Monday, November 4, 2019
Interview with Anthony Citrano, Acquicent
Our interview this morning with an entrepreneur is with Anthony Citrano, the founder of Los Angeles-based Acquicent (www.acquicent.com), a startup which wants to make it as easy for you to invest in museum-grade collectibles such as classic cars and art, without having to invest millions of dollars in those assets. Anthony previously was a VP at Verizon and EdgeCast.
Tell us a bit about your new startup?
Anthony Citrano: What we're doing, is we allow people to invest in what I call museum-grade collectibles, the same way as buying shares of stock. We're starting with rare vintage cars, and allowing people to invest just $500 or whatever to buy units of collectible assets. The goal is to open up an asset class that the average investor can't really access. We're starting with really rare cars, and our next step is fine art. Traditionally, as you can imagine, buying into this asset class requires a tremendous amount of wealth. You'd normally have to buy the whole thing. The haven't been broken up into shares and units, historically. What we allow, on the investors size, is we allow them to buy parts of these assets as a share of stock. On the other hand, for people who own those assets, which are sometimes collectors, or museums, and sometimes big families, is we allow them to raise cash on those assets, without selling them. They remain the majority owner of those assets. What they are doing, is offering up a minority position in those assets via our platform. To keep it simple, consider you might have a million dollar, rare Ferrari. You remain a 70 percent owner, but could put 30 percent on our platform, selling that 30 percent in little pieces to regular investors. Essentially, it's a mini-IPO for those types of assets. The reason I find this so exciting, is it's a $10 trillion dollar world in these high end, investment grade, luxury collectibles, from fine art, to vintage automobiles, to jewelry and precious metals. These investments have performed very, very well, but the average investors has never been able to reach into that asset class.
How do those investors gain on that investment, and when can they sell?
Anthony Citrano: Initially, for most investors, there's a holding period, Ultimately, and this gets into SEC regulatory stuff, ultimately we plant to have an exception under Regulation A, which would allow everybody to invest, where you don't have to be accredited, and there would not be a holding period. Conceivably, you'd be able to buy and sell a share in five minutes. Right now, we have open trading windows, where somebody can buy in at a certain date, and a certain holding period before a selling window will open. To your question if there hasn't be a liquidity event to happen to sell, no, it doesn't. The car itself does not have to be sold for you to sell your shares. We match you to another buyer. I try to encourage people to think of this like shares of stock, such sa stock in Apple. In order to sell a share of Apple, Apple doesn't have to be acquired, you just have to have a buyer on the other wise. What we do, and we're really early on this, is we queue up buyers and sellers, and we match them. When someone wants to sell shares, they come to use, and we pull from the queue of buyers and match them up. The velocity will be slow at first, but eventually, we want to have a 24/7 real time marketplace. That's still probably a year to 18 months away.
I imagine there's quite a bit of regulation involved with the SEC, how are you dealing with that?
Anthony Citrano: It's all about open communications. We have great lawyers at DLA Piper, Curtis Mo, who is a really experienced guy. That's the first thing that helps us. The second thing, is open communications with the SEC. We've talked with them, gotten their feedback, read all of their wonky publications. Honest, it has been a major major effort, we've spent six months and a very substantial part of work is the regulatory and legal work. It's been eye opening. That said, we've seen that the SEC has been really moving in a positive direction on these kinds of things, and they have been really careful, historically, about protecting investors from fraud, from lack of transparency among companies. The ICO madness through 2016 and 2017 was bad, initially, for the industry as a whole, because there were lots of crooks and charlatans, but now, the SEC has cut through a lot of the BS. So, if you're selling something where it's essentially a speculative investment, and buying with hopes of appreciation, that's a security. We went into this business starting at day one, assuming this would be a security. They are securities, and ownership of a real world asset. That's the reason why we did so much work upfront on the regulatory side, because we didn't think for one minute that these would not be securities. A lot of companies I think are trying to escape from that reality. I think it will pay dividends for us. It wasn't easy, but we're getting there, and we've done lots of work to make sure we're following the rules.
So how did you get started and decide to do this—and why start with vintage cars?
Anthony Citrano: The only thing I've been longer into than technology is cars. I have been into cars for my whole life, and I have probably rotated through a dozen cars in the past decade because I love them so much. It's a passion of mine. I've thought a lot over the years about how people who want to invest in these kinds of assets can't, and how one could democratize that. That model applies to other assets, aside from cars, but it started for me with automobiles. A lot of people say it's easy to just invest in the stock market, which historically, over a long period of time, performs well. The interesting thing, is vintage cars have outperformed the S&P 500 over the last forty to fifty years. The last piece, is in my role at EdgeCast and as we became part of Verizon, I was in the marketing and communications role, which involves a great deal of storytelling, and helping engender an emotional affinity to something, otherwise people wouldn't be excited about it. That's what happens with vintage assets. There's an emotional affinity, and you really connect with them on an emotional level. That's part of what this is, that storytelling gene.
How are you funding the startup?
Anthony Citrano: We've only been operating for about seven to eight months, and it's been entirely self-funded. It's my money. But, we're starting to think about an angel round, pretty quickly.
How does the business model work on this?
Anthony Citrano: Chronologically, it will evolve.Initially, it will be transaction and placement fees, which is step one. Step two, is we'll be taking positions in the assets themselves. According to the rules, we may not be able to take performance or commission fees, but we may be able to take positions in the assets. Our ultimate goal, which is number three, is to become a market maker. We will make money behind the bid and ask on real time trading, which it our ultimate goal. We may have to partner with a broker-dealer to do that, but that's our ultimate goal, market making fees.
What's the biggest lesson you've learned so far in this startup?
Anthony Citrano: There have been a couple of lessons. One, is never underestimate the complexity of securities law. I always knew it was sort of complex. We decided to communicate early and often with regulators. In the technology startup world, there is a tendency to move fast and break things, move fast and iterate. That doesn't work so well when you face regulatory scrutiny. You can't just do something and apologize later. So, one lesson I've learned is you have to communicate with regulators. The other lesson, is never assume something that is obvious to you is obvious to others. We went out there with our early pitch, that this was a chance to invest in classic and vintage cars, and we received the universal response that cars are a terrible investment. That's just the conventional wisdom. That's because, for the most part, they are—if you buy a new car. But, if you buy that curated rarity and classic car, they are wonderful investments. In a nutshell, never assume something that is obvious to you is obvious to others. A lot of this is an educational process for people, who are realizing these assets have a tremendous appreciation potential and track record.
Thanks!