The Pomp Podcast - #938 Lindsay Drucker Mann On Pioneering Digital Securities

Episode Date: April 28, 2022

Lindsay Drucker Mann In this conversation, we discuss ======================= Since 2018 Copper has been at the forefront of institutional digital asset development.   From award winning custody solutions, to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services, in lock-step with a rapidly changing world.    No other infrastructure provider covers as many assets, across as many exchanges, with the speed and security that Copper can offer. To learn how Copper helps the world’s largest institutional investors secure their digital assets, head over to copper.co   Copper - the unfair advantage. ======================= Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Compass was founded with the goal of making it easy for everyone to mine bitcoin.  Visit http://compassmining.io to start mining bitcoin today!  ======================= Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish Hybrid Order Book pairs the high-performance of a traditional Central Limit Order Book with automated market making. Powered by deep Bullish Liquidity Pools, backed by the multi-billion dollar Bullish Treasury. So, you can trade with certainty and at scale across variable market conditions.   Learn more at Bullish.com or follow @Bullish on Twitter. Because the future belongs to the bullish.   *Not investment advice. Digital assets and cryptocurrencies are high risk products. Consult your professional advisor before dealing in them. Bullish’s services are available in select locations only and not to U.S persons.    Visit https://bullish.com/legal for important information and risk warnings =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Lindsey Druckerman is the global CFO at Oddity. In this conversation, we talk about unique token ideas, how they're incorporating this in the capital markets for their business, and what the strategic importance at the intersection of tokens and public markets will be for companies moving forward. I really enjoyed this conversation with Lindsay, and I hope that you enjoy it as well. Before we get into this episode, though, I first want to talk about our sponsors. Today's episode is brought to you by Copper. Since 2018, Copper has been at the forefront

of institutional digital asset development. From award-winning custody solutions to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services in lockstep with a rapidly changing world. No other infrastructure provider covers as many assets across as many exchanges with the speed and security that copper can offer. To learn how copper helps the world's largest institutional investors secure their digital assets, head over to copper.co. Again, copper, the unfair advantage. Check them out at copper.co today. Next up is Compass Mining. Compass Mining is the world's largest marketplace for mining hardware and hosting. With Compass, everyone can mine Bitcoin. Their team makes it easy to start mining wherever

you want at home or in one of their 23 hosting facilities around the world. Through the Compass Marketplace, retail miners can access mining hardware with similar prices and purchase plans as the world's largest mining companies. Compass miners own their machines, they choose whatever mining pool they want, and they mine directly to their own wallets. Miners who don't want to host their machines can order ASICs directly to their doorstep. Simple and low-cost hosting agreements coupled with best-in-class customer service are the reasons why Compass is the simplest and most popular way to mine Bitcoin. Start mining your own Bitcoin today by visiting compassmining.io. Again, compassmining.io. Go check them out and let me know what you think.

This episode is brought to you by Bullish. Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish Hybrid Order Book pairs the high performance of a traditional central limit order book with the automated market making. Powered by deep bullish liquidity pools backed by the multi-billion dollar bullish treasury. So you can trade with certainty and at scale across variable market conditions. You can learn more at Bullish.com or follow Bullish on Twitter because the future belongs to the bullish. Now this is not investment advice. Digital assets and cryptocurrencies are high risk products. Consult your professional advisor before dealing in them.

bullish services are available in select locations only and not to us persons visit bullish.com slash legal for important information and risk warnings go check them out at bullish.com or follow at bullish on twitter anthony pompliano runs pomp investments all views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of pomp investments you should not treat any opinion expressed by pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Lindsay, thanks so much for joining us. Thanks for having me, guys.

Absolutely. Let's maybe first start just with this idea of the intersection of crypto and capital markets. One of the key pieces to that is the second people hear capital markets, they think regulation. And so when we think of that regulation, crypto historically has been maybe not so regulated or the rules haven't been as clear. Talk us through kind of how you think about from like the CFO seat, the regulatory environment and kind of what is clear, what's not clear right now? Yeah. No, it's a really important question. And I think the dynamic we've seen in crypto, most of the investment and media attention has really been on a couple areas. Number one, you're decentralized and semi-decentralized protocols and platforms.

So that's kind of the spectrum of cryptocurrencies and DEXs and NFTs and DeFi. And then number two has been centralized infrastructure to support these decentralized protocols, right? So we can talk about a Coinbase there. And all of these are really important, but there is a massive opportunity to unlock efficiencies and value if we bring this incredible innovation that has been developed into the crypto land into regulated centralized assets to put them on less centralized rails, less centralized pipes that are also consistent and aligned with regulator objectives. And the crypto world has

been this amazing and vibrant testing ground to prove out a lot of these new innovations that we can make use of in conventional markets to make things like stocks work so much better, much more efficient, better for investors, better for the issuer. So let me give you an example of what this can look like. You start with an SEC registered stock. And instead of that ownership being run simply kind of book entry, now that stock is a digital smart line of code that can hold information and perform functions and be run through applications. So some of the use cases, like I'm a shareholder in Nike. I no longer need to hold that Nike stock in a big bank or brokerage to custody it. I can custody it. I can put it in my MetaMask. The stock's on the blockchain. So we

have the benefit of transparency. Nike knows how long I've been a shareholder for. Maybe they pay me a 10X dividend to reward me for my loyalty. Maybe I get a streaming dividend instead of one time a quarter to whoever happens to own the stock before the record date. I go to the Nike website to buy my new LeBron shoes for my son or for me, whatever. And I get 15 off because I plug my wallet into the website. Or instead of getting Nike loyalty points, I earn Nike equity. And then this part's really interesting. I can then take that stock and I can trade it on whatever platform gives me the best price on commissions. I can take a margin loan on that stock at whatever regulator approved provider. I can lend that stock out for someone to sell short. And instead

of having to pay that money to my custodian, I get to bring in competition and get the best opportunity. Something close to my heart, after an earnings release, maybe I get access to the company's CFO through a token-gated discord. And I think the additional benefit here is the surface area of ownership and activity expands away from these concentrated custodians. And so things like the amount of asymmetric information that today benefits institutions because they're in the trading flow and it's through a small group of intermediaries, that hurts individual investors. But when you expand that surface area, that goes down and also risks get distributed. so the network becomes more resilient,

you start to diffuse some of these too-big-to-fail challenges. All right, so I want to play a little bit of a game. I'm going to call it Devil's Advocate, which is I'm going to put on the hat of all crypto's bullshit. That's the hat I'm going to put on for a second. And I want to kind of walk through a couple pieces of these and have you kind of educate everyone on why is certain pieces of the technology

superior to the current way things are done. So I think first is when we think of kind of the underlying technology today, stocks are electronic QSIPs. They're traded through these centralized entities. There's one to two day settlement times, et cetera. By moving it into this kind of digital security realm, the skeptic or the kind of devil's advocate would say, this is nonsense. The stock already trades. It already settles. What's the problem? Why do we need to put it onto a blockchain? What would your answer to that be? Well, look, there's like no brainer. There's no, I'm not talking about the no brainer stuff. And let me talk about the more sophisticated, like exponential power kind of stuff. So the no brainer stuff is efficiencies across the system, immediate settlement, right? Instead of T plus two or T plus three, things like, so for example, in our offering, you can have something like KYC encoded on the blockchain, right? So if you've already gone through KYC, if you've already gone through accreditation, it can live in the blockchain somewhere. And every time you want to invest in something else, you don't have to go through it again and again. It's actually in the system, you're removing a lot of the slow moving manual intermediaries. But let's talk about like the network effects that happen when you combine different closed loop economic systems that already exist. Okay, so for example, I'm a consumer company. For consumer companies, loyalty and reward companies or programs are one existing closed

loop. Creators and influencers, you might pay them in cash. You might pay them in product. You might pay them in access to stuff. That's another closed loop. And then shareholders, three different kind of closed loop economies for a consumer company. When you connect those together, you build like turbocharge the benefits of each of those individually, right? And so we talked about if I plug my wallet into a website and they know who I am and that builds loyalty, the power that you have there. Connecting the creator to shareholders. So today, equity compensation is totally normal in a company. Sometimes you'll have big influencers, heavy hitters get equity, like a Tom Brady with an Under Armour, for example. But your micro-influencers don't get

that opportunity because it's not scalable. With security tokens, it's totally scalable. We know that from Reddit and Robinhood today and crypto, the power that investments have in creating these communities. So you're unifying all these ecosystems to drive all of that in a really powerful way. So when you start to think then about a business like Oddity, let's say, how big is this business?

So the last raise that we did was for one and a half billion dollars to close earlier this year. One and a half billion? Yes. Okay, and when you start to think about that, are there numbers or metrics that you guys share publicly

in terms of users or revenue or anything else for people to understand? Kind of like, where does that one and a half billion get you? or like what does it actually produce? I'll avoid any of the specifics on us for the purposes of this, but let's say we are the fastest growing, one of our brands, El Maquillage,

is one of the fastest growing beauty brands in the country. We have a new brand, Spoiled Child, that launched, which is digital only. So our business is important. Okay. And then in terms of the way that you would describe it, is it fair to say it's like a holding company for these various beauty brands or a conglomerate?

We're a platform. We're a tech driven platform. We have standalone individual brands that are powered by our in-house technology, right? So we've got in-house built AI, computer vision, data science, all of these power, these individual brands, but our platform is 30 million plus users. There's a stat for you that we use. We take the data from all those users in order to drive our business through those technology products and also amazing physical products. So amazing makeup, amazing wellness products as well that combination has been very strong for us got it and so when you think about this um i'm assuming that this is uh i'm going to use an example that i would understand

and i think the audience will understand as well in some way you almost take an approach of like a ghost kitchen right where it's like hey we have a platform we create these individual brands on the ghost kitchen world they're virtual so there's no physical components to it other than we have one kitchen we pump out food and we put it in different bags and and we deliver it you all basically have kind of a centralized platform or offering here that's technology enabled and you're able to kind of power brand after brand after brand and i'm assuming that then you get smarter about here's what this audience wants we can cross market we can kind of really get almost compounding or effects from the success that you've seen in past brands yeah 100 100 okay

and i think yeah go ahead well and i was gonna say and then as you kind of look forward um obviously capital is a huge piece. So you mentioned that you guys raised 1.5 billion. Talk a little bit just about like how you think about kind of making sure that the business always has enough capital, given that you're launching new brands, you've got to support the existing brands. Like what is kind of the capital strategy for a business like this? Yeah. So our last valuation was one and a half billion. We're profitable. So we haven't needed to go back to the market to raise tons of primary capital because our business has been profitable. I think for us, this is really a function of building this bridge to connect this vibrant world of digital securities into this

massive opportunity of conventional markets, where there's so much inertia today because of regulation and because, I mean, look, you were talking about entrepreneurialism and how powerful that is for the individual. It's also important for corporations and companies to not just take the simplest path forward, but to try to bridge and sort of chart new territory because the outcome of that in the event, we actually can be a company with a digital security going forward. There's so many use cases for that that are really, really powerful and better than the existing options. I mean, I'll give you, if it's helpful, we can talk about a couple examples that I saw in my days as an ECM banker where I was at Goldman Sachs. So I led the IPOs for our consumer companies, consumer tech

companies. First of all, most companies spend a ton of time caring who are my shareholders and trying to figure out how to incentivize long-term holders. And that's something you cannot do when you're waiting for a filing at the end of a quarter that's 45 days late. I once worked on a really exciting ESG IPO. The founder wanted to incentivize sustainability funds to be as shareholders. And we were trying to think about ways we can do it in conventional markets. You can't today. And it's not that regulators would be bothered by that innovation. It's just that paper stocks don't let you do that. But when you have the benefit of being able to have that dialogue to your investors, then you can actually do things like create, you know, we talked about

sort of this extra dividend for certain types of investors. Think about the implications for governance, right? Like instead of it being who has X stock at the end of a specific period, it's maybe how long have you held it for, right? So you're prorating governments, you can do things like we talked about streaming dividends. And so it gives you a lot more flexibility and visibility, you wouldn't have had that, you know, kind of gotcha moment that Twitter had, you know, oops, you got a new 10% shareholder, if you actually had visibility into who your investors were, and you currently don't have that today. But I also think for individual investors, like the fact that I can take a stock, and I'm not stuck in my JPM account, or I'm not stuck

with my custodian and have to take their commissions, their margin loans. I can take it out anywhere and use the benefit of competition innovation to get the best price and the most efficient execution is a game changer. And so when you start to think about kind of the way that the digital securities are structured, can they replace everything in the capital markets? Like can they replace equity? Can they replace debt? Can they replace converts? Can they replace kind of all these different components? Well, didn't you say tokenization of everything, brother? I I mean, that's that's where we're going. Right. Like we were in a position where we should be massively opening our minds to how blockchain can have benefits. Like, listen, I love crypto. I love the ideas of this, you know, uncorruptible bank for six billion people in Bitcoin.

Like, you know, Saylor talks about like this stuff is really powerful. That said, like we have a tremendous amount of benefit that can actually be applied towards markets that we know regulators are already comfortable with. And so whether it's stocks, whether it's bonds, you see some of the innovation happening, for example, at Apollo, whether it's commodities, there's a lot of use cases that we're just scratching the surface on. And I think that it takes individual companies and banks and innovators within the financial system to push this forward in order for it to happen. Joe, John, what questions you guys got? Hey, Lindsay, my question would just be about how this worked internally, right, when it comes to the security token. And I'm assuming that this wasn't a consensus and there was some kind of, whether it's convincing people to do it or whatnot, but just talk me through kind of the challenges that you

guys faced internally talking through this and what some of the problems might be. Yeah, well, look, I'm fortunate. I had an amazing career that I loved at Goldman Sachs, but I was really excited to move to a company with a singular mandate to disrupt and improve through technology and entrepreneurial vision. And so when we started talking about this idea initially internally, it was this kind of breakthrough of, wow, this is this bridge that we're building between crypto and conventional assets is like is is could be totally game changing. And so let's go ahead and do this. I think the added benefit for us in this offering is that we get to democratize access to individual investors. Right. So the the structure of our security is a fixed discount convertible. convertible, very typical to what you might see in a late stage VC financing. Maybe you guys have

had the chance to see some of those, but they're typically marketed only to a narrow group of institutional investors. Your everyday person, your accredited investor doesn't get the chance to get a look at those. We wanted an offering that would democratize that access broadly. And so those two benefits together, we thought, let's go ahead and run with it. And then it was a question of figuring it out, right? Because in an entrepreneurial journey, there's a million places, you can get stopped and stuck and it feels hard and you can turn back and why bother? But we had a tremendous amount of motivation internally and help from some great advisors to go ahead and make it happen. John, what do you got?

Lindsay, what is like the public sentiment about these tokens, obviously, with what happened in 2017 and frankly, a bunch of them just being busts or frauds? Like what is the public sentiment now? Yeah, look, I think investors want to have transparency and visibility, right? That they understand what they're putting their money to work in. And after that, you give them sufficient information, let them go ahead and make the investment, right? We don't need somebody babysitting individuals to tell them how to put their money to work, especially when you've seen what's happened with the top market cap stocks in the S&P 500 today, right? Like there's risk everywhere in the market. I think that what we're talking about here, a security token that is done

on Reg D and Reg S in accordance with regulator guidelines, checks the box in terms of, do I have the right information? Have the regulators said this is okay? And now that they've said it's okay, this is a breakthrough as far as I'm concerned in access to new and interesting risk opportunities for individual investors. And the more we have of those, the better. So giving them the information, letting them make the decision themselves. Yeah, absolutely. Lindsay, describe a little bit this idea of kind of the fixed discount and how these deals normally come together.

Like how do they exactly do they work from a mechanism standpoint? Yeah. So fixed discount convertible means you're not setting valuation today. You're setting valuation someday in the future in the event that an IPO happens. And so hypothetically, if you bought $8,000 worth of token, you would get $10,000 worth of stock at the IPO price in your account, right? So that's your 20% discount off of the convertible from the stock price. Got it.

And so historically in the stock market, people will do this as they know they're kind of coming up to IPOs. They'll go ahead and do all sorts of structures where they say, hey, we don't know if we're going to go out at $10 billion, $15 billion, or $20 billion. But what we do know is that if you give us the capital today, we'll bake in some return for you. But it's going to be kind of anchored off of what that future price ends up being. Yeah. And to be clear, we don't have any specific IPO plans. We've got nothing announced and there's no commitment here to IPO. But the structure itself is something that is common in later stage VC. And you're getting this embedded discount to compensate you, that return to compensate you for the illiquidity in the interim.

But you're also saying, look, if an IPO happens, I believe the market sets the right price, right? You're trusting in the free market mechanism to appropriately price the stock. And you're embedding a discount relative to that. Got it. The last thing I want to kind of talk about is you guys are on the forefront of this. You obviously took a ton of time, went and underwrote, hey, here's the benefits, here's the risks that we're going to take. What were the risks that you guys identified as to, you know, kind of being one of the first or to pioneer some of this stuff? Like, what do you see as things that you've got to just mitigate to make sure that it

ends up being a positive for the business? Yeah, I mean, look, we took painstaking time to make sure that this is something the regulators regulators would not just be okay with, but we think they'll be happy about instead of all this pressure of, hey, don't tell me this is a security or not a security. Let's talk about things that are securities and how we can innovate. Because I don't think anybody from a regulatory standpoint hasn't said this innovation in financial assets is really interesting. So let's bring some use cases that regulators can actually get comfortable with. And so that was the biggest time for us was to make sure we got it right. You're collecting, you're connecting new plumbing, uh, that's never

been connected before. Um, we have a great partner with securitize, which is one of the only SEC registered transfer agents out there, um, to help us do this. We're trying to figure out the right way to do, um, more information on oddity.com slash token. If you want to learn more about, um, the offering. Awesome. Uh, are you having fun? Are you enjoying this? Like, I think that like as somebody who comes from the background that you have, the experience that you have and sitting in kind of this global CFO seat. This is like the Super Bowl, right? It's like capital markets, regulation, kind of the business. It just feels like this is literally what would be the most fun thing to work on. It's amazing. I mean, you're right. It's like all the things that I've been

obsessed with markets since I'm almost 20 year career on Wall Street. And I love markets. That's what drives me every single day. And I'm obsessed with the innovations in blockchain and crypto. I I mean, it's like been years of just deep, deep in a rabbit hole and figuring out how you can actually link these things together and do them and manifest is really exciting. Not to mention, like, I work at an amazing place with brilliant people, super vibrant. Everybody's hungry and trying to, you know, grow and disrupt and drive technology. And so it's been incredible. I'm glad it shows through. Of course. And then I guess last thing is when you start to think about these technologies, obviously, at this intersection of capital markets makes a ton of sense. And you guys are pining there. Are there other things that you all have on the roadmap that you could do or are thinking about in terms of do you end up doing this for products? Do you end up doing it for other parts of the business? Like, how are you thinking about like, what's after kind of the capital markets intersection?

Yeah, look, I hope that, I mean, what's like, you know, you think about kind of why we're doing this to begin with. We talked about why we wanted to democratize access. We talked about how we believe this is the future. We're a technology powered company. Our mandate is to disrupt for the benefit of consumers. And that covers everything, including our capital and corporate financing engines. But like, just as a CFO, right, every CFO needs to care about these key corporate finance asset classes, cash, commodities, currency rates, and crypto. And so like, you know, there's tons for us to do from here as it relates to integrating the technology and the security structure and like the investor dynamic into our business going forward. I mean, this is really just the beginning of what we hope we can accomplish. That makes sense. One of our sponsors is Eight Sleep. And as you're doing all of this, I got to imagine that it's stressful and you're spending a lot of time on it. What's your sleep schedule? Do you have like eight hours or?

Oh, that reaction tells me not good. So I had COVID earlier this year, and then I've just put on about 10 pounds since then. I didn't get the form of COVID where you stop eating. I was hoping for that, but I didn't get that. And so I literally just signed up for a new nutritionist who was like, your sleep, your sleep schedule is terrible. Like you got to try it again, at least six and a half or seven hours. I'm like, I don't even know how I'm going to get there. So yeah.

You got to shoot high. Yeah. You got to shoot high for eight hours. The, the, the, uh, the other thing that I always tell folks is that, uh, uh, when it comes to sleep, uh, one, you gotta make a priority, all the stuff that most people know. But the second thing is, uh, it becomes addictive because all of a sudden you got more energy. And then when you get more energy, you get eight hours. Oh, I'm like religious about it now. I used to not, I used to get like five and a half, six. And then, uh,

I started to take it more seriously. And it just happened that the pandemic and me taking sleep more seriously simultaneously occurred in the same year. And so once I started to sleep eight, I was like, this game changer. So now eight hours with, with no alcohol, it's I I'm, I'm even more impressed than I was before. It's no, no, no brainer. It's a, uh, it's a thing. I'm telling you, if you start doing it, it becomes addictive. Once it's addictive, then you build good habits, not bad habits.

I feel, I feel like, uh, I should, I should have like mattresses to then hand people after the, my little, uh, soapbox speech. Awesome. Where can we send people to find you on the internet or find more about oddity, uh, or any of the brands? Yeah. Um, oddity.com, oddity.com slash token uh you can find me on linkedin there's only one lindsey druckerman as far as i know you'll find you'll find ldm at oddity.com lots of places awesome thank you so much for uh for coming on thanks guys we're super excited to see how this plays out thanks everybody all right bye thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player and if you're looking

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