Rob Nance on Local Investing, Venture Funds, Cryptocurrency, And NYCQ

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TSP 178 | Local InvestingEpisode Summary:

Managing partner of CityBlock Capital Rob Nance gets down into the business of local investing as he shares his new venture called NYCQ, a tokenized venture fund for investment into New York City startups. Starting with his origin story, he relays the milestones that led him to his successful career, from his interest of banking to taking on the opportunities to expand with venture fund. He covers topics about blockchain and cryptocurrency in relation to how his tokenized venture has revolutionized investments by digitizing. He also talks about the role of fundraising and the essence of communication.

Our guest on The Successful Pitch is Rob Nance, the Managing Director at CityBlock Capital. He loves to fundraise and he’s going to share with you his secrets on how he has reframed dealing with rejection, how he is willing to leave after five minutes if it’s not a fit in a polite way and really letting go of focusing on getting to a yes versus getting to know instead. It’s such a play on words by getting to know someone versus getting the no. What he’s doing in the blockchain at CityBlock is going to be really interesting for people who want to know how they can possibly invest in real estate in a way that’s never been available before specifically commercial buildings in New York to start with. He’s got an exciting pre-webinar coming up that you’re not going to want to miss. Enjoy the episode.

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Rob Nance on Local Investing, Venture Funds, Cryptocurrency, And NYCQ

Our guest is Rob Nance, who is the Managing Partner of CityBlock Capital, which launched the NYCQ, a tokenized venture fund for investment into New York City startups. CityBlock Capital sources capital globally and it allocates to proven local investors with track records of profitable exits. Rob is also the Managing Partner of Edgewater Equity, a fully invested early stage venture capital fund based in New York City. He manages a portfolio of early-stage companies around the globe. In addition to all this, he advises a diverse group of operating businesses, everything from restaurants to medical cannabis. Rob holds a Bachelor of Science in Finance from Winthrop University and a Master of Science of Law in International Taxation from Thomas Jefferson School of Law. Welcome to the show, Rob.

Thank you for having me, John.

I always ask my guests to take us back to your story of origin, when you were getting your Bachelor’s in Finance or maybe even before that. Did you always know you wanted to get into venture capital? Did you always know you wanted to start your own company? How did all that start to take place in your head?

I spent a lot of time in banking. It was an interesting place to be because I got to work with a lot of wealthy companies and individuals who had been very successful. While I was always interested in the venture, an opportunity presented itself when one of my clients came to me and said, “I want to start a venture fund. Do you want to come to start it with me?” I said, “That would be an amazing opportunity.” I left my career in banking and started Edgewater Equity, which is an early-stage venture fund. We had a bifurcated investment thesis. The first was invested in enterprise SaaS companies. The second was what we coined Consumer Product Technology. Consumer Product Technology is investing in companies that are bringing material science to industries that haven’t seen innovation in decades. A great example would be laundry detergent or the beverage category. I spent a lot of time doing that, primarily investing here in New York City at the Silvertech incubator. Silvertech is owned by the Silverstein family that owns the World Trade Center site. They have an incubator run by several experienced venture capitalists. I was investing heavily into that incubator.

I met Jon Avidor, who is a co-founder of CityBlock Capital. Jon and I were investing a lot of the same deals. We came up with the idea that it makes a lot of sense for us to co-invest and start a fund together for our fund too. It was his first fund as well. As is typical, when you get ready to start your second fund, you go back to your investors in your first fund. You say, “Give me more money,” for lack of a better term. As one of my investors eloquently put it, he said, “Rob, I like you but the average venture fund lasts twice as long as the average American marriage. I don’t want to marry you twice.” I laughed but actually, it’s a problem. It’s a problem because your money’s locked up for eight to ten years in a typical venture fund. Think about the individuals that invested in funds that invest in Uber. That company still hasn’t gone public and their money’s been locked up for eight years or more. The only liquidity that has come through that is when someone like SoftBank comes in and does a secondary offering at a discount. I started to think, “How can we solve this problem?”

What I saw in the market was a lot happening with blockchain, a lot happening with cryptocurrency, and a nascent market coming up within blockchain, which was the security token market. What’s interesting about this market is the idea is simple. You can take a real-world asset and you can take the interests that are held in this asset, which now are typically on paper and you can digitize them. You can issue a token that represents LP interest in a fund. One person has successfully done that and it was Blockchain Capital. I flew out to San Francisco and met with Bart Stephens of Blockchain Capital to learn how they had done this. He was extremely helpful. He’s a very nice guy. From there, I started to go down this road of, “Can I build my own tokenized venture fund?” I started working with Jon. He’s a lawyer. In our business relationship, I’m the optimist and he’s the guy that says no all the time. We worked through this and spent a couple of months developing the legal framework necessary to build this.

TSP 178 | Local Investing

Local Investing: The opportunity that exists today did not exist before cryptocurrency was created.

 

Along the way, we met our other co-founder, Max Goldstein. We said, “Max, we’re going to tokenize our own venture fund. Maybe we’ll build something bigger in the future.” What Max saw was the opportunity here is not just to issue our own venture fund, but to build a platform that allows us to issue venture funds all over the globe. What I mean is the opportunity that exists now that didn’t exist before was created because of cryptocurrency. We all remember AngelList. Their goal was to democratize venture investing. The thinking was, “This would be an amazing opportunity that people all over the globe can invest into startup companies.” From the standpoint of democratizing venture, they weren’t as successful as they would have liked to then. A lot of their investors are family offices. What they didn’t have that we have now that’s interesting are these pipes that were created by bitcoin, ethereum and other cryptocurrencies.

When you look at what has happened, it was hard for someone in Ukraine or in South Africa to conceive that they could invest in startup companies in the United States. What bitcoin and ethereum have done is it’s broken down these digital walls that existed. For the first time, people can comprehend that they can send money anywhere, seamlessly and effortlessly, using cryptocurrency. We’ve seen these pipes that have been created. Going back to talking to my co-founder, Max, he said, “These walls have been broken down. There’s an opportunity to globally source capital from anywhere in the world and then put that in the hands of someone that is an expert investor where they live.” Most venture funds invest about 80% of their capital within about 100 miles of where they’re based. The opportunity here was, “Let’s find a local manager starting in New York City who understands this market and who understands how to invest in this market. Give them capital to deploy.” What we’ve done is we’ve created a model at CityBlock Capital where we work with what we call investment partners in different cities, starting with New York City, who deploy the capital on behalf of the fund into an investment thesis that we’ve established.

Wall Street meets Blockchain = picks and shovels. Click To Tweet

For our New York City fund, we’re deploying capital into the intersection of Wall Street and blockchain. You may hear it called picks and shovels. There is this interesting theme that’s developed, an interesting opportunity which is there are lots of assets that are currently built on paper. Whether that’s venture funds, whether that’s real estate and there’s an opportunity to make those offerings digital. The opportunity to make those digital is a huge market. Something like $700 trillion of paper assets exists. You think of all the privately held companies across the US and around the world. What we saw were the opportunities, “Let’s digitize this venture fund. Create tokens so people can buy and sell them.” That’s the market that we see that that’s important. Our fund is investing in that infrastructure that’s been built to support that. Those are the technology platforms that help issuers, like CityBlock Capital issue their tokens. There are the exchanges that will support this new digital infrastructure.

The thing that’s interesting is this concept of curation and having local people in local cities that they are experts in making those decisions as opposed to trying to find one fund or one group of people that know everything about everything. You’re not only digitizing assets, which are allowing people to own fractions of those buildings.

That’s one use case. A great use case is fractional ownership of buildings. In our case, we had these traditional structures. We’re taking those same structures and creating them in a form that is digital, which allows them to be bought and sold online instead of a cumbersome method of trying to do it through a paper format.

You’re making the user experience more seamless and less paper trail is also an outcome of what you’re doing. Is this a security token that you’re offering?

Yes. When we look at the blockchain ecosystem, I think of it as a three-legged stool. The first part of that would be payment tokens, bitcoin, ethereum. The second would be utility tokens, EOS or Filecoin. The last is security tokens. That’s the area that we fit into, which is taking real-world assets, building them on the blockchain, updating an antiquated ownership structure.

That encapsulates what it is you’re doing. Do people need to buy a utility token from you to get access to your platform or they can use any utility token?

You don’t have to buy any utility token to have access to invest in our first fund, which is called NYCQ. People can invest using Fiat currency, which is US dollar or they can invest using bitcoin or ethereum. There’s no special token to have access to our network. It’s just like you would invest in a regular venture fund, but what we allow is instead of having to wire money to us and has to fill out a paper subscription agreement, scan it and send it back. It’s all done through our website in a digital interface.

Are you the first to do this, Rob?

A couple of other people have done this. Blockchain Capital is one. Science, run by Peter Pham in LA, is another. Internationally, we’ve seen SPiCE VC do this. They’re out at Tel Aviv. A couple of people have done this. What no one’s done is looked at it like we do, which is a platform. We’re not trying to issue one fund. We’re saying, “How do we find people with local expertise in each market? Tap that local expertise and use that to deploy capital more efficiently.”

As you all know from reading this blog, and Rob certainly has heard this since he’s an expert at fundraising, one of the questions you always get asked is, “What’s your secret sauce? What’s your unfair competitive advantage?” From what you said, it seems to me that your secret sauce is these customized, city-specific experts making those decisions. Would that be accurate?

Yes. The example is we’re working with CoVenture here in New York City. What’s interesting about CoVenture the firm is that they have three different main areas of business. One is lending, one is venture capital and the other is cryptocurrency. Who better to deploy capital in New York City, which is the intersection of Wall Street and blockchain, somebody that has experience in the venture, and that has experience in cryptocurrency? We worked hard to curate the right managers for this city that understand that theme. A lot of those companies will be here in New York City because it is the financial capital of the world.

After New York City, I know you’re going to be looking at Los Angeles and San Francisco, correct?

That’s correct. To give you an example, when we think about LA, it’s a great tech city. A lot of venture capitalists and a lot of startups are going there. We think of eSports. We think an interesting area perhaps for our LAQ fund would be someone that has expertise in eSports. We would go find an investment manager that has experience, that understands what we’re doing, the likes of what we’re building at CityBlock, and get them to join us as the local investment partner for LA.

Get To Know vs Get To Yes. Click To Tweet

When someone buys your token, are they buying each individual city or one token that represents all of the cities?

They’re buying each individual city. We’re only raising our first token, which is NYCQ. We’ll open the other tokens subsequently as we grow. That token represents an LP ownership in the fund here, just like a regular LP would. We have a two and twenty model, which is the standard 2% management fee, 20% of profits after investors have all of their money returned. What’s great is we look at this, let’s say, in three to four years the fund goes 4X. There may still be more to go but in an early stage, if an investor says, “That’s good enough for me,” they have the opportunity to then go sell that to somebody else and deploy their capital elsewhere.

This is where your secret sauce is. I’ve been watching your Telegram channel, which has such great interaction going on and you’re very involved when you’re talking about locking up your money, whether you’re a venture capital fund, even if you’re an investor. I myself have invested as a tenant in common in a shopping center. I had to wait for that to be sold, even though it’s gone up in value. What I’m hearing you say is if that shopping center had been digitized with your token, I said, “It’s been five years. I got 4X. Even if you’re not selling the shopping center yet, I’m going to sell my part of that.” It was difficult to sell your tenant in common, but this will be much easier. Am I on the right track here?

That’s the idea. The idea is that there’s liquidity. Instead of just sell that interest, you have to find somebody. You have to find somebody that wants it. There would be nowhere to list it for sale on an exchange that exists. That goes back to the infrastructure we’re investing in. Think about the exchanges that will be built to sell those interests. If all the real estate comes online, a lot of real estate switches from this traditional paper ownership to digital ownership. It’s a huge opportunity for exchanges to list that and someone to be able to buy it from you.

You love fundraising. A few guests or founders feel that way. What is it about fundraising that you love so much?

When I set out for my first venture fund, what I was most excited about was investing. What I found quickly is that while I liked investing, what I loved was raising the fund. When I think about fundraising, a lot of people you’ll hear things like, “I hate going out and shaking my tin cup. I hate going out and begging for money.” I look at it from a different frame of reference, which is there are people in the world that understand what you do, like what you do and want to be a part of it, whether you’re raising money for real estate, a venture fund or whatever it may be. I’m super fascinated by human behavior. I’m super fascinated by how people make decisions. I’ve spent a lot of time studying decision making, communication and language processing to understand how to get to know as quickly as possible.

When I look at a situation, you hear a lot of these books that are called Getting To Yes. What I learned quickly is that’s a pretty terrible tactic to sell. A much better tactic is to get to know as quickly as possible. In a strictly business sense, no is the start of a negotiation, not the end of it. I work to get to know because it allows people to feel empowered. If they truly don’t want to work with you, it allows you to move on. I use the example sometimes of going to a bar. Let’s say that someone sees an individual cross the bar they want to talk to. They sit there the whole night looking at that individual going, “Should I go talk to him? I don’t know.” They go up after hour three and that individual is not interested in talking to them anymore and walks away.

TSP 178 | Local Investing

Local Investing: In a strictly business sense, “no” is the start of a negotiation.

 

If they had done that in the first two minutes of being in the bar, there were 30 other people they could have gone and talked to. That’s exactly how fundraising is. If I go into a meeting and someone’s not interested, I’ll leave five minutes into the meeting, but not in a rude way, “This is not a fit for us. This doesn’t work.” What’s important is finding a fit, and people are afraid to get that rejection. I try to get the rejection as quickly as possible if it’s there. If it’s not, if they do like what you’re doing, then it’s a matter of finding a fit. What are the sticking points and how to work through that? Human behavior fascinates me, but also it is being comfortable enough to get rejected as quickly as possible when you realize that something’s not a fit.

Get comfortable with being rejected as soon as possible, as opposed to taking it personally. I talk a lot about this when I get my keynote talks on how to become a storyteller. How to pull people in with the vision you want to have. I’ve had Robert Cialdini who’s written a whole book on Influence and Pre-Suasion. He’s all talking about how do people communicate? My observation is that people have to trust you, they have to like you and then they can get to know you. It’s a gut, heart and head thing. A lot of people start off at the head level and start throwing up a bunch of numbers to someone and they’re like, “I don’t even trust you, let alone like you. Even if this is a great idea, I don’t know if I’d want to work with you.”

I totally agree. 70% of communication is nonverbal, 20% is your tone of voice and 10% is what you say. What you say matters very little. The other thing people don’t realize is the part of the brain that makes decisions has no capacity for language. Going back to what you said, you can throw figures up on the board all day long. When you do that, it doesn’t matter. If people don’t trust you, if they’re not comfortable with you, the best numbers in the world aren’t going to make a sale on the end. Part of sales to me is building a relationship. It’s not coming in and asking for the order the first minute you meet somebody. I like to build a relationship with individuals that are going to last decades. The car salesman example, the car salesman doesn’t sell one car. He sells eight cars over a lifetime. That’s how I think about business. That’s how I think about communication.

I’m fascinated that the part of the brain that you said makes decisions has no capacity to process language and no capacity to process numbers. It’s not just language. Numbers are in that same bucket. It becomes an emotional part of our gut. That’s why stories work well, and then it translates from there.

That’s where gut feeling comes from. You say, “I’ve got a gut feeling. I can’t describe it.” It’s because that part of your brain has no capacity for language. You get a gut feeling and you feel good about it or you’re excited about it, but you can’t quantify it. There’s a particular reason for that.

Get the no as soon as possible. Click To Tweet

That’s what they talk about with chemistry with people in a dating situation. Even in business, your co-founders, “Do we have chemistry? Do we like? Do we trust? Is there energy there?” People are investing in all of that chemistry, that’s why people go to the movies if they see the chemistry. There’s no language for it. It’s either there or it’s not. You have a webinar coming up on September 6 that’s free for people if they want to learn more about this new way of investing in commercial property. Tell us about that.

We have a webinar on September 6th. That includes CoVenture, our investment partners here in New York City and Morgan Creek Digital Assets, which is one of the biggest digital asset funds out there. What we’re really talking about is for digital assets and that is who’s working in the digital asset space? By digital asset, I mean security token. What does it mean for investors? Then talking a little bit about how our venture fund, NYCQ, falls into that space. We’re taking a deep dive with some of the best people in the industry, Anthony Pompliano and Mark Yusko, into digital assets. We will be talking about what is being built now and how we’re supporting that digital asset infrastructure that’s being built.

What time is this webinar airing on September 6th?

It will start at 10:30 AM Eastern Standard Time.

How do people find it?

The link will be on our website, in our Telegram group and we’ll have it posted on Twitter as well.

Do you have any last thoughts for our audience on how they can become better at pitching and understanding what people want to hear before they open their purse strings?

I would say the key first is listening and consuming as much information as possible. Lots of people have opinions on what works and what doesn’t work. What you have to find is what works for you. What works for you may be different than what works for someone else. There are lots of great people out there that have great content. I would consume as much as possible. I love consuming audio content, so whether that’s podcast or audiobooks, I do that on the subway. I do that between meetings and at the gym. I would find some people you like that have techniques that you think will be effective, consume that and then practice that.

TSP 178 | Local Investing

Local Investing: It’s not enough to take in the information. You have to use them. Every meeting and every interaction is an opportunity to test.

 

It’s not enough to take in the information. You have to use it, which is a key factor.

It’s beta testing. Every meeting you go into is an opportunity to test it. Every interaction is an opportunity to test it. Whether you’re talking to someone in an elevator or you’re meeting with a potential client, it’s an opportunity to try something that you’ve learned and see what works for you and what doesn’t work.

That also takes some of the fear of rejection away if you’re constantly testing it. It’s feedback and not just something you’re taking personally.

It’s like cold calling. If you’ve ever had a cold calling job in sales, the more calls you make, the easier it gets. If you make 100 calls a day, it’s hard. You make 200 calls or 300 calls a day, it gets a lot easier because you’re used to it. You have to practice over and over again.

What you, Max and Jon are doing at CityBlock is going to be hugely successful. I’m happy to be at the forefront of bringing that out to the world with my podcast. Thanks for being a guest.

Thank you for having me.

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