Trading Tomorrow - Navigating Trends in Capital Markets

Speeding up Capital Markets Through Quicker Capital Raising

• Numerix • Season 2 • Episode 20

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Join host Jim Jockle on "Trading Tomorrow - Navigating Trends in Capital Markets" as he speaks with Rodney Reisdorf, the CEO and Co-Founder of Verivend, dubbed the "Venmo of private capital.” Raising capital is a critical and time-honored endeavor within the finance industry. It often means a complex web of paperwork, regardless of the funding mechanism. Verivend is trying to change and speed up this process. This episode unpacks Verivend and the integration of technologies like blockchain, artificial intelligence, and secure digital platforms that could revolutionize how we handle private market transactions in the future. 

Speaker 1:

Welcome to Trading Tomorrow Navigating Trends in Capital Markets, the podcast where we deep dive into the technologies reshaping the world of capital markets. I'm your host, Jim Jockle, a veteran of the finance industry with a passion for the complexities of financial technologies and market trends. Because this is Trading Tomorrow navigating trends in capital markets, where the future of capital markets unfolds. The landscape of the finance sector is undergoing a shift. We're witnessing an era where traditional banking and financial standards are being reshaped by technological advancements. This transformation is bigger than just transitioning from paper-based systems to digital platforms. It encompasses the integration of cutting-edge technologies such as blockchain, artificial intelligence, mobile banking, among others, that are fundamentally altering the way we engage with monetary assets and financial services. Innovations that are not only making financial transactions more efficient, but are also revolutionizing capital markets by accelerating traditional processes.

Speaker 1:

Raising capital is a critical and time-honored endeavor. Within the finance industry, it often means a complex web of paperwork and big-time investments, regardless of the funding mechanism being used, but there's a company that's trying to change that. Joining us to discuss is Rodney Reisdorf. He's the CEO and co-founder at Verivend. They're often called the Venmo of private capital. Verivent was founded to deliver a painless, paperless and effortless way to move private capital while still providing a secure environment for firms, funds and their LPs to transact. Rodney is an experienced, results-driven leader of SaaS and enterprise software solutions, with a successful history in the B2B and B2C industries. He has served in senior level and leadership roles focusing on market-leading technology platforms, client delivery and operational strategies. Rodney, thank you so much for joining us today. Thanks, Jim, Glad to be here. So just to kick us off, can you give us a brief overview of what Verivin does and the core problem in the capital markets your company is trying to?

Speaker 2:

address Sure. So I think the title of the episode of this podcast Speeding Up Capital Markets fits perfect, because we're really looking to disrupt and transform how private market transactions are happening. So we're typically known as the Venmo of private capital and we're a purpose-built payments platform to help GPs be able to focus on why they became GPs and focus on finding deals and working with their portfolio companies and getting the best returns they can for their LPs and just providing a frictionless experience for LPs to invest and just better security for everyone.

Speaker 1:

So your company tagline is effortless, paperless and painless. Can you explain why you pick these words and how they differ from the way private capital has?

Speaker 2:

traditionally been moved. Sure, so it's really the opposite of how private capital has traditionally moved. It's been full of effort, it's been full of pain and it's been full of paper. So I was actually just reading a pitch book report this morning before I came over, and it was all about how private credit has ranked second in the past year for annual performance and fundraising.

Speaker 2:

And then I always like to think about this rise of the retail investor. So I think about speeding up private markets in two ways. There's this inertia and this momentum in that there's these new asset classes like private credit coming up. There's many reasons why retail investors are coming onto the scene, from just GPs widening their network of available capital and retail investors looking for ways to outperform the public markets. So there's the speeding up of the private markets. That is happening, whether people like it or not. So GPs and also LPs are really challenged with ways of how to keep up with that. And then back to the effortless, paperless and painless. There's just this need to speed it up anyway, because it has been slow, it has been very manual, it has been very paper-based and there's just been a lot of friction because nothing has changed since the dawn of time for how GPs raise capital and LPs invest, and how everybody interacts.

Speaker 1:

In an era where digital security is paramount, what measures has Veravant implemented to ensure the safety and integrity of transactions and data?

Speaker 2:

Yeah, that's a great question. So at the core, it's really technology and the technology that we've built from the ground up. But if you back up a little bit, you think about the ubiquitous terms that are still in the private markets, things like what's the check size that an investor writes? Have you sent the wire? Where are the wire instructions? Those are hundreds-year-old terms and I always kind of like to go back and reflect on the fact that many people don't even think about why wires are called wires.

Speaker 2:

Wire transfers are over 150 years old and the reason they're called wires is because the first ones were sent way back in the 1870s from Western Union's telegraph lines. So you think about that and you think about how ubiquitous those methods of money movement are today. Nothing has changed. So really it's purpose-built technology that is focused on transforming how people are interacting and transacting, and the main way to call capital and send distribution payments today has been exchanging bank account information, which is insane in my opinion.

Speaker 2:

I mean, if you needed to pay me or I needed to pay you, would we exchange your bank account information? No, we'd pull up our phones and use something like Venmo or PayPal or Zelle. So that's really why we go back to. Verivend is the Venmo of private markets, because what we're doing is just transforming how people are able to interact and transact, but also with the common denominator of security, so that nobody is ever having to exchange bank account information, share their sensitive information, and that, you know, is all susceptible to get compromised and hacked. We hear all the horror stories all the time of wires going out to the wrong people because a bad actor was in someone's email and then they gave them fraudulent wire instructions and then the wire goes out and it's unrecoverable.

Speaker 1:

So you're suggesting I should take the spool of wire out of my backpack that I carry around? Yes, yeah, maybe.

Speaker 2:

Yeah.

Speaker 1:

Got it. So how do you focus on transparency and why is that important?

Speaker 2:

So, looking at what the current method is of a GP calling capital or sending distribution payments, I think about it as a black hole.

Speaker 2:

So the traditional way is for a GP to send out capital call notices.

Speaker 2:

They're typically Word documents or PDF documents, sometimes through email, which is very scary because those can get compromised, as we were just talking about, or maybe put it up on a static document sharing portal, as we were just talking about, or maybe put it up on a static document sharing portal, but they're just they're waiting.

Speaker 2:

They're waiting for the LPs to hopefully look at them, to fund them and, as we all know, there's always a rush to close a deal or close a transaction and the last thing you want is a last minute surprise, right? So, and the same goes for distribution payments, when distributions go out, typically they're sent via wire. There's a document that goes out to the LPs, but there's no connectivity between GPs and LPs. So that transparency and that accountability is something that we're really focused on, so that when GPs send out all their capital calls, they can see in real time how many of their investors have looked at them, how many have funded them, how many haven't funded them, and then just the automation of that whole process, everything from sending automated reminders out to LPs who haven't funded, sending confirmations when incoming funds have been received, and just keeping everybody on the same page every step of the way.

Speaker 1:

And perhaps we could take a peek under the hood. Is that specific to blockchain, or what kind of technology is?

Speaker 2:

powering. So I get that question a lot and what we've done is we've taken the best principles from blockchain and from cryptocurrency. So we're not blockchain by definition, we're definitely not cryptocurrency. But what we've done is we've built our own secure ledgering technology to ledger all of incoming, outgoing and in-between transactions and then we are also tokenizing all of the incoming and outgoing transactions, so it's all fiat USD currency. So we've leveraged a lot of those great technologies from things like blockchain and crypto and made them applicable and made them focused on the private markets.

Speaker 1:

So, from the perspective of your clients, how does Verivan simplify day-to-day operations of capital markets participants and what feedback have you received from early adopters?

Speaker 2:

So I always like to say that nobody becomes a GP or nobody gets into private market investing to do all the manual back office repetitive tasks. Gps aren't supposed to be chasing people down for wires or having to manually reconcile whose $100,000 wires is whose, because we just received 100 of them or 10 of them today and nobody knows which one is which. And GPs should really be focused on finding great deals, closing those deals and working with their portfolio companies to get the best returns for their investors. So that's number one. We not only save GPs time, we allow them to get back to being GPs and the reason why they became GPs and started investment funds or sponsoring investments.

Speaker 2:

The second one is on the investor side. Amazon makes it easy to buy. You swipe to buy and that's usually why there's a big stack of cardboard boxes at my front door every day. That is, if you make it easy for an investor to invest, they're going to come back for more. They're going to re-up. And you look at a tale of two funds one that is using the old school way of just paper, pain and effort and sending out those static capital calls, and you look at one that's using a platform like Verivend where it's literally a one-click process for the LP to invest. Which one is the LP going to continue to invest in, right? I mean, if it's easy to put your money someplace, it's probably going to be easy for you to do that over and over again. And then again, just that security, which I can't stress enough, of never having GPs or LPs exchange their sensitive banking information, keeping everything secure and never susceptible to fraud or compromise.

Speaker 1:

So I would be remiss if I didn't bring up regulation right. Obviously, in emerging asset class, there's talk of regulatory barriers coming down. That is accelerating the market, as well as even institutional monies coming into this particular market. So how does Verivan navigate the complex regulatory environment and how do you stay ahead of compliance?

Speaker 2:

So there's certainly no shortage of rapidly developing regulation, and regulation is both good and bad. If you look back at the Bipartisan Jobs Act from over a decade ago, that certainly was helpful because it relaxed regulation. It allowed more retail investors to come into the market. And then, if you look at the one that's in a discussion right now it's HR 2799, but more commonly known as the Expanding Access to Capital Act that will potentially allow up to 600 investors for a GP. It's past the house, it's an election year, who knows whose desk it's going to end up on? But there are motions and there are signs from the regulatory environment that people want to encourage more development and more openness and more flexibility in the private markets. So that's the good.

Speaker 2:

The bad part is it's really hard for GPs and investment sponsors to keep up and manage all these regulations. I mean, if you can imagine how hard it is for a GP now to manage up to 99 investors, it's going to be unbelievably difficult for them, probably nearly impossible, to manage up to 600 investors, just because the more transactions, the more investors, the more chasing people, the more complexity that they wind up with. So with that, people and GPs and LPs are really challenged with how can they keep up with this expanding regulation, how can they keep up with this expanding way that people are going to be investing? And, on the bad side, I always like to reflect back on I call it the most expensive text messages that were ever sent. So I remember when I got my first cell phones, there was all these text message plans. Right, you had to monitor how many minutes you had, how many texts you had.

Speaker 2:

Well, the SEC also does that, and just last month, they fined 16 firms $81 million, and that equates to over a billion dollars of fines over the past few years for what the SEC has labeled off-channel communications, and what that means is GPs and their firms have been texting, have been WhatsApp messaging their investors, and the SEC doesn't like it because it's all of these out-of-band communications. So you look at the expanding regulatory environment, the relaxation of regulation, and then just the ways that people have tried to catch up with that that really haven't been within the regulatory environment or the guidelines. They need tools, they need solutions, they need technology to keep up on that and to make sure that they are staying compliant, and that's, you know, one big thing that we're always focused on as well who actually specific to private credit and I, you know, I think of, you know, in my world, world, in terms of derivatives, you know the SEC has some oversight, cftc has oversight.

Speaker 1:

You know which bodies are, the are, are the? Obviously things are with Congress now, but who are the main regulators and how are they maneuvering within those markets?

Speaker 2:

So it spans a couple it's the SEC, it's FINRA and then, from the banking side of it, it's either the OCC, for federally regulated banks, or the DFS, the Department of Financial Services, for state regulated banks. So there's a lot of bodies and a lot of regulation that are overseeing this, and you know each one has their own agenda, rightly so. So it's just looking at all of them and making sure that we're staying up to par on them, but also we're giving our customers, the GPs and their LPs, the tools to maintain a compliant regulatory environment as well, so that they don't get fined $81 million for sending a text message that all messaging, like it is on Verivend, is kept in platform. It's all chronicled, it's all date and timestamped. So really there's no dispute on who said what and when, because it's all there and it's one source of truth.

Speaker 1:

And so thank you, and I was curious have you received any pushback from the finance industry regarding your technology and, if yes, how are you handling that?

Speaker 2:

I wouldn't necessarily say we've received pushback, but at the end of the day, we are teaching our customers and the industry to work in a new way and to operate in a new way, and it's really about the education of it and shining a light on all the problems we've been talking about where it's just it's a lot of pain, it's a lot of unnecessary effort for GPs and investment sponsors.

Speaker 2:

There's just a lot of unnecessary friction for LPs to invest in these sponsors and these GPs and just, you know, no end in sight for the security risks of the status quo. So it's really showing that the status quo, as ubiquitous and standard as it's been, is not the best way to run private market transactions and investment transactions. So that's actually the fun part, in my opinion, of what we're doing. We're, you know, we're evangelizing a new way for people to work and most people are embracing that. I mean, it does take a little bit to get some people over that initial hump, but once they see it, once they watch it in action and realize how it can work and not only, you know, save them time and money and effort and improve their security, then the majority of people are embracing it and adopting it.

Speaker 1:

You know it's interesting that you know we've seen so much inefficiencies in other public markets. You know I think of bond markets, for example. Do you think there's lessons learned? Or because of the new technology mindset within private credit, it will be a catalyst to market structure changes in other, less efficient public markets.

Speaker 2:

I think there's definitely a cascading effect that's going to happen. I mean, if you look at just the generational changes in both the public and the private markets, you've got more tech-savvy investment sponsors, more tech-savvy investors and the whole democratization of investment transactions. I think that you know we're really only in the first inning of innovation for both the public and the private markets and there's been a lot of lessons learned to your point and I think from those lessons it's just going to continue to drive more, further adoption of innovation and cutting edge technologies to really make things more efficient, more seamless and more secure for everybody on both sides.

Speaker 1:

And what future developments or features can Vervin users anticipate? Are there any upcoming innovations you're particularly excited?

Speaker 2:

about.

Speaker 2:

Yeah, I mean, we're always planning some really exciting things for our product roadmap and we're very proud to have what we call a client-driven product roadmap, where my co-founders and I have worked for way too many companies where there was a very clear disconnect between the customers and what the company was building.

Speaker 2:

And we work alongside our customers and you know, one of the most fulfilling things about what we're doing is when we hear customers say, wow, I can't believe it's already in our product already, because I just asked about that a couple of weeks ago or a month ago. So we're really proud to work alongside our customers and build together, because, in my opinion, if we're not building things that are going to make our customers successful and we're not adding value, then there's really no point in doing what we're doing. So the underlying differentiator that we're doing in the main focus is payments. We are an end-to-end solution for GPs and LPs to manage that entire investment journey, all the way from deal marketing and launching a new fund through providing real-time investment returns to the LPs. But payments is really at our core and expanding the scope of what we're doing in payments in terms of just more functionality and more features and more effortless transactions that we can offer to both our GP customers and all their investors.

Speaker 1:

You know, during this podcast season, we did a discussion on attracting talent and you know and obviously there's a lot of competing institutions for talent it seems like you're doing something very revolutionary in terms of taking best of breed of blockchain but adopting it in a more practical way. Perhaps you can tell me about your development staff and what's the profile of those types of individuals to manage this customer centric roadmap.

Speaker 2:

Yeah. So we're very, you know, very proud of the team that's built. What we have in Verivend we're a small, lean team. Again, my co-founders and I have come from early stage high growth companies that have then gone through M&A activity or IPO activity and become very big companies. And you know, there's nothing wrong with big companies but that's just that's not in our DNA.

Speaker 2:

We're always, you know, looking for the next exciting way that we can disrupt a legacy vertical with modern cutting edge technology. So I think in itself that tends to attract really, really highly skilled talent, because those people that have been at larger companies, you know, might feel like they're just getting lost or they're just a number there and they're really not impacting the bottom line there. So you know, here at Verivend what they're doing is, I mean, we're a great close-knit team and everybody's got a voice and everybody's able to impact the bottom line and work closely together team and everybody's got a voice and everybody's able to impact the bottom line and work closely together and really see the fruits of their labor developed and used and adding value to our customers. So I'd say, you know, just by doing something revolutionary, doing something cutting edge and ultimately giving something that is tangible, that our customers can touch and feel and use and get value from, adds a lot and it attracts some really great talent.

Speaker 1:

So we've made it to the final question of the podcast and we call it the trend drop. It's like a desert island question. So if you could only track one trend in speeding up capital markets, what would that be?

Speaker 2:

It's got to be payments. I mean, that's where we're focused and that's what we're most excited and bullish on, really, because the way that money has moved in the private markets has not changed in decades, if not longer. I mean again back to checks and wires which are hundreds and hundreds of years old. It's time for a change. And the payments are really the most critical part of how GPs and LPs are transacting. Because if the money goes to the wrong place or just the silly things that happen that aren't so silly when they happen like the LP saved their capital call notice from fund one and now the GP is issuing capital calls for fund four and that LP just pulls it off their desktop and sends money using the wiring instructions for fund one, but a new account is being used for fund four and it's just out in the payments ether. I mean that's just very preventable things no-transcript.

Speaker 1:

It was great chatting with you. Thanks, Jim, Coming up next week on Trading Tomorrow, navigating trends in capital markets. We speak with the co-founder and CEO of FinPilot, a technology which uses AI to pull information out of unstructured financial data. It's going to be a conversation those working in finance do not want to miss.