An Interview With Revtap About Startup Investing
During our interview with Shane Smitas, the CEO of Revtap, we discussed his decade of experience in crypto and how he sees the crypto markets evolving in the future following the massive impact caused by FTX’s collapse.
Revtap, his new investment platform, is bridging the gap between start-up companies and investors with on-chain investments that help entrepreneurs retain control of their businesses while still allowing investors to profit from their growth with early investments.
People are talking about empowering artists, or there are these R&D platforms that empower developers, so I'm assuming this kind of extends that trend and empowers entrepreneurs?
Smitas:
Over the typical lifespan of a company on average founders lose up to 80% of their equity through various investing rounds. First, they start off by raising funds through friends and family. We call that the friends and family round. After that is the angel round. Once you have somebody with a bit more money, you give him 10%. Then after that, you've got a seed round and you give them 20%.
Then from there, once you've grown your business enough, you go to a venture capital firm and do a Series A, and you give them 20%. So by the end of it, you can lose a majority of your company.
So what we do is give founders an alternative. We're empowering them by allowing them to control their own destiny. You don't have to take on a bunch of partners or investors in order to finance your company. You can do it on our platform by issuing shares in your revenues.
It's really kind of revolutionary in the sense that we're letting these companies raise capital on their own without having to give away everything.
When these investors buy stocks sometimes they're not seeing returns for years, and this is particularly true with what's called equity crowdfunding, which is the alternative for early-stage companies that can't go to the NASDAQ or can't do an IPO because they're too small. They would go the equity crowdfunding route, and so they sell shares of their company to retail investors.
But in a lot of cases those investors don't see a return on that investment for a number of years, if ever. The unique thing about what we're doing is that every month investors receive a percentage or share of the company's revenue, so they're getting a return immediately every single month, getting paid a small amount of the company's underlying revenues.
So, for companies, they don't have to give away equity, but for investors, it's different because you're getting immediate returns.
How do you predict risk? How do you guys kind of work around that and provide better insights for your customers? I mean, we just saw FTX completely implode.
Smitas:
We have a pretty thorough underwriting process. That side of the business is really important to us. Our co-founder was the Chief Lending Officer of a credit union in the US and oversaw a billion dollars in commercial lending.
We have a pretty thorough process that takes everything from a company's industry to its revenue growth over the last few years, its management team; we vet all the owners and shareholders of the company.
A lot of it is automated, but in the very end our underwriting department takes a look at everything. Every company has to apply and for every 100 companies that would apply, we may accept 10 of them.
Revtap seems like it's specifically targeting tech companies. Is there a reason for that? Are you pushing for Web3 companies?
Smitas:
We are pretty industry agnostic. We don't focus a lot on brick and mortar. We focus on fintechs, biotechs, Blockchain companies, software companies, you know; but that's another part of the underwriting process.
We consider companies that have stable and recurring revenues to be at a higher level for us. We also like software companies that have subscription-based revenues.
You tokenize the shares? So is everything on this platform on-chain? How does blockchain get involved with it?
Smitas:
We basically take a revenue sharing agreement, which is a legal document between the company, our platform, and our investors, and we create a smart contract on the revenue share. We're able to include all the terms in the smart contract.
If the company wants to buy back the shares, we're able to pre-program that right into the smart contract, so that they can automatically repurchase shares from investors. Token holders will be able to see real-time information too such as the company revenue information, news, and that kind of thing.
We can program certain security features; one of the sorts of biggest benefits of creating tokens in the smart contract is the ability to encrypt company financial data. It's all encrypted which is a big deal for the companies that we're working with. Blockchain helps us share revenue information in a way that's not public to people who aren't investors.
You said he got into crypto in 2013 and then is this launching in January? It's a lot of time between the two. Were you experimenting with other sorts of decentralized projects? What's your experience in blockchain been like?
Smitas:
I was investing primarily into bitcoin while I was a professional options trader and involved in the capital markets for 10 years. During that time, there was a startup that I was involved in. We were developing a payment terminal, not for crypto, but for replacing the point of sale system.
That's how I got introduced to crypto. We were looking at this point of sale and behind the payment systems, integration, credit card processing, and that's when blockchain came up.
That was back in 2013. Bitcoin was pretty unheard of, but people were starting to look at it as a potential new way to simplify payment transfers. It was really quite exciting at the time, really unique.
The SEC is having some issues with Ripple and other similar projects. What’s your experience been like?
Smitas:
In my opinion, a lot of companies are making the mistake of assuming that the regulatory bodies should be adapting to us. I've read white papers where they've said one sentence on the legal side of our token project and that one sentence is “we expect that the regulatory authorities are going to change in the future.”
They've taken this approach of “well, the regulators are wrong, we're not a security, and we're going to do it anyway.” We've taken the other approach where we go to the SEC, and we say “how can we do this based on the existing laws?”
They’ll say “well, you can do this, this, and that.” We found that the SEC is very much receptive to working with people within their current framework. That message goes out to everybody in the Web3 space and in the blockchain/crypto industry: if you're willing to work with the regulatory framework that's in place, you'll have a lot less friction.
We just saw FTX crumble and we've seen Terra Luna and 3AC both do the same too. What are your opinions on the future of Web3?
Smitas:
If there's anything that I've learned in my humble experience is that there are always ups and downs. The Bitcoin/crypto markets are not immune to that. I mean, the stock markets are also experiencing turmoil at the moment as well.
My message to other Web3 companies would be: this is a great time to keep your head down, and keep building and keep focusing on building a great product; validating your product with your customers, talking to investors and talking to people.
It's maybe not the ideal time to be launching a new project, but, these things come in waves. Being that I've been involved in Bitcoin since 2013, I've seen all these ups and downs so many times.
It's not dissimilar to any market, the oil markets, the forex markets, the bond markets, they all have ups and downs. Just focus on the work that you are building and know that these cycles are normal.
