Oscar Jofre  00:01

All right. Welcome back, everyone, as I told you, I should have mentioned to all of you, we are using a brand new program to bring our KoreSummit to life to become more engageable, I should tell you a couple things. One, you can pose questions. That’s right, we have people that will actually take your questions and make sure that our speakers are able to answer them for you. That’s right, there’s going to be polls that will be able to be taken as well. So we’re gonna make this as interactive as possible, so you have a good time as well. So as I said, before, I am so excited today that you get to hear from the very person that started at all we are here that “dare to dream” idea is because of that vision that it took a decade ago. And plus, and I’m very excited to introduce you all, to Mr. David Weild the fourth the current chairman and CEO Weild & Co the father jobs activity, we’ll see your sir.

David Weild  00:57

Thanks, Oscar, it’s great to be here, folks, just to give you a little bit of a sense, I’m in a, I’m in Nashville, Tennessee, my wife and I are moving down here we have a daughter at Vanderbilt, so I’m at a hotel. So we’re in you know, in the middle of movement, so a little bit discombobulated. But, you know, for those of you that kind of, you know, don’t maybe know the history of this give me a little bit we, when I was vice chairman of NASDAQ, I was very concerned with some of the market structure changes that went on with our public markets that that dropped the bottom out of support for small cap equities. And as a consequence, they started to write about that. And we had 80% of all initial public offerings in the United States were sub $50 million in size. And in a very short period of time, when they when they went to all electronic, narrow spread, narrow commission, markets, the bottom dropped out of the aftermarket support there. And we went from 80%, small IPOs to 20%, almost overnight. And, and that was an observation that, you know, we made that we published around, it also took the number of publicly listed companies in the United States from a peak of around 9000. These are operating companies, you know, take the closed end funds and ETFs out of there. They know that the actual employers of people went from 9000, down to about 5000. And we thought that that was just not good for access to capital, innovation and the like. And so we started speaking about it. And in Washington, we got the year of quite a number of congressmen they started to work on various forms of legislation, a whole series of bills, and then those were wrapped up. And it was given the name of the JOBS Act and stands for Jumpstart Our Business Startups Act, it’s actually an acronym. And we ended up with six titles, which were originally six separate bills wrapped into it, there were seven titles total, but the seventh was a tag on to educate women and minorities on access to capital. And we created the Emerging Growth sector of IPOs, which was titled One, Reg CF crowdfunding, general solicitation of private placements. So that was sort of the companion for traditional 506 B created 506 C and allows you to generally advertise private placements now, which was something that hadn’t been able to do title before that. Regulation A plus which there was a very little known, very little used sort of exclusion from exemption from public registration called Regulation A and it was capped at only $5 million in size. The Jobs Act took it up to $50 million, and created a framework for information reporting. And so that’s become increasingly more popular. It got moved up to I believe $75 million in aggregate proceeds during any 12 month period. And interestingly, the two countries that qualify for that are the US and Canada. And, and we also took up the number of shareholders I call it The Facebook Effect, but but once upon a time, at if you had 500 or more shareholders in the United States, you had to publicly register your securities. And we took that cap up to 2000. Actually, we recommended that they get rid of the limit because we sort of our thesis was “Why do you care?” If everybody is a member of a non protected class like accredited investors, why do you care what the number is but it was easier to take the 500 in the legislation and just cross it out right in 2000. And as we, as I subsequently learned, so I would say that we’ve had a great leap forward, one of the things that people generally don’t understand, they expect that, you know, major legislation in capital markets is going to have an instantaneous effect on the amount of capital formation. And in point of fact, I think is all of us that are on this call know, it requires an ecosystem. And one of the things that we did in the United States and, frankly, Canada and a lot of other foreign markets by collapsing trading spreads and commissions, and going on electronic is we took away a lot of the economic incentive for the smaller broker dealers. And as a consequence, a lot of them consolidated out of business. And we lost a lot of that ecosystem that really supported different forms of Corporation Finance, you know, the and so we’re in the process right now, ah, because of changes in the JOBS Act of starting to rebuild that ecosystem KoreConX being a very prominent entry into that area. But you know, others that are on this call, like, Rialto tried to make, you know, markets and securities and so forth. And we have to kind of build that back up rather gradually all the crowdfunding sites, so the 506, B 506, C, regulation, a plus guides and portals. And it, you know, it’s a lot easier to, to, you know, collapse an ecosystem than it is to build it up, because it takes a lot more time to build one up. And we’re in the rebuild phase, I would say that we got a lot more work to do. We need other other legislative initiatives out of Washington, I’d like to see a new stock market structure that would bring back economic incentives in the aftermarket to support small cap companies, because we’ve lost a lot of the the brokers now from the industry that would actually market individual stock ideas on a steady state basis in the research support, you know, you need an economic model to pay for bringing all of that back. And we actually had some of that built into an act in Congress that got very close to getting passed, that was called the Jobs and Investor Confidence Act of 2018. And it went through the house 406 to four. I mean, if you can imagine just how amazingly bipartisan that vote must have been, to have that lopsided vote, I would dare say that you can’t even get a proclamation in support of motherhood and apple pie through the US House of Representatives today. 406 to 4, it went over to the Senate, it was supported by the Trump administration at the time. And and the word in Washington was that it was supposed to get tacked on to the Senate appropriations bill. That never happened, because President Trump shut down the US government over building the wall and then push that legislation into the next into the next Congress, which has the effect of of, of setting that legislative clock back to zero. But I think what I would tell you is that there’s a great appetite in Washington to to do things that are going to improve capital formation. And I would posit that, for those of us that are have free democratic countries, that we all collectively, whether it’s in Western Europe, North America, or Latin America, we all have to kind of get our collective regulatory acts together to create the incentives to give the entrepreneurs the tools that they need to raise capital to innovate, there’s no crime for failing if you’re doing it, honestly. And we need to get more people starting more companies. One of the little known sort of facts that came out of the US was the US Census Bureau, Department of Labor, I’m not sure which was that we had had a big decline in the in the in the rate of startups in the United States. And we see that sort of trend having occurred in most of the heartland kinds of states in the United States. You know, California did a really great job of understanding that the small IPO market was largely lost to it. So it started creating big pools of later stage capital, which created that in turn the unicorn phenomena, but I would say that even now with 800 unicorns in North America, an average of 120 to 240 Initial Public Offerings a year, most of those companies are just too big to be acquired, that we’re really going to have to take a wholesale relook at fixing these IPO markets again, it’s something that I’d like to contribute to. But But bringing it back to, you know, Reg CF, 506 C, Regulation A plus some and there’s an opportunity now to get more businesses started to broaden the ecosystem, to start creating greater connectivity, which is one of the things that sort of excites me about what Oscar is doing that the more Regulation A plus and, and Rialto and other other entrants is that the more of the street, and the more of more ambassadors that we can get connected in, the more more valuable these networks essentially become, and the greater the likelihood that we’re going to fund more and more earlier stage businesses, which in turn gives us the opportunity to create jobs, upward mobility, and hopefully, since much entrepreneurial activity is focused on social impact companies to solve great challenges of our time, whether it’s in life sciences, and medicine, or climate change, you know, I firmly believe that the solutions for climate change are apt to come from scientists and engineers who’ve cracked the code on cutting emissions or taking CO2 out of the atmosphere. And so from where I said, getting more entrepreneurs funded, is going to be important to having a better and better chance of leaving a respectable environment for the next generation. I would tell you that that the there is an essential need for a public market to migrate to that will do a better job of supporting smaller capitalization companies, there is something called in academics, it’s just a worthwhile concept. And it’ll help everybody kind of understand the answer to the riddle of, you know, well, why are markets broken? If large capitalization stocks seem to trade so efficiently? And the answer is that there’s something called a network effect. And large capitalization stocks benefit from what we call symmetrical order book, symmetrical order books, which is like lots of buyers and sellers in the electronic market at any point in time. So, you know, Intel, Microsoft, Exxon Mobil, they’re not lacking in orders at any particular point in time. And there are a lot of eyeballs on those stocks. But the typical micro cap security, which is I define a micro cap security is something under $500 million in market value, is an asymmetrical order book security, big seller, no buyer. And if there aren’t liquidity providers that can make a market in size. And then fundamentally oriented institutions that do their homework, leave those markets, because there’s too much slippage when they try and get into the stock and sell it and the shorts get on the other side of the market, and the stock that they wanted to get out at $10 a share, you know, is all of a sudden Trading and $7 a share. Or if they trying to buy the stock, they get ahead of it and they move the stock up. And so this notion of having low transaction costs is one of the great sort of myths and you know, it’s a complete lie, because what isn’t factored into transaction costs is that that so called slippage element. And so, if you do studies which we have, over time of institutional fundamentally oriented institutional ownership of micro cap small cap securities, you’ll find that most of those, you know, high quality, long term investors have gradually moved their allocations to larger capitalization securities because they just can’t get enough of these these stocks in a hyper efficient low cost trading market. It just doesn’t facilitate the kind of liquidity that that institutions need for bigger bites. You know, it’s been almost 10 years it’s you know, it’s going on since we got the JOBS Act passed in Congress, I was in the Rose Garden. I think some of the some other folks are going to be speaking today. We were at the White House Rose Garden. It was a beautiful event when President Obama signed the legislation into law, the act into law. And, and one of the things that people you know, may not recognize says that that pretty much the only title of the seven title Jobs Act that was immediately effective was Title One, because it was sort of broadly elucidated. And that was what created the emerging growth company designation into public markets. But the rest of them were essentially remanded by Congress over to the Securities and Exchange Commission for rulemaking. And so to varying degrees, it took years just to get the core rules into the market. And I think the final rule was, at least four years after the signing of the Jobs Act, so call it 2016, maybe even 2017, before people could actually set up businesses, so there’s, there’s been a bit of latency in terms of, of getting it into the market. And I think, really, now we’re just starting as an industry to sort of hit our stride and figuring out how to basically make these things work, I’m going to give you, if you don’t mind, just a couple of minutes of thought, you know, in the news, you can use category around Regulation A plus. You know, Regulation A plus allows you to raise up to 75 million with public investors, it’s an exemption from registration. Although there is a sort of a registration light now that you have to file with the Securities and Exchange Commission. And I think it’s a healthy thing. But what I would tell you is is that is that by definition, these deals are going to be microcap in nature. And so to the extent, so that, they’re going to have a lot of the same aftermarket trading in problems that others do. So it’s a couple of things you can think about doing with Regulation A plus, which is one, restrict them, and so that the shares don’t trade or if they do trade, you have to give some real thought to what the aftermarket support model is going to be. And for, for us, sometimes that’s the choice of security, so that if you, if security is more bond, like whether it’s real estate, Investment Trusts, real estate assets, yield oriented, they tend to trade better, because people can value sort of asset based securities a little, little bit more easily than growth companies, where you put a coupon on it, or some kind of a distribution. Um, but those kinds of things also, are going to help aftermarket trading to the extent that you can, you can create a marketplace, which is more, you know, quote, driven and not electronic. And that, and that may vary from jurisdiction to jurisdiction, and so that people can, brokers can make money. And, like we used to two and a half percent, on, on on writing a ticket with an individual investor getting on the phone, and then doing it the old fashioned way, which is going out and finding an investor and saying, you know, we have a research report on this stock is attractive, in our view, wouldn’t you like to purchase it? Because in the old days, we created spot liquidity by taking say, a block of 500,000 shares at an institution wanting to get out with a buy recommendation, we’d have on the stock. And we’d hold the stock, say at its price of $10, a share in a telephone quoted market, with a quarter point spread in it. So on the ask side of the market at 10, 10 and a quarter, and we’d actually price it net to the broker who brought in 1000, share water, for instance, and write 500,000 1 thousand Share tickets to break up that 500,000 Share block. And, and every broker would make, you know, two and a half percent, the difference between the bid and the ask on the market, that’s the part that’s kind of lacking from the market, which I think is essential, or will be essential to get back in, which is the economic incentive for brokers to be able to, you know, hold share prices in place while that big block of stock is coming into the market and then breaking it up and selling it to investors in small clumps so that you end up with spot liquidity to offset a large seller. If we can do that, we’ll get everybody back into business in a big way. Because strong aftermarkets are absolutely essential to to investors wanting to take Initial Public Offering risk. And if we can get these aftermarkets better supported, then it’ll make it very, very interesting for everybody to start building the infrastructure to support taking smaller companies public whether it’s through Regulation A plus or any other model that one. Okay. I’m going to turn it back over to Mr. Jofre. I hope that was helpful. I want to I want to encourage everybody to keep innovating and moving these businesses along. You’re part of the of the that essential economic infrastructure that that we are all going to need to drive our economies over the forthcoming decades and you’re doing a real by participating in these markets and trying to figure out how to make them work better. You’re doing what we used to call the God’s work of investment banking. So my hat’s off to everybody.

Oscar Jofre  20:39

What an interesting way to end. That that is so true, though, it’s not it’s not only the ecosystem, but it’s also the people that are actually engaging with these companies participating in investing. And because they didn’t have to, right? You know that. Nobody put any pressure on them, other than their supporting these great innovators out there in the market. And I applaud you, you know, it is amazing how time has flown, you know, I joke around I can’t believe 12 years has gone by it. Obviously this time, if there’s a lot of things that needed to happen in order for entrepreneurs, to be able to take advantage of these regulations. A lot of work has been done. You’re going to hear about that today. So David, thank you, as always I looking forward to what do they say the next big monumental event that happens within the JOBS Act, and that helps entrepreneurs and investors alike, coming together. So we’re just going to end the session, as you all know, we end it and then don’t worry, you’re going to be taken into into the backstage or the lounge, my apologies. Now I understand some of you are having some problems listening, the best thing to do is please refresh for some reason it happened just a couple times for people. So we’re going to make sure this time the the pause is going to be about three to five minutes. So it gives everyone time to refresh their screens and all that. We’ll be seeing you very soon. Thank you