The financial industry needs to digitize not tokenize, says this Houston expert

Guest column

The music industry has adapted to the digital age — so should financial securities. Getty Images

One of my favorite movies growing up was Empire Records. It was the mid-1990s, and the closest we got to Instagram feeds was who had the best mixtapes. If you're not familiar with Empire Records (or what a mixtape is), I recommend watching the movie, but you don't have to worry too much about mixtapes any more.

Since Empire Records was released in 1995, the way we purchase and consume music has fundamentally changed. The physical music store was displaced by iTunes, and then the music industry evolved even further into a streaming economy. It took 24 years, but music evolved and it now operates in a fundamentally different way. Digitization of music was initially viewed as an existential threat to the industry, but in the end, music was digitized globally and the music industry very much survived.

The music industry has evolved and adapted to the digital age. The same happened across countless other industries, including financial services. Today we can invest in publicly traded stocks through a mobile app for free. However, a critical segment of capital markets has not evolved yet. The private securities space.

Transactions in private securities are still done on paper (no, DocuSign does not count as securities digitization.) Administrative costs are kept high due to the amount of paper that is processed and pushed through this system. As long as the foundation of private securities is paper, there is no amount of administrative technology out there to create an efficient market.

Public markets took the plunge into digital long before music did, and digitization of public markets enabled exponential growth globally. Trading volume, access to capital, and liquidity have all increased, and a large part of that can be attributed to the efficient and transparent nature of most public exchanges.

Efficient markets rely on price transparency and information equality. Currently, the private securities markets do not offer either of these characteristics. This is nothing new to people in the alternatives space, but how to reach these lofty goals, to create liquidity and reduce costs, is what I am excited about.

The reduction of cost does not relate only to commissions. There are administrative costs associated with private securities. Information distribution is slow and unilateral, forcing investors to depend on antiquated systems in order to track their investments. Nearly all of these costs are absorbed by the investor, and most efforts to date have not helped address the core issue, analog private security transactions.

Digitization of private securities is fundamentally different than tokenization. Tokenized securities are considered bearer securities. A digitized security, on the other hand, maintains its original status as a registered security, as long as its digitization is implemented in a manner that fits current regulatory requirements. Until recently, that had not been possible in a scalable way. Blockchain changed all of that.

Initial attempts at utilizing blockchain for private markets applied tokenization. Essentially, this configuration took securities that had clearly defined ownership records, anonymized them and put them on a public blockchain such as Ethereum. While there are some benefits to this approach, it also opened doors to significant fraud and securities regulation violations. Tokenization may provide liquidity, but the long-term risk far outweighs the value of liquidity for any prudent investor.

Blockchain does provide a framework that supports compliant digitization of private investments, it's simply not tokenization. The solution lies in using private permissioned blockchains that allow an appropriate degree of technical security while also ensuring transparency and accountability.

Blockchain enables us to maintain a statement of record that is both compliant, and scalable. Across the financial services industry, and across most other industries, blockchain is being deployed to help solve problems that were previously unmanageable. The blockchain is even helping farmers track their crops through IBM's blockchain. iownit has integrated blockchain at the core of our technology, proving that compliant digitization of private securities is possible and scalable.

The United States has a free market economy, so in the end, winners are determined by the market. It is our belief that the digitization of private securities is the responsible way to help this industry evolve. If you're still skeptical, just look at how the public securities markets have evolved since the '70s when electronic stock trading was enabled and the first digital public security trade was placed. Now try and imagine how private security markets will look in four years.

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Yosef Levenstein is the head of marketing at iownit, a Houston-based financial technology firm that is democratizing how investors and private companies transact.
The stock market has been using tech for years — why shouldn't the private sector have the same convenience? Getty Images

Private securities investment company plans to use tech to simplify the process

Digital upgrade

When private companies are trying to raise capital, it's a pretty antiquated process. You take meeting after meeting, exchange dozens of emails, and then, when it's actually time to make an investment, there's a lot of paperwork to do. Seeing this over complicated way of handling things, Rashad Kurbanov thought introducing technology into the process could help simplify the investing for both sides of the equation.

"What we do, and where technology helps us, is we can take the entire process of receiving interest from investors, signing the transactions, issuing the subscription agreements, and processing the payments and put that all online," says Kurbanov, CEO and co-founder of Houston-based iownit.us.

Iownit has been in the works for about 18 months now, and has major growth plans, which includes hiring over a dozen new employees focused on tech and support.

The company is still seeking regulatory approval, but once that happens, the technology and platform will be ready to launch. The platform is a digital site that connects investors to companies seeking money. The investors can review the companies and contribute all online while being encrypted and protected by blockchain.

Diversifying the investment ecosystem
Kurbanov says the convoluted process of private securities investment has meant that startup companies are much more likely to focus on receiving funding venture firms, because they want to have a one-stop-shopping experience. When entrepreneurs add in multiple investors, they end up juggling too much of the logistics side of things, rather than running their company. Iownit's platform simplifies this process, which then allows for a diversity of investments in the ecosystem that's in the past been dominated by huge VCs.

Another way to look at it is that when it comes to investments, public investments has operated in a digital way for years — think of the stock market, for instance. But the private market has been limited to a small amount of accredited investors. The Jobs Act put into effect by Congress in 2012 changed the game a little bit, but the tech hasn't played a role yet.

"We realized there's a big section of the overall capital market that has not necessarily been touched by technology, and that's the space of private securities," Kurbanov says.

Reaching out to underserved communities
Kurbanov is based in New York, but he chose to start his company in Houston because, being focused on diversifying investments, he saw a huge opportunity when you move away from either coast. Houston has a strong corporate environment, access to capital, and great universities, says Kurbanov, but when it comes to the startup companies, it's not as proportional as it is on the East and West Coasts.

"Our goal is to put our technology and platform in use to support the capital formation in the entrepreneurial ecosystems that today don't have easy access to capital."

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5 most popular innovation stories in Houston this week

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Editor's note: This week's top stories include new office space for a growing Houston health tech company, an energy software-as-a-service startup raises more money than it expected, and more trending innovation news.

3 Houston innovators to know this week

This week's innovators to know are focused on bringing startup programming and venture capital to Houston. Courtesy photos

This past week has been full of exciting innovation news in Houston — from big fundraising round closings to a new unicorn coming out of the Bayou City.

Houston innovators to know this week include a new program director for Houston's newest startup accelerator, a venture capital fund leader, and more. Continue reading.

Houston health tech startup moves into new office amid major growth

BrainCheck has moved to a new office as it grows its team and expands its product. Natalie Harms/InnovationMap

Following a series A round of fundraising, a Houston digital health startup is on a bit of a hiring spree, leading to new office space the company has room to grow into.

BrainCheck, which was founded in 2015 by neuroscientist David Eagleman, is a cognitive assessment startup that has developed a software tool for primary care doctors to use to assess their patients' cognitive health so that they can more quickly diagnose and treat them for maladies like dementia.

The 19-person company headquartered in Houston — with a secondary office in Austin focused on product development — has relocated its operations from coworking space in the Texas Medical Center to an office in the Rice Village area. The move was made possible by an $8 million series A financing round that closed in October. Continue reading.

TMCx company receives investment from Houston VC, UH program recognized, and more innovation news

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A TMCx company has raised money in Houston, UH's online program named best in the nation, and more Houston innovation news. Courtesy of TMCx

Houston's innovation ecosystem has seen a busy January so far — the city has claimed a unicorn in High Radius, The Ion has named a series of new execs, and so much more.

Given this influx of news, you might've missed some other Houston innovation headlines, like UH being recognized for its online master's program, recent fundings, and Texas being named a state for female entrepreneurs. Here's a few short stories to catch you up. Continue reading.

The Ion Houston names 3 new execs to its team

Jan E. Odegard, Deanea LeFlore, and Chris Valka have been named senior directors at The Ion. Photos courtesy of The Ion

The Ion, an entrepreneurship center being developed in the old Sears building in Midtown by the Rice Management Company, has named three new senior directors to its team.

Deanea LeFlore, Jan E. Odegard, and Chris Valka are the three newly named leaders of the organization, effective immediately. They join — and will report to — Gabriella Rowe, who was named executive director in October.

"To grow the Houston innovation system and spearhead our mission for the Ion we've hired three new leaders with fresh perspectives, ideas, and approaches," says Allison K. Thacker, president and chief investment officer of the Rice Management Company, in a news release. "Each individual has a unique connection to Houston and the Ion, and we're thrilled to have them join our effort to build on the culture of innovation across our city, and within the community we're cultivating at the Ion." Continue reading.

Houston-based oil and gas software company raises $1.6 million

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Houston-based M1neral has raised $1.6 million in an oversubscribed pre-seed round. Getty Images

A Houston energy tech startup that's digitally optimizing the minerals rights buying and selling process has closed an oversubscribed pre-seed financing round to the tune of $1.6 million.

M1neral's round was co-led by Amnis Ventures and Pheasant Energy, among a few other select investors and strategic partners. The company was co-founded by Jacob Avery, Kyle Chapman, and Shawn Cutter.

"Amnis Ventures is delighted to co-lead the current round of funding in M1neral. The founders come with deep knowledge of oil and gas, coupled with proven, delivered technology implementations in the energy space," says Manuel Silva III, president of Amnis Ventures Inc., in a press release. "The M1neral platform will bring age-old upstream oil and gas processes into the technology revolution of the 21st century that we have come to expect in other sectors." Continue reading.

Houston expects to see huge population surge this decade, study says

incoming

Brace yourselves, Houston. Following a decade of eye-popping population growth, Houston is expected in this decade to once again lead the nation's metro areas for the number of new residents.

New data from commercial real estate services company Cushman & Wakefield shows Houston gained 1,284,268 residents from 2010 through 2019. In terms of the number of new residents tallied during the past decade, Houston ranked second among U.S. metro areas, the data indicates.

From 2020 through 2029, Houston is projected to tack on another 1,242,781 residents, Cushman & Wakefield says. For the second decade in a row, that would be the second highest number of new residents for any metro area, the company says. That's around the number of people who live in the Louisville, Kentucky, metro area.

For Houston, the 2020-29 forecast would represent a population growth rate of 17.2 percent, down from 21.6 percent for 2010 through 2019, Cushman & Wakefield says.

As of July 2018, the Census Bureau estimated the Houston area was home to nearly 7 million people, making it the country's fifth largest metro. If the Cushman & Wakefield projection is correct, the metro population would easily exceed 8 million by the end of 2029.

The outlook is based on data from Moody's Analytics and the U.S. Census Bureau. The company published its findings January 7. The outlook takes into account a metro area's birth and death rates, along with the number of people moving into and out of an area.

The forecast indicates Houston won't be alone among Texas metro areas in terms of rolling out the welcome mat for lots of new residents.

Dallas-Fort Worth is expected to once again lead the nation's metro areas for the number of new residents. DFW gained 1,349,378 residents from 2010 through 2019, ranking first among U.S. metro areas for the number of new residents.

From 2020 through 2029, DFW is projected to tack on another 1,393,623 residents. That would be the highest number of new residents for any metro area for the second decade in a row.

The 2020-29 forecast would represent a population growth rate of 17.9 percent, down from 20.9 percent for 2010 through 2019, Cushman & Wakefield says.

As of July 2018, an estimated 7,539,711 people lived in DFW, making it the country's fourth largest metro. Under the Cushman & Wakefield scenario, DFW's population would swell to about 9 million by the time the calendar flips to 2030.

Austin, meanwhile, is projected to retain its No. 9 ranking for headcount growth among U.S. metro areas, according to Cushman & Wakefield. The company says the Austin area added 549,141 residents from 2010 through 2019. From 2020 through 2029, another 602,811 residents are on tap. At that pace, the Austin area is on track to have roughly 2.9 million residents at the outset of the next decade.

Cushman & Wakefield envisions a 26.5 percent population growth rate for the Austin area from 2020 through 2029, down from 31.8 percent in 2010-19.

The Cushman & Wakefield report doesn't include figures for the San Antonio metro area.

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This article originally ran on CultureMap.

Houston startups should take care in office design — it makes a difference

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If you want a work environment conducive to a nice flow of ideas, creativity, freethinking, and finding a work groove, then your startup design and workspace matter.

When it comes to a startup's office design, you want to create spaces with a purpose. You need to be certain what you want with your office's design. Moreover, you need to be certain what you want with every square foot. Yes, you have to be that detailed. Think about it. If you go into the design of your startup's office nonchalant, you'll have spaces without purpose. When you have spaces without purpose, they become susceptible to employees using them as they please. Suddenly, the open area near the creative space becomes the snacking spot. The open space by the window becomes "spot where everyone gathers to birdwatch." You get the picture. It becomes chaotic and confusing. That's why you have to make sure you know what purpose to ascribe every area of your startup.

Here are three features of startup design that help create a mood or ambiance.

Sound check

Some bigger companies hire an acoustics engineer to set decibel levels for every area and room in a workplace. They might set higher levels for a dining area where people are encouraged to interact and enjoy themselves. Lower levels will go to conference rooms and work areas. However, not every startup has a budget to bring in an acoustics engineer. But you can still apply the same principles to your startup design.

When you walk into a library or doctor's office, there's a tacit understanding that you should speak with a lower voice. You don't need an acoustics engineer to set the figurative and literal tone for what kind of behavior employees should exhibit in each area.

It is assumed, for example, that a dining area has more leeway for louder noise. So next to the dining area you can design a work area where one can assume being a little more amplified is allowed. You can have music playing in an area where people are encouraged to mingle and talk. Music is a great cue to signal that casual interaction is encouraged.

For quieter spaces, a tighter design for a room tucked away can send a signal to anyone to keep voices low. Also, if a room has an echo, people are naturally inclined to stay quieter. People tend to interpret spaces with echoes as spaces where they need to be quieter, since an echo carries voices.

Lighting

Exposing your office to natural light creates a positive mood that encourages interaction, collaboration, and an overall "lighter" tone for having a good time at work. Dimmer lighting can be used to create a sense of thoughtfulness and encourage workers in this area to brainstorm, lost in their thoughts.

Work in color

We all know by now that colors convey moods. Blue is pacifying (think Pacific Ocean), warmer colors like red and yellow encourage a more gregarious nature. Knowing what color to design each area of your startup workspace will go far in presenting the mood you wish to create.

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This article originally appeared on the University of Houston's The Big Idea.

Rene Cantu is the writer and editor at UH Division of Research.

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