andy Field: Sure, and I was going to ask you next what you feel the most critical issue is that needs to be addressed if we’re to unlock this full potential of cross border equity crowdfunding. And I think you’ve already answered that question when you’ve spoken there. And I think something else to add to that is to actually let the equity crowdfunding platforms themselves across the globe realize and understand that there are things that can be done about some of the situations that they find themselves in that are potentially making things slightly difficult to operate across different jurisdictions.

And I think we, as an alliance, have a challenge and a job to do to help educate and inform, and really just talk to the equity crowdfunding platforms across the globe and let them know that we do have a resource out there, i.e. we have GECA, we have lots of [00:20:00] experience, we have lots of supporters who can share their vast knowledge of dealing with policymakers, regulators, and just working together actually to help address some of these issues. And I think that education piece is going to be really key. And I wonder if you’d agree with that.

Ian Lowe: Totally. What this boils down to—this is absolutely straight out of the textbook, right? In terms of pioneering a new path forward for the industry. Technology is the only way to achieve it. That’s certainly, I think, a well understood and well accepted position, but if the industry wants this, the industry needs to participate. Really, this is the key point: if we take all of the voices of the industry and we come together and we start to explore what can be done and the best ways in which to move things forward, what we discover is that a lot of the answers are actually already there.

It’s just a collaborative process where we share experiences, [00:21:00] we start to articulate some of the problems and the opportunities and then we move forward in a way where people are informed. And this is why the GECA initiative we believe is—and why we’ve been so supportive—is incredibly important, because it’s actually the industry coming together.

Now, some of those participants might say, “I just want to listen in. I just want to hear what’s going on. I want to understand the direction. I want to understand the status. And when the time is right for me, I’ll insert myself.” And others will be more prone to say, “Look, let’s get involved here. Let’s find out how we can actually start to get involved. Explore this concept of borderless crowdfunding and cooperating with a network of like minded platforms.” But in the end, the theme that this comes back to is participation. We’re enormously enthusiastic about GECA. We think it’s important. It’s not an industry association. It’s been created specifically for the industry to come together to talk about this [00:22:00] singular objective.

Andy Field: That’s right. Very focused. And—

Ian Lowe: How we actually progress against that singular objective. So participation—I would encourage anyone that has any kind of interest in this path that we’re traveling to become a supporter. It costs nothing. You don’t have to invest time. And you can stay up to date with all the things that are happening.

Andy Field: Yeah, I couldn’t have put that better myself. But listen, we have unfortunately run out of time today and there are certainly things I’d love to expand upon in the future that we’ve touched on today. So thanks again so much for taking the time to talk to us today. I’m sure all of our supporters are going to find your views really interesting. And also thanks everybody for listening again. We’d love to get your comments, we’d love to hear your views on this and anything else that you might want to hear about in the future via this podcast.

You can email any comments in to contact@thegeca.org and we’ll share any feedback that we have from this podcast and any other episodes on the website. And do look out for the next edition of the Global Crowdfund Chronicles coming soon. Don’t [00:23:00] forget, if you’re not already a supporter of GECA, as Ian said, there’s absolutely no cost to become one.

You simply visit thegeca.org, click on “sign up as a supporter now,” and it’s as easy as that. So until the next one, bye for now. Ian, thanks very much once again, and we’ll speak to you again soon.

Ian Lowe: Pleasure, Andy. Cheerio. Thanks very much.