Ep#72: Your Cap Table Is the Story of Your Company — Joris Delanoue, Fairmint

You imagine your CAPTABLE as a smart contract, fully automated, fully programmable. And that is game changer because the moment that you have this, anyone that is building the rails for anything related to liquidity will be able to come and plug to this ledger. And when before it was completely off-chain, not able to communicate with you except through specific integration that not a lot of people wanted to do. Now you are just offering that to all those guys that have been building decentralized finance for years. And this is This is where we have the biggest opportunity.

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Hello and welcome back to Startups Decoded. For startups, a cap table can be overwhelming. It can feel like it's a lifeline. It can be many things, but what it's not is easy to manage. And today we're going to explore what that looks like, how you can solve it. And I'm really, really pleased to have Joris Delannoux, who is from Fairmint. Welcome to the show, Joris.

Hey, hi Andy. Thank you so much for, uh, having me for speaking about Fairmint today, uh, and all these cap table things. I think a lot of, uh, founders should be, um, yeah, well aware of, um, what is probably the most precious part of their company, their own equity.

Founders come in and they, I'd say that the default is you build, you try and fundraise, and you try and grow and scale quickly. And then the ultimate is the exit is that's the stereotype. And that's shifted a little bit. There's different modes of fundraising. Some people bootstrap, but today we're going to focus on the actual functional part of a cap table because there's so much that goes behind it. It's not just a list of names and equity and shares. It actually plays a much bigger role. So to kick this off, I would love to hear a bit about yourself and how you landed in this position because Fairmint is your company, but you've got this interesting path that led you to this insight to start. Can you tell us a bit about that?

Yeah, yeah, absolutely. Well, and it's very connected to CapTable's story. So I've been an entrepreneur almost 20 years now, building companies in Europe. Um, and I remember some of the frustration I had both sides as a founder myself, uh, and also as an angel investor. So as a founder, I realized how complex it was to onboard people to my cap table at that time. And full disclosure, I was in France. Okay, where stock options and things came like very, very late in the 2000s. And, um, and so this frustration was huge because, you know, sometimes you just want to do what is simple to you, you know, which is, hey, I create value. Those guys help me create value. They are partners, customers, users, not just employees. And you want to make sure that if they are offering you a bona fide service, then why not having them on the cap table? And that's when the legal enter into the game and it start to be very complex, expensive, because it's not simple. And so that was on the founder side. On the investor side, it was a completely different problem. It was like you invest in a company and like you said, it's usually you had, you incorporate, you build, you raise and everyone exit and everyone is happy. But the moment that you remove the everyone exit because companies are remaining private way longer, and everyone is trapped. And when you are a fund and the sole purpose of your investment is to hold the asset for a very long period of time, then it works. But when you are an angel investor and you try to get some form of liquidity faster, I mean, you are trapped for the long game and it's extremely hard for them. And so those frustration that I had, led me to thinking that, uh, okay, maybe capitalism as it is normally is broken. Maybe we need to do something to fix it. Maybe we need to find another way of facilitating access to the cap table and then access to the liquidity without waiting too long and without creating such a a big issue for companies when they decide to do a liquid event. And so that's how I decided to leave Europe, move to the US, starting to build Fairmint with my co-founder. And the funny thing is, before that, I was preparing an exchange for startups using SPVs. So it was the beginning of Forge. At that time, it was called Equidate. And I remember very well when my co-founder Thibault introduced me to the blockchain technology. And I was like, wow. That's huge. I mean, I'm not interested in all the things that were done at that time with the ICOs and the very short-term vision of things, but I was very into the technology itself, the same way as the cloud computing 15 years before, where we had this feeling that every infrastructure would run on the cloud. I was convinced in 2018 that the whole financial world would move to the blockchain technology because it is a superior technology than any other database. And, uh, and that's how Fairmint started. And we went through, you know, like trying to facilitate fundraising and capital formation to, oh, okay, now that you unlock that, how is it represented in a cap table? And that's when we realized that, oh my God, actually there is, uh, almost a monopoly when it comes to CapTable, we are in 2018, '19, and basically everyone is like not even thinking straight, paying tens of thousands of dollars a year for an Excel on steroids that actually doesn't bring that much value that you don't really use every day. And that actually turned the whole creation of CapTable into a sort of like proprietary type of software. That's when we started to work on the Open CapTable Coalition format to standardize CapTable, to make sure that everyone would talk the same language, whatever the law firm that you use, wherever you are in the States, you would just be able to represent your securities the same way. Um, and that has been game changer. So that, that's the journey of, you know, how I, I moved from Europe as a founder in the cloud industry to, um, Fairmint and, and fixing capitalism and, uh, by starting by the cap tables.

It makes a lot of sense and you have to experience how complex it is to really feel the pain and understand the nuance of a cap table. And one of the things that I, I read and I love about Fairmint is that The cap table is more than just numbers and names on a page. It's actually the story of a company. And that story represents lots of things and the setup that you gave there, I want to follow that as our thread today in setting up a company and starting a cap table. And I don't want to make this about cap tables. I want to make it about ingredients in the cap table and the things that you need to be aware of and the decisions that you're making as a founder. And at that start, Even like really simply, I've had interesting conversations on here with both VCs and founders talking about even a co-founder agreement and who has equity. Like, does someone start the idea? Does someone join a little bit later? And, and that balance of shares, like the, the terms that you have on the cap table for you and a co-founder shapes everything that happens for the rest of that startup existence, right?

Correct. And honestly, there is a lot of value if you're an investor, for example, in understanding the journey of this cap table. You see a lot of things and, um, and I also think that if, if a company goes public tomorrow, it would be extremely valuable to identify like the how, where do they come from? How did they build their success in terms of capital, whether it's fundraising, distribution, are they relying on hundreds of employees, for example? Permanent or former employees? Were they relying on, uh, did they have plenty of advisors? I mean, you can read a lot of things. Also think that the world is changing because what was extremely complex 15, 20 years ago, or even 50 years ago, you know, when incorporating was tough, you were relying heavily on law firms to do the incorporation. And then the smallest fundraising was hard. So you were heavily relying on a law firm again, and then any movement in the cap table was complex. And same, you were relying on those law firms. And at the end, when you looked at how much money it costs to incorporate and raise and manage and continue to develop the company and raise, I mean, you were spending like hundreds of thousands of dollars for that. And we see a commoditization of this entire, uh, incorporation industry, uh, with Stripe Atlas or, or this type of service that now allows you to incorporate for $500. And then you started to see the SAFE, uh, that was promoted by Y Combinator, Simple Agreement for Future Equity, that is here to standardize so much the first, um, fundraising process. That at the end, it's a pure commodity. It costs nothing anymore to do a SAFE. So you can raise for free. And then that was the moment where, oh, okay, we need a cap table tool. And boom, you had to pay a SaaS fee every year of 5, 10, 15, 20, or even more if you were growing. And I was like, okay, we need to operate the same way as we did for the incorporation, but at the cap table level. CapTable is basically a very standardized way of representing an asset on a spreadsheet. And then it's cosmetic. You have it, you have beautiful spreadsheet or not beautiful spreadsheet, but still at the end, it's still a spreadsheet. And in a few clicks, you need to access to the report. The problem is that all those SaaS, you know, create a lot of complexity. Only the CFO, the lawyers, or sometimes the CEO would access to that and understand that. But we are at the era of AI, and I think this is the moment where it's changing again, uh, where, um, you don't want to get reports and act reactively to your cap table, but more proactively so that if Andy is investing tomorrow, here are the terms. You can almost say before that Andy invested, here is the ownership of the rest of the people, and here is the ownership of Andy Walsh if he invested at those terms. And here are the consequences if this happened. And that's fantastic when you think about it, because before it was extremely hard to do that. You had to go through modalism or to ask your lawyer that was charging you a lot. And now you can just like chat with your cap table. That's fantastic. I think this is game changer.

I agree. And the standardization of startups period is something that we're seeing so much more of because every founder quite often feels like they're creating something for the first time when literally millions of companies and founders have done it so many times before them. There's not much you do in a startup that you do for the first time. Maybe now with AI on these new platforms. Is a new process or protocol that you're building, but the actual structure of your company, how you operate, employee, staff, et cetera, like the steps that you take, but there's still a real lack of standardization that happens. And, and the cap table is one of those items that plays such an important role across the board. And so I love that you're seeing that as the opportunity because what you're creating is not just a business for you, but you're actually helping change and inform the way that a startup operates. And becomes liquid, drives investment, and manages a whole bunch of tasks off the back of it, which is an empowerment tool ultimately.

Absolutely. If you are able to make the backend more robust, easily transferable, then you solve one of the biggest issues. But the thing is, if you do that, you don't want to create yet another big marketplace where you would operate, like for who, for the investors or for the founders? I mean, it creates lots of questioning and we know how the market reacts when it happened, when a big player started to sell information of its own customers to investors. It was very predatory. So you don't want to build that. What's very important, I think, is broader than that, is the fact that if we were able to standardize the way a cap table works, it allowed us to then turn this standard into a protocol on-chain. And this is where you connect the dots, you know, between the whole world and the world of blockchain and the world of AI. Because if you are agreeing on a standard off-chain, which means that any law firm, any issuer can talk the same language wherever they are executing, um, an issuance or a transaction of equity. If you turn that into a blockchain mechanism, then by definition it becomes what I call programmable. And so if you think of your cap table, not anymore as a screenshot out of an Excel file where you have the version history, but more as a ledger that keeps living and moving in, um, a blockchain, you imagine your cap table as a smart contract. Fully automated, fully programmable. And that is game changer because the moment that you have this, anyone that is building the rails for anything related to liquidity will be able to come and plug to this ledger. And when before it was completely off-chain, not able to communicate with you except through specific integration that not a lot of people wanted to do. Now you are just offering that to all those guys that have been building decentralized finance for years. And this is where I think we have the biggest opportunity. It doesn't mean that you will have liquidity for everyone. It doesn't mean that it will be an easy game. It doesn't mean also that you want something that is not compliant. But between the old world where nothing was possible and the new world where you can expect some form of liquidity if your company has the right traction, then you can offer like a very significant deal to your customers, your angels, your employees, whoever is a potential stakeholder or shareholder to your company.

And then what goes behind it is interesting too, because it is simple by nature as far as how it's represented, but the elements behind it, as far as the category of shares that you have, at what point you invested and what the valuation was and voting rights. And there's so much that comes off each contract. Not all contracts are built the same in a cap table. So there's always nuance and variance that happens behind it. And if you're able to standardize that to a point where everyone can look at the same information and compare apples to apples, to your point, you still have to have a good company. You still have to be able to get investment exiting and becoming liquid. You still have to be good to do that. It doesn't mean that everyone gets access, but what it does mean is that democratization, it gets overused, but for this case, it's relevant, right? In theory, it gives everyone a more equal opportunity to be able to have a chance to be represented in a way and be compared like for like with someone else. And then hopefully it can alleviate some of the echo chamber that happens in, say, in Silicon Valley where you have Stanford graduates and you have all the people that have exited and VCs, and it's this melting pot of people that all know each other, but that eliminates the rest of the world from that bubble.

Absolutely. And, and I think this is where also today there is a lot of traction for secondaries and all, but a lot of the question needs to be, um, answers. The first one is probably, what do you own? And that's why I, I love the idea of having a clean and accessible type of modelization for cap tables, because who cares if there are like 10 layers of SPVs, for example, the special purpose vehicles. It's like, and for everyone, it's like, you know, you have a company, it's the issuer on its cap table, rather than to have plenty of investors, they can have one line. It's an entity called a special purpose vehicle that is set up to onboard specifically investors. But what we started to see because of the secondaries and the traction from, um, from companies like, uh, Anthropic or OpenAI or SpaceX was that we had a multiplicity of SPVs to the point that no one knows anymore who owns what and what do they really own. And I think that we have a unique opportunity today to say, actually, look, this is captable level 1. The issuer, this is the SPV, so you are level 2, and inside this SPV you have another one, but if everything is done in a way that guarantees the flow of ownership, then you are just solving a massive issue, which is the trust one. And, uh, and that's where I firmly believe that blockchain is a superior technology because if we bring the cap table without putting on public chain, I'm not saying that we need to release everything to the public, but we should just guarantee that Mr. Martin in Tennessee, when he buys the SPV Layer 10, we can see him from almost from the Layer 1 by saying, actually, if tomorrow we do a waterfall, boom, boom, boom, we see exactly what he gets. Unfortunately for him, all the fees at every layer will make the chance for him to succeed super low, but at least he knows and you are not scamming him anymore. And for the issuer, it would be a fantastic way to guarantee also their waterfall and say, actually, we know, we know where Mr. Martin is. He's not an investor. but we know that the day there is a liquid event, a liquidity event, it will receive a proceed, or the day we do a dividend, it should receive a, a proceed. So this is where I think we are going and moving forward on at least the private market to make sure that we are not anymore into the Stone Age for these big cap tables of AI robotics space companies.

And I love the linear journey you gave there as far as even just investment by its own right, the team that you would've had to have been involved in that from the early days to be able to just get money in the bank, where a lot of that now is so much more streamlined and tools become public. And what you're talking about in this next chapter is that transparency level, right? Where you're able to get full visibility over it. If you've got equity in a company and you've got access to the cap table, then see all those moving parts within it. And an SPV is, is different, as you said, in that it is an entity in in its own right, but if you're a founder and you don't understand what an SPV is, and if you brought in 50 angels and they're 50 line items on your cap table, that is a hot mess. And that's going to be a, you know, a job that someone has to manage for tax and legal reasons, right? Internally, even seeing that as well on a cap table doesn't change the relationship between an angel and a founder. An SPV just makes the operations of that so much easier. On how you transact. And if you've got that done at a blockchain level, again, the compliance and the transparency is there for everyone. And it just gives you peace of mind, just like, let alone the functionality you can see. Yeah.

Yeah. And honestly, this world is moving from compliance by intermediation to compliance by automation. You want to automate these type of waterfall flows as well. You want to make it easy for a paying agent, or a transfer agent to, move the proceeds to the right person. And at the end also, I think, you know, you just want clarity. Before you were able to own your share as papers, you had them in hand. Then they decided to centralize everything, so you don't own anything anymore. And we could have a long discussion about that, but I'm, I'm, I'm, I'm almost considering that the centralized system as we know it today, in the public market is already a wrapper. No one is really owning anything anymore. You know, you are just a line on a private database and this line is updated regularly. But at the end, what do you own for real? Like, not much. And I think that we arrived to the point where people are like, hey, we are at a level of technology that allow us to be back to the game where we were holding our own stuff. And I'd love that with my ID now I'm able to self-custody or to put at a custodian my shares. And I want to make sure that I am able to guarantee each level of this share ownership. And this is, this is I think one of the massive change and massive opportunity that we have in the market to bring back trust.

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Yeah, so let's jump into the blockchain component of what you're doing. That's really critical here because it's not just a platform to manage your cap table. It plays a much deeper role and let's assume everyone has a bit of a 101 on blockchain and we've got a starting point there. How do the two of those come together for you from a functional perspective in the sense of the value that it offers someone if they're on Fairmint having blockchain behind it?

I would say, I would say, um, the right answer is in two parts, I think. There is on one end a robust technical foundation. That's a better database. That's a ledger that, um, you can have either public or not. And that's one of the reasons why, for example, Fairmint ended up building on the Kenton network. We were looking for more privacy on the request of our customers, and we wanted to make sure that none of the things that would move and happen on their cap table would be visible in any explorer of a public chain. But that being said, the technology behind is pretty similar in terms of reasoning. It's like a ledger or a database that moves from node to node, that guarantees the transaction, that guarantees the— is there that the ledger has been modified or not. But you have the ability to track pretty much everything. But that's for the foundational part. I think people don't really care of that. Like literally, I think people are like, you know, it's like moving from a private data center to Amazon Web Services cloud system, who cares? You have an app and the question is, is my app reactive? Can I get more call to action in this app? Can I do more things? And this is where, to answer to your question with my second part, I think this is where we have a huge opportunity. Because the moment that we bring those cap tables on the blockchain, the moment that we turn that into a smart contract, We make the automation possible. Why? Because every single asset issued there is in a programmatic form, whatever the language, whatever the chain. Okay. It's a smart contract. So you code a mix of the asset that is a mix of financial right and voting powers, plus, um, uh, all the compliance that are, um, um, going with those assets. And once you have that, you have an opportunity, like I was saying earlier, to have teams working, building on top of those assets and turning that, turning that into a collateral that you can leverage into, um, an asset that can move somewhere else on rails that are not used today for traditional assets., but that are heavily used by cryptocurrencies for the last 10 years. This is where I think you bring a lot of value, and this is what people need to understand. You don't buy the blockchain for what it is. You buy the ability of having an asset that is extremely hard and expensive to transfer to a rail where transfer is possible at a much lower cost and at light speed. This is what I think we need to educate more the people, the public to that, because if a founder understand that tomorrow putting his cap table on a legacy vendor versus putting it on the open cap table protocol, whether it's through Fairmint or another vendor. I mean, he's just opening himself a whole new set of opportunities. And if you are a lead investor and you decide to say, hey, you know what, I won't do my SPV as I was using it before, doing it before with platforms that are specialized, but that are very Web2 focused. And they decide to use like a Fairmint feature with the on-chain SPVs. I mean, they are already making their own future proceeds programmatic. They are already in the condition where whatever happened for this SPV, everything will be distributed to the people like live. And for you as a lead investor, it's, it's literally music to their ears. You know, you want to hear that. You wanna know that there is less complexity distributing either the dividend or the M&A proceeds, if any. So yeah, we, we should less talk about the tech. We should start really focusing on how the whole world is moving on chain and what it gives this whole world compared to the past.

Yeah, the two words there to, for me that stand out is the friction versus programmatic element of it. Friction, as everyone knows who's gone through investment or an exit, is the back and forth, the compliance, the legal reviews. Any nuance that comes out in the data room. There's so much that happens. And if you're able to streamline that, it means that everyone across the board can spend more time focusing on the things that are important, which is typically growing the business, doing all the things that you need to do. Like as much as capital is great in, it's a time suck completely for just going through that process of not fundraising. Obviously that's a lot of time, but the actual just part of getting money in the door. You don't just pitch well and someone says, yeah, I'll spend it. And then you have money in the bank in a few days. Yeah. There's months of work that follows that and you still need to be able to run your business. Yeah.

And, and, you know, I was, I was assessing when you do a traditional way versus fully on chain, one of the most expensive stuff to, or task to have to deal with is the banking reconciliation. Because when you start to have things at scale and everyone is wiring you the same amount of dollar, but without putting the memo, or they're using cross-bank international system and all, I mean, nightmare. And then you end up paying someone that is doing an old job for something that today would have been super easy because if it's on chain, then you know whose the wallet is from. There is no intermediaries. It goes from a wallet to another one. And if there is an intermediary, you can anyway check where this intermediation happened. So honestly, yeah, it's fascinating how fast we can do things now and how great this technology will be for the current generation and future generation of founders because peace of mind, like you just want to rely on that. It's like the full self-drive of Tesla, you know. You just, okay, let's, let's press the button and let's have the things that are automated at play work. And, uh, yeah, I think this is, this is a fascinating moment. Yeah, I agree.

And if any founder has gone through a convertible as a fundraising mechanic, nightmare of working out at what point someone came in, what percentage ownership they get. If like a VC came in on a more formal raise and you have to work out those percentages that is a minefield. A safe is much more simple, but convertibles still exist, and I don't understand why. I'm just, I don't get the value of it.

It does. I mean, some people are still convinced that the safe is not great enough or is risky, or they are sometimes it's also, if you paid $100K to a law firm to have a standard, and you are a fund, then you will do your best to make sure that everyone accept your money in exchange of these terms, right? And, and so that, that's, that's, uh, what happens a lot as well. Yeah, agreed.

So thing that I really want to double-click on there, you talked about education and what happens is that there's a little bit of peer-to-peer conversation that happens. So what my interpretation of that and the conversations that I have with founders is they're taking a consensus of people around around them as far as the way things are done as a standard. And quite often you're so busy that you can't rise above the noise. You're not able to hear objective feedback because you've heard a handful of things from people that you trust in your inner circle that have gone through the same process before. So education is critical. And from the product itself, you're doing two things from what I can observe. One, you're making your life easier and more effective, and you can focus on what you need to do. But by going through that motion, you're also getting education on the things that you need to know, right? Because you're populating information that you may not be thinking about. There's things that will come up 100% that people just don't even know that they need to do.

Andy Walsh, all you said is something that I won't say keep us awake at night, but most of the time we are always thinking, how can we make it easier? How can we make it more simple and more understandable by whoever is using our tech, and that's how we came up with the AI fully integrated. Like we are literally moving away from this beautiful Excel for captibles to let's chat with your captible. Because once you made the things to create it, then if everything is interconnected, anytime you have a new event, either you do it on the platform or you did it separately and you have a legal doc, you just drag and drop the doc and the AI will do the rest and it will review if, yeah, it makes sense, it's good, or no, it's inaccurate. But that being said, at the end, the AI is doing all the piloting. You as a, as a founder, you want to be the one knowledgeable whenever you want to make a decision. You want to, you want to have the, the wisest information and data to do the stuff. And that's where I think we need to move away from a SaaS industry to a real added value type of things. And, um, and that's why the price for cap tables software vendors dropped so much. People don't see the value anymore. So at Fairmint, we made it for free, literally zero. But, but many, many vendors are still at $2,000, $3,000, $10,000. A year, it would be extremely hard to sell now without real value. And, but this real value will come from the ability to analyze entirely your cap table very objectively. When was the company created? How many shareholders do you have right now? Is it, does it make sense to onboard 15 new investors at this term, or should we do an SPV? You wanna do an SPV, 2 clicks, boom, the SPV is ready. You don't want to do an SPV, you want just to set a fundraising, 2 clicks and it's done. And maybe you won't need the fundraising, it's already done. Then just drag and drop your legal docs and the cap table is up to date. I think where we are going, and it's very important for founders to understand that, is, um, it'll be unacceptable. For an investor that asks detail about your cap table to not be able to provide it to him in less than 24 or 48 hours. And if it's not possible to do it in that very short timeframe, it probably means that you have an issue with your cap table. Either you are hiding something, or if you are not hiding, you are just not organized or efficient enough to do it well. This is where I think the level of expectation will go because like I said, now that it is standardized, I mean, there is no reason for not respecting that.

You've set up the next direction I wanted to go, which is around timeliness. And if you're doing a rolling round with angel investments and it spreads out over 6 months, like you need to have a dynamic and live cap table to be able to manage that in a way, because things could happen. Like in 6 months, you could land 2 huge contracts and you go, the valuation's actually going up in this, and you increase the valuation of your company, which means that someone who buys 10,000 shares tomorrow versus yesterday is actually getting less equity because of the valuation's gone up in that time. So if you don't have something that's dynamic and living and breathing behind you, then you're also missing like so much opportunity. And that could be as obvious as the example you gave there with the VC. They just, they don't even get like a chance to respond because the VC moves on because you're, there's a question there that if you don't, if your cap table's not up to date, then what stage and status is your business actually at?

And why aren't you prioritizing? Absolutely. And you don't want to lose a big check because your due deal were not fast enough. Because you didn't start it well. I mean, it's, it's pretty obvious to me that now people want to know and want to have it in their, in their phone. You know, one of the big frustrations for investors right now, it's really, it's not that they don't receive investor reports or things like this, is that if you invest in a private company today, at best you will get a PDF. And during years, you will end up with a PDF in your mailbox or in an app. But you don't see anything, nothing concrete. You, you cannot even connect that to, uh, most of the wealth management, uh, portfolio system. And, um, and I think this is where we are moving away. Like, if you have a standard, if you have an asset, if you have the ability to issue your active position or to get the equivalent of the share certificate directly in your mobile with you. I mean, you are already transforming the way investors are interacting with your company. And as a company, you can turn it into a very strong marketing thing. Like if you remember, uh, on the public market when Disney or Pixar or PayPal were doing their paper share and they were beautiful, very beautiful to the point that people were happy to put them on their wall behind them. In their, in their office. And now everything is digital, but not materialized. We have an opportunity today to say, hey, it's not only programmable, it's visible, it's digitally materialized. And you can feel that in your portfolio. You can transfer that information to your portfolio management tool. That I think is, is also something that we need to continue to build because the user experience is what matters.

Yeah, agree. And if you can solve the user experience and everything you need goes around it, you put your time into the things that are more important than compliance and updating data, et cetera. So I love that. The part that I want to just segue into here is around the secondary market. And I, if I did a litmus test, if we're in a public space right now with a bunch of founders, But my guess would be 20, 30% of founders would be able to give you a clear definition of what the secondary market actually is and how it functions. That is my guess. Yeah. And right now becoming liquid happens in many different ways. The secondary market works well for someone who's got ESOP. Like if you've been somewhere for 10 years and you've got all this value there, but sitting there just a number on a page, like one, a cap table allows you to know exactly where that's at and what it's worth. But two, being able to sell that in the secondary market, if your contract allows that, means that you can become liquid even if the company is not liquid. And what we're seeing because of that are people that have seen opportunities to get into companies on the secondary market in a way where someone who wants to tap out at that point and become liquid with their shares, and that's a mutually beneficial opportunity. You touched on Merge before, and I went to the launch event at the Stock Exchange here in New York about a year ago with Merge. Where they launched their formal marketplace on the secondary. And it's amazing the companies that are on there. And you've got VCs that are selling their stock in companies trying to become liquid. You've got staff, you've got founders. It's this whole world that exists that I don't think gets talked about as much as it should.

I think the market needs to address the lack of liquidity. During the, the last conference, uh, Digital Asset Summit in New York, I made a keynote where, where precisely I was explaining all the issues that came with the JOBS Act, because the JOBS Act in 2012 moved the threshold, the minimum threshold of shareholders to become a public company or to need to become a public company from 500 people to 2,000 shareholders. Okay. So before, 500, boom, you had to prepare to go public and make the full disclosures. Now it's 2,000, but 2,000 plus all the SPV system and all, you end up with a complete market that remains private without ever going public. And all that relying on the same Excel on steroids that you have when you do your pre-seed. So imagine Entropic, OpenAI, SpaceX. Twitter now, like all, I mean, pretty much any private companies today that is big, that worth billions and billions and billions, they still rely on Excel. And the problem is that those guys, I mean, everyone wants in. So they have 2,000 seats max and you have millions of people that want in. Well, that's when SPV started to happen. That's when people started to create multiple layers of SPVs. Anyone that is able to sell or get access to an employee that would have shares that he could sell, boom, they create an SPV, raise the money, and then they go back to the employee and they say, hey, give me your shares. Look, here is the money. I have it. You don't solve the liquidity issue by doing that because the problem is that today we see opportunistic moves. It's very opportunistic if you are an admin of an SPV today to create multiple SPVs because you will get a cut, admin fees, flat fees, and, and other type of fees pretty much every layer. And the guy at the end, he doesn't know what he owns. Maybe he owns nothing or he get his shares voided like Entropic voided shares last week when they made their announcement. But at the same time, you have tons of employees that are having a lot of paper money and they cannot even get it on payment for their mortgage to get their house. So we need to solve that. We need to bring something. And the problem today is a problem of cost. When you run everything on a Stone Age type of tooling, it's very expensive, time-consuming, lots of intermediaries. Everyone wants a cut. So at the end, your liquidity event for this case specifically might be what, 30%, 40% loss. I mean, you don't want to do that. You know, you're like, okay, I won't do anything. I would just wait. But if you start to build something that is more easy to set up, more, um, um, that is easier to understand for the, uh, person that is purchasing. I mean, you just have a boulevard and this market is big. Once again, it's a function of, uh, the company traction. So tons of companies that opt for liquidity will not get liquidity, not because of the rails, not because of the cost, but just because they are not, um, an asset that is, uh, meant to be liquid. But for the other one, the one that are big enough that are generating revenue, but they are not on track to become a public co or to do IPO tomorrow. Well, let's give the chance to the founders and the boards to just build something. And maybe it's an SPV. Maybe they can just do an SPV and say, hey, let's build an employee SPV. The solo purpose of this SPV is to cash out our employees. That is where I love. And that is what we build in Fairmint because we want to make sure that we build liquidity for the proper use case. That is replicable, that is scalable, that drops the cost of transactions, but that will also allow a better distribution of capital among all the players and stakeholders in a company and its ecosystem. And, um, and if you start to do that properly, I think we will have a lot of, um, money injected in the economy because it is just the broken system that we have that we are putting at play again.

It's the liquidity wheel. Love that too. The ability to keep the startup world alive, you need liquidity, not paper money, because the people that have made money from startups are the ones that typically go back in and spend again as well. So they see the opportunity. So, Joris, this has been so fascinating. I love this conversation. Doesn't get talked about enough as far as the depth, but fair mead, I'm fascinated. Fascinated about. I'm going to share all the details with folks so they can trial it and get information from the podcast and show notes. But I appreciate you joining today. This has been such a great conversation.

Thank you, Andy Walsh.

Thanks for listening to Startups Decoded. If today's conversation helped you think differently, share it with a founder in your network. And don't forget to subscribe for real-world startup insights every week. Week. We really value your support. If you're interested in partnering with us, email hello@startupsdecoded.com. I'm Andy Walsh. I'll see you next week.