Ep. 204: Joe Cecala - Democratizing capital markets for small businesses

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Full Episode Transcript:
Adam:

Welcome back to Count Me In, the podcast that explores the ways management accountants drive business forward. I'm Adam Larson and my guest today is Joseph Cecala, CEO and co-founder of Dream Exchange, a company focused on building the next generation stock exchange designed for early stage growth companies. This is yet another podcast where I learned a ton, like how the rise of electronic stock training essentially shut down IPOs and equity stock market access for businesses worth less than $50 million. What's more, I learned how management accountants will play a critical role in making these new venture markets actually work. Whether you work at a small business, are interested in investing in small business, or wants to know more about the relationship between equity markets and innovation, this is the podcast for you. Let's get started with Joe Cecala.

Adam:

So Joe, I wanna thank you so much for coming on the podcast today. We're really excited to get talking to you about the Dream Exchange, but before we get there, I just wanted to hear a little bit about your story. I was reading your bio and I just think you've got a really great story starting off as a CPA and to where you are now. Let's start with your story and go there.

Joe:

Sure. And Adam, thanks for having me. I my story I like to say I Forrest Gumped my way through my career, right, I started as a CPA went to law school and became a shingle lawyer doing a lot of small business venture capital transactions. And you know, my accounting career really informed that quite well. I guess the big story of how we're here today is one of my clients, Jerry Putnam, founded a company which became Archipelago, actually the world knows today as New York Stock Exchange, Archipelago in the mid 1990s. It was the first company to actually carry equity security trades using the internet or among the first two. And I got this national market expertise when that was being born. And here we are 26 years later with a lot of legal expertise in capital markets.

Joe:

So several years ago I just decided that a new exchange model was needed to accommodate smaller companies. And we worked on legislation for that. It's still pending in Congress and we're actually building a national exchange as well. So everything that we're doing is born out of those early years of learning what a stock exchange is and does and how one is born, and the mechanics of that and adding the kind of practical business of how to run one to the legal expertise of how to create one. And really the other, I guess the other major portion of what we're doing that's different is that, you know, we're targeting what we call underserved markets. The entrepreneurial market, very small companies that don't really see interest from a stock exchange in the earlier stages of their business life cycle. And we're also especially concentrating in minority markets.

Joe:

The capital group that is financing the exchange and is the majority owner, our minorities, it's a black owned exchange, the first one in the history of the United States. So, you know, and we're in the licensing, we're in the process, we'll be hopefully licensed in about a year. So we're in that process right now, but things are going really well. And that's how I got here, was really starting as a financial professional and moving from financial professional to early stage company, venture capital lawyer. And so I really wanna help those small companies. It's more about the companies through my career I haven't helped or can't get access to capital than it is about the unicorn companies that have an easy time. So that's how we got here today. And hopefully the journey will be easier go in the next six years than it has been for the past 10.

Adam:

I sure hope so.

Joe:

Yeah, me too. So, and then I guess what I would say is the Dream Exchange today as it exists, as it perhaps might inform you know, the audience for this particular, you know, group. We're really concentrating on what are now gonna be known as early stage growth companies. That's actually a coined expression. It is in the Main Street Growth Act. And what that means is those are companies that are very small. They might have a valuation of, you know, 10 or $20 million, but they're gonna be seeking capital you know, for 10 or $20 million. And we're providing the mechanics of a brand new stock exchange environment for those early stage companies to be traded with customized rules and customized reporting and customized attention that the national exchanges really can't provide because the financial reporting and the cost of the coming public and Sarbanes Oxley and DOD Frank and the regulatory environment for very large companies is much easier to absorb the expense of doing that. But how do we maintain the same quality in investor protection in a small market while simultaneously making the cost less so that those smaller companies could get access to capital in a public market that's really the driver behind the meat and potatoes of the Dream Exchange.

Adam:

Wow, that's, there's so much there that I think we're gonna have to unpack a little bit of it. And I know that for me and I know a lot of other folks, you know, maybe we can start with, you know, how do you set up an exchange and what exactly is in exchange? Because we all hear about the stock exchange and stocks being there, but maybe there's a way that you can describe it for us that even a seven year old could understand it.

Joe:

Yeah, that actually, and thank you for asking that because that is, it really is not commonly talked about. Most people talk about the functions of an exchange without actually knowing what it is. So a stock exchange is merely a set of rules by which the buying and the selling of equity securities is conducting. That's all it is. And today those rules are primarily driven by electronics. So trading rules, what type of order, what type of sale, what the rules say about how the market participants have to conduct themselves fairly. Now, most people think stock exchange and what they're actually thinking about is what's called the secondary market, because you, the stock is already a public company and you wanna go and you wanna buy your shares of IBM and you have to go through a stock broker, some very large organization that is carrying trades to a stock exchange.

Joe:

Stock exchange is matching the trades that the order book and the matching engine of an exchange literally matches trades today in millionths and billionths of a second. And that's what people think. They see the Dow Jones averages and they see the New York Stock Exchange you know, set of listing is up or down. The function of the stock exchange is to match trades in a fair and equitable environment. Now, the other function that most people are, are familiar with is the initial public offering market, the IPO market. And they look at exchanges and go, they went public on NASDAQ, or they went public on NYSE. That's the capital formation part of exchanges. Now that's another kind of misinformed use of stock exchange because stock exchanges don't actually take anybody public. Investment banks do. So the investment bank has to make an arrangement so that when a company files publicly and sends its registration of its shares to the SEC, they can also take a registered share of stock to a stock exchange and apply to be listed on the exchange.

Joe:

Merely getting registered shares with the SEC does not automat...