The creator of regulatory compliant structures in two distinct fields says that while the environments may differ, many of the same development principles apply, and they start with improving communication.
Will Febbo is the CEO of Digital Capital Network, an on-line marketplace that enables a more efficient venue for transactions in the micro and small-cap marketplace.
Mr. Febbo is a featured speaker at FinFair 2015, which takes place July 29 at the IBM Innovation Center in Manhattan. Bringing together the minds behind the innovations disrupting mainstream finance and the Wall Street, FinFair will provide a glimpse into the future of the American financial system.
Mr. Febbo oversees the launch of Merriman’s Digital Capital Network (DCN). DCN provides institutional and accredited investors with pre-screened investment opportunities across multiple strategies, sectors and deal sizes, saving them sourcing time and leaving more time for evaluation.
DCN’s main positives can be broken down into three areas, Mr. Febbo said. The first is compliance, which is essential to DCN but is also an area Mr. Febbo said he is comfortable addressing.
“Dealing with FINRA and the SEC is what we do every day. The technology allows it to be easier.”
Mr. Febbo explained the DCN compliance structure was designed with an eye toward simplifying everything regulators require. Documents are time-stamped, and the level of transparency reduces the time spent waiting for regulator approval.
The second area is customer relation management. Mr. Febbo explained smaller investment banks and brokers tend to not be as well trained in customer relations and often have difficulty tracking their outreach.
“Now they can see what the active deals are while also seeing who is looking where.”
The third area where DCN helps is with Mr. Febbo called the changing dynamic of distribution. After 2008, he explained, many hedge funds did not survive. More family offices also began to manage their own money.
Conceding it was difficult for investment banks to shift to distribution, Mr. Febbo, said DCN was designed as Merriman’s way to reach out to high-net-worth investors, family offices and others worldwide.
DCN’s pre-screening looks at both the investor and the issuer, Mr. Febbo explained. Because issuers have to pay to list with DCN, Mr. Febbo said that immediately eliminates many companies with significant problems
“If they cannot afford even a nominal listing fee, there is probably some issue.”
With Merriman’s existing client base, finding issuers is not an issue, Mr. Febbo added, but any company listing with DCN has to post a minimum of a $4 million raise. Once raises hit that amount, they usually signify a company that is at a more advanced stage of development, which comes with its own validation. The board or principals have to have a financial stake in the company and have to agree to full due diligence.
When screening investors, Mr. Febbo said the rules are very clear. At a minimum, they have to fit the definition of an accredited or qualified investor and when they register they attest they meet the requirements of one or more of the individual categories. Their information is validated by third-party technology
Mr. Febbo’s initial involvement with Merriman came when they bought a MedPanel, a health information company he started. The deal came with a spot on Merriman’s board.
“It was my first exposure to capital markets companies,” he said.
They lived through the crash following which Mr. Febbo repurchased MedPanel but remained on the Merriman board, citing his respect for John Merriman as one of several reasons.
Another was the opportunity to utilize his flair for innovation in an industry not known for the trait.
“I saw a tremendous opportunity to create disruption through the use of technology,” Mr. Febbo said.
Having accomplished the feat in the medical industry, where he worked with pharmaceutical companies, biotech firms and doctors office to increase communication efficiency, Will Febbo set out to do the same in finance.
“It was a different industry but the same principle.”
With MedPanel, Mr. Febbo developed ways for hospitals and patients to communicate through cloud technology in an industry also familiar with compliance.
“Our focus was on acquiring and purposing HIPAA-compliant data to help governments and institutions develop better solutions for equipment, sales effectiveness, and even global branding,” he said.
Mr. Febbo said he soon learned that developing DCN within Merriman came with significant advantages.
“What’s interesting was in my first year with Merriman I learned of technologies being created elsewhere, but most of the time they were not being developed by people who knew capital,” Mr. Febbo explained. “The majority were general entrepreneurs.”
Conversely Merriman had a full infrastructure as a broker-dealer so the change was more of a behavioral one, he said.
“Many startups have technology solutions, but no clear revenue plan,” Mr. Febbo said. “That concerns investors.”
Adoption of technology is much slower on the buy side, Mr. Febbo said. People still want to talk to someone when they part with their money.
“It is very much a digital meets analog solution,” he explained.