SkyTeam Spotlight with SMBX

SkyTeam Spotlight with SMBX

SkyDeck team member Liberty Franks sat down with Gabrielle Katsnelson, Chief Operating Officer, and Jackie Chan, Chief Risk Officer. They are two of the four co-founders of SMBX, a public marketplace for issuing, buying, and selling U.S. small business financial securities. With cofounders Benjamin Lozano and Bhavish Balhotra, their goal is to allow individuals to function as their own banks, buying bonds directly from small and local businesses in a blockchain-based, peer-to-peer exchange.

What is SMBX trying to accomplish?

GK: We help small businesses raise money from people who want to invest in them. We vet high quality businesses and we publish and market their offerings. People can invest as little as $10 and have liquidity on our secondary exchange. Think of it as Kickstarter with a rate of return that meets NASDAQ.

We’re focused on the Small Business Administration (SBA) loan market because we see an opportunity to remove banks as intermediaries, so that investors’ money can be given directly to those small businesses. That way, the investor sees a rate of return of 5-7%, SMBX keeps our default rates at the bare minimum, and investors are still earning a regular rate of return even if they’re diversifying.

Tell me about your backgrounds.

JC: I was in investment banking for more than 15 years, and in risk management for fixed income derivatives to start. After being in Hong Kong for 11 years for my last position, I came back here, and I didn’t want to go back to banking. I wanted to do something completely different.

When I met with Ben and Gabrielle I loved their business model. I thought it was a great cross between financial markets. Now I’m the Chief Risk Officer for SMBX, so I started looking after the operations and the risk management for the company. Since we are a financial platform there are a lot of types of regulatory compliance that we’re subject to, and that’s what I oversee.

GK: My background is in accounting for small businesses, and I really wanted to do something in FinTech. I’m from New York, but I wanted to move to a hub of tech where I would have opportunity. I wanted to be a part of a business using blockchain technology, where I could have my finger on the pulse, but actually have a business model to work within.

When I moved to the Bay Area, I immersed myself in FinTech and started studying blockchain, robo advisory, lending platforms, and crowdfunding. I would go to every Meetup because I wanted to learn as much as possible. I met Ben [CEO and co-founder] at one of these many events. It turned out he was specifically looking for someone with an accounting background, so we connected.

Tell me about your ideal users and how you intend to bring them on board?

GK: For the retail investor, if you are fortunate enough to have money in your savings account, it’s sitting there and it’s not earning you money, and that money is lent to businesses that are vetted by banks. When you invest in indexes or funds, you don’t actually see where your money is going – it’s not easily transparent. That money could be used for oil drilling, fracking, etc. And that’s ok for some people because they only care about the rate of return. But there are more people wo care about the impact of their dollars. When people start to really see the impact of dollars in society, they understand that it’s not your vote that matters as much as every dollar you spend. Where you spend and invest your money has a huge impact. SMBX wants to bring the power back to your money, by allowing you to choose where it goes. We want people to make money from their money and put it into something that they see, something they feel good about and believe in.

What is your advice to entrepreneurs?

JC and GK: (laughing) Patience.

JC: We’re dealing with integration of responsibilities. We’ve been structured under four verticals: product, operations, business, and technology. Given our diverse experience in finance, all four of us are leading one vertical at the moment. So that was one great way of segregating the responsibility initially.

Since ops is now integrating with product, we’re having conversations that maybe it’s time for me to take over both areas. That way, I can have a more cohesive way of managing both, pushing things through, and making sure that we can get to the finish line. Looking back, I think it was great that we had the structure of clearly defined verticals…

GK: But we weren’t integrated in knowing exactly what was happening within each vertical in an intimate way. At a startup phase, I think you need to know everything that’s going on, because it’s so interconnected. I think we should have done that [integration] sooner. It’s easier to silo, but what Jackie said about the initial verticals and the separation is now transitioning into a more integrated and cohesive team.

Do you have any advice to women founders and co-founders?

GK: In FinTech, I think women can really jump in. If you look at central banking, a lot of the operations are done by women. Now, there are a lot of new FinTech companies, but a technology is not a business model: they need people who know compliance, operations, and who have traditional banking experience. So I think there’s tremendous opportunity for women.

JC: You’re very right about it being male dominant area. I remember once we met with a particular VC, and we went in as a team with all four co-founders. The person in charge looked at Ben the entire time. Anytime Gabrielle and I spoke, he looked at us for two seconds, and then went back to talking to Ben. Going through the SkyDeck program, there is a woman’s group here that gives us a place to talk about these issues. I think it’s a matter of women creating more self-promoting opportunities for ourselves. But it does take time. Our co-founder Ben is really good at trying to create more opportunities for us to speak in investor meetings, to give us the chance to promote our knowledge.

GK: With a business, if you want a role in a company, there is a lot of opportunity. As Jackie said, when it comes to investors I think it’s still a different landscape. I don’t think it’s because anyone believes women are incapable, it’s just that there have not been enough women entrepreneurs yet. Maybe the investors don’t understand how a person of a different gender thinks, and that is why women-owned startups can be treated as more risky to invest in. It’s not that they think negatively about women, it’s that maybe they see more risk in investing.

Caroline Winnett said it very well in one of our women’s meetings: the goal post is just higher as a woman, and you have to go farther in the way you present yourself and the way you speak. I think what seems like a disadvantage to women is an advantage because the stakes are challenging. Capital at a seed stage is much harder to come by now, because the conversion from seed to series A has declined. Even though there is a large amount of capital, it is invested at later stages than at the ground level. People talk about the disadvantage of being a woman, and that we have to work so much harder to balance current funding disparities. But I think it is an advantage to be a female entrepreneur, because we’re used to working harder already.