Q&A with Ashwini Anburajan & Jake Koppinger
Founding Partners of 22X.
Please join Family Office Insights for this luncheon on Tuesday, June 5th 2018 at 12PM. If you care to join us, please email firstname.lastname@example.org.
Family Office Insights sits down with Ashwini Anburajan and Jake Koppinger of 22X to discuss the only security token offering of its kind that provides exposure to early stage, highly-vetted Silicon Valley startup companies with lower fees than traditional VC along with liquidity that doesn’t exist in the private company investing world. Join us for the opportunity to participate in a $35M ICO for 22X.
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Tell us about your background and your ICO for 22X.
I have a pretty unusual background. I studied at Brown University for my undergrad, and then I went on to work as a political reporter for NBC news and was assigned to be on the road covering Barack Obama during the 2007-2008 elections. On the road, I noticed that the blog posts that I published garnered more attention and reach than the actual TV segments that we were producing, given that these posts were being picked up by the Drudge Report and Huffington Post, etc., to name a few. I realized that this is where technology was taking us, and I decided I wanted to be on the leading edge of that curve. I ended up going to the University of Cambridge to receive my MBA and came out working for Buzz Feed early on. Because of my journalism background, they put me in charge of the data network and communicating to the industry why Buzz Feed was smart with its data. I built a data report and published a monthly industry report on trends that reached over 5M readers worldwide. After 2 years, I decided that I wanted to be part of the value creation and in this ecosystem of entrepreneurs, so I left to build OpenUp.
OpenUp allows consumers to share their data with companies. It helps brands grow revenue and improve ROI, while providing users with a fair deal in the dorm of rewards for sharing their data. We incubated OpenUp under Hearst Communications and Cosmopolitan Magazine was our first client. The company became successful, and when it became time to scale the business, and I started my fundraising process, many people told me to “find a male co-founder” or “expand the team,” or rather “leave OpenUp to work for them.” These comments were all in response to my being a female CEO. It was very difficult for me to raise money, so in May 2017, when I was given an acquisition offer to sell to a larger company that did social analytics, I was really open to taking the deal even though I knew I could grow the company further and selling hadn’t really been the exit I was looking for at that time in the lifespan of my company. Having been told I wouldn’t be able to raise funds as a female entrepreneur, or that my market is too small for a large exit, made me disheartened and I became more and more ready to sell. Interestingly enough, during that same time before I accepted the offer, I received an e-mail from 500 Startups, who said they wanted me to interview for an spot in their start-up program. In August 2017, I was accepted and arrived to San Francisco expecting to learn how to raise venture capital alongside 27 other companies, but cyrptocurrency and ICO were the hot topics and the only thing people wanted to talk about. Two guys, Jake Coppinger and Chris Walling – who were very familiar with cryptocurrency and blockchain – became inspired to start a movement combining all of our values, by coming together in a batch, to issue our own cryptocurrency that would value all our 27 companies as a whole. All of our “class” of 27 companies were excited and shared the vision, which lead us to establish 22X — a namesake to the fact that we are the 22nd batch of the 500 Startups program. We have combined a group of vetted startups that have pooled together our equity, and placed it on a blockchain to be traceable and liquid.
We’re young, inspired, and believe we can build something exciting for the market that aligns with blockchain technology so to achieve the goal of decentralizing the challenge of fundraising for startups at the seed level. We have gotten a lot of press and praise for 22X, and recently, we won the Innovation and Venture Raising Award from Microsoft. I also have a residency at TED to talk about our new offering; the market is excited about what we are doing and they recognize it’s something new and game changing, so now we’re bringing it to market.
I grew up just outside of Detroit in a family tied to manufacturing and logistics. My father spent many years in the steel industry where he owned a steel distributor. I used to book trucks for him as a teenager. I went on to study Engineering at the University of Michigan and went into finance. After a couple of years as an investment banker, I made the transition into the investing world, where I spent nearly ten years investing in transportation and technology companies. I always knew the trucking industry suffered from a lack of transparency and inefficient processes, but it wasn’t until I analyzed the potential disruptors in the space in 2016 that I realized just how big the opportunity was and where the actual problem lied. I left my investing role to start FreightRoll as a way of bringing transparency and efficiency into a deliberately opaque and needlessly inefficient world.
My history with cryptocurrency dates back to 2013 when I was doing research on bitcoin for the investment firm with which I worked, however I didn’t become thoroughly involved in the community until the middle of 2017. At that time, I was exploring various funding mechanisms to help fuel growth for FreightRoll. During my research, I was interviewing a developer who was also a blockchain consultant that had been researching ICOs as a funding mechanism. We talked through how it worked, and it stoked my interest as I actually thought that a digital asset designed to align incentives in the highly adversarial trucking market to facilitate a trucking marketplace made some sense. I started researching it. However, during that process, I received a fateful email from 500 Startups out in SF that confirmed FreightRoll’s entry into the program. My ICO research was to be put on hold…or so I thought.
The inception of 22X was actually very similar to a lot of startup ideas, where it was hatched over some beers with other founders. It was only a couple days into having started at 500 Startups and several founders were standing around at “Tequila Friday,” talking about the current tech climate, and inevitably the concept of ICOs came up. Each founder was sharing his or her impressions and I started discussing how I thought it might make sense for FreightRoll. A number of folks agreed, and while that discussion was ongoing, another member of the class poked his head in and said “why don’t we all just put a certain percentage of our companies into a fund, tokenize it and provide it to the crypto community. We get capital to grow and investors around the world get liquid investments into our companies.”
22X was born.
Who is 22X’s target?
22X is a collective of 27 companies that are high-growth startups. We have raised in total $30M of capital in aggregate for each of our own companies. We come from 15 different industries ranging from fintech to logistics, with 20% women founders, and are 50% international. 85% of our companies are generating revenue and 15% are going to be revenue positive in 12 months. Since going through 500 Startups, they have 4x their revenues. It’s a high-quality batch of startups that have pooled their equity together and created security tokens.
Our target investors are those who would like to have a diversified portfolio. With one investment, you’re getting access to 27 companies. We have also removed carried interest and traditional management fees, giving investors a discount on valuation than what they would normally see. We estimate a potential 2x greater return than what you would see in a traditional VC investment structure that realized equivalent returns
The companies themselves raise money on their own, and we deploy the funding equally as we valued all the 27 companies all the same, resembling a tech accelerator. What happens to the token is interesting to us. Normally you invest in a token and wait for the proceeds from the market, but as the company raises their own money, they are driving the underlying value of the token up. The tokens you hold should start to trade higher and you can get a return on your investment more quickly. We see the value of doing this through security tokens because you don’t have to wait for the startup to exit, but just until the token appreciates, for you to exit or reinvest, at the discretion of each investor.
The traditional portfolio will have 30 companies with the expectation of producing 1 to 3 winners. It’s the same idea with 22X. If Uber was in our batch, it wouldn’t matter what the other 26 companies were doing. (And we think we have some Ubers.) To shed some light on some of the exceptional companies that are part of 22X:
WayPay: A Canadian fintech company offering business payment solutions with $8M revenue this year.
Fyodor BioTech: A urine malaria test with $3M in funding form the National Science Foundation.
Public Goods: A disruptor to Procter & Gamble taking the cost of brand marketing out of supply chain.
What are some of the challenges you face in your industry?
Investor education is a big challenge. I think there are a lot of people who are crypto-curious, but nervous about making investments due to the crazy news about ICOs. We are giving an interesting offering for this type of investor. We are allowing them to dip their toes into tokenization through a traditional asset class that they understand better. When you bring art, real estate, and illiquid assets and bring them into a tradable asset class, a new asset class is born. The value underlying our security token is the people and companies behind it – which was vetted by a prominent Silicon Valley large accelerator – and we’re confident that these newer Crypto/Blockchain investors will want to be a part of this new model within a new asset class, that is actually an old world diversified asset class, made modern by way of new and emerging technology.
How are you different from your key competitors?
There are no other offerings out there like this right now. In terms of grouped portfolios, we’ve eliminated carried interests and traditional management fees. The real competitors are more like Micro Venture Funds and if you’re a LP looking to deploy these funds, you need to decide if you want a traditional investment vehicle or work with us so you can have liquidity as soon as a year because we can sell tokens and bring greater returns.
How are you changing the landscape of your industry?
We are setting a precedent. A lot of accelerators and VCs ask us how we are doing this, and a lot of people are curious as to how we will close. If we are removing carried interest and creating self-forming portfolios – it’s a bold move. This impacts what happens next. There’s a fallacy of choice when it comes to investments. People feel if a VC is choosing for them it’s better and more well informed, but if they choose it themselves, they like going with that gut-feeling. If you can have a wider range of companies in your portfolio, which is what we are offering, it expands your choices. Our goal is to close 22X and then show the market this can actually be done, repeatedly, at scale. Step one is to close this and show that there’s a new model that can be funded. Step two is to build a broader platform.
How much are you looking to raise and who is your ideal investor?
We are raising $35M and have $22M committed thus far. We will be deploying $1M into each company and then will set aside money for administrative fees; any unused money will be returned back to the investors. We cannot oversubscribe at this time and our minimum investment in the US is $100K.
We have two investor profiles:
1. A family office that wants a diversified portfolio in a tech startup but finds the VC fees to be too high or the minimum investment level to be to high.
2. Those who find the cryptospace to be interesting, but a little too speculative, and want to first dip his/her toes in with something that is more familiar/traditional (investing in a diversified pool of companies), but via crypto. Alternatively, those who are interested in being backed by tangible investments can purchase and sit on tokens, selling them over time as they appreciate.
What’s your mission?
Our mission is to democratize the access to capital. The venture industry funds innovation, but its model has not really innovated in 20 years. We are allowing investor pools and the type of entrepreneurs that get funded to be broader. We can truly disrupt the VC industry, get good and promising entrepreneurs investments, and get investors better returns on their money.
What’s next for you?
We will be doing road shows in Asia and Europe. We are going to be speaking at Money 20/20 in Amsterdam this summer as well. I received a TED residency and will be giving a talk on democratizing capital on May 31st. We have also received a great deal of press form Entrepreneur, Inc, and Forbes, along with press in Europe, Asia, and Middle East. Our first close will be on June 15th, the second on June 30th, and depending where we are, we may or may not close later in September.