Republic: “Schwab for the next century”
It’s May 1975. The SEC just enacted deregulation of brokerage commissions. The SEC mandates negotiated commission rates for all securities transactions.
Sensing an opportunity, many brokerage firms raise commissions. Chuck Schwab decides to head in the other direction. He creates a discount brokerage to attract customers at lower fees.
Chuck opens its first branch in Sacramento, California. Customers flock to this new discount brokerage eponymously named Charles Schwab in search of accessing the stock market at more favorable prices.
Charles Schwab gains increasing popularity for its customer-centric approach. Over the ensuing decades, Schwab continues its innovation, growing to almost 32 million brokerage accounts, $6.9 trillion in total assets, and over 5.7 million daily trades. Schwab built a powerhouse, serving individual and institutional customers across banking, wealth management, and trading.
Schwab unlocked investing for a number of Americans over the past decades, but participation in the stock market is still not a reality for many Americans. Just 55% of Americans own stocks directly or through a mutual fund, according to a Gallup poll from April 2020.
And the latest available government data, via the Federal Reserve from 2016, illustrates that only a small percentage of American families — 14% — are directly invested in individual stocks. Moreover, the richest 10% of households controlled 84% of the total value of these stocks in 2016.
Fast forward almost 46 years. It’s March 15, 2021. Alternative investments of all stripes have taken hold with the everyday investor — they are investing in crypto, startups, sports cards, collectibles. Investors want to be able to invest into things they are passionate about, from a digital collectible like NBA Top Shot (Republic invested in NBA Top Shot’s parent company, Dapper Labs, in their seed round) to digital artwork that was recently sold for $69 million.
The SEC just raised the crowdfunding cap fivefold to $5 million, enabling private companies to grow participation in their retail offerings.
Investing into alternative assets — private companies, alternative investment funds, even real estate — has historically been the domain of the institutional investor.
This means that much of the value creation in private markets accrued to those who have been able to participate in the funds and companies that have created that value.
There are some very good reasons for this.
Until recently, regulation was such that investors had to be of a certain net worth, and thus, accreditation status, in order to be allowed to access certain investments in private markets.
Facilitating investments at scale — and doing so globally — is also incredibly complex and expensive. It requires a unique team to build investment infrastructure that accounts for investor accreditation, KYC, AML, identity verification, regulatory adherence, and low minimum investment amounts.
As a result of technological innovation, regulatory developments, and a changing investor mindset about what constitutes an investable asset, retail investing is changing before our eyes.
Alts are going mainstream. And Republic, which was founded to democratize access to sought-after investment opportunities that were previously only available to small, closed networks of investors, has made private investing as easy as investing into stocks.
On Republic, anyone — from non-accredited individual investors to global institutions — can invest into startups, real estate, crypto, gaming, and small businesses.
In just three short years, Republic has grown to 1 million members from over 100 countries who have invested almost $300 million in Reg CF, Reg A, and Reg D offerings.
“This is Schwab for the next century”
That’s why when we caught up with Republic Co-Founder and CEO Ken Nguyen and the Republic team last year to hear the updates on the business, we turned to each other and said: “this is Schwab for the next century.”
Republic combines the best of retail investment innovation with the quality and curation of the institutional investment world.
We are excited about the future of Republic becoming a leading next generation financial institution for a number of reasons:
(1) Republic has built the infrastructure to offer investors high-quality curated private investment opportunities. They have proven that they can access high-quality venture-backed companies, like EquipmentShare, Carta, Robinhood, Fan Controlled Football, Dapper Labs, and more.
(2) Republic differentiates itself due to something that will come to define the next wave of FinTech: community.
Republic has created a unique and engaged community of investors and startups. Ken is a big believer in enabling investors to “align their passion with profit.”
Whether it’s crypto, sports cards, or startups, many investors are proving with their wallets that they want to invest into things that interest them.
Republic’s platform also enables companies raising on Republic to create a more engaged community of investors. Companies, including many who also raised capital from leading VCs, are choosing to raise capital from the crowd on Republic because they want to be able to engage their investors as customers — and vice versa.
Ownership has an impact on behavior. A 2009 study published in the Journal of Consumer Marketing found that over 50% of participants in the study meaningfully increased their desire to buy a company’s product, and pay a premium price, when they also owned the company’s stock.
(3) Republic has also focused on unlocking access to private capital markets for both investors and companies alike. This is an incredibly powerful movement — both for democratizing access to private markets and for underrepresented founders and investors.
Republic has created a diverse network of venture partners that helps them identify these founders. As a result, Republic is able to provide access to capital to founders who may have been historically overlooked by other investors.
This type of community creates an incredibly powerful moat. The next generation of founders will come from different geographies and networks than what we’ve seen happen in the past — and Republic’s community and investment platform will help provide access and opportunity for these founders.
(4) Republic’s team is in permanent innovation mode. Republic is led by a man on a mission: Ken Nguyen. Ken founded Republic on his passionately held belief that people should have the power to invest in the future they believe in. He brings regulatory know-how from his time as the General Counsel at AngelList and an understanding of traditional finance from his time as the Chief Legal Counsel at Permal ($40B AUM) and as the COO of Kanbar Enterprises, a family office with over 100 subsidiaries.
We’ve watched Ken since Day 1 back in 2017, when he just had an idea of building a multi-asset investment platform for individual investors. Every day since, he’s been executing on Republic’s mission and building out a fantastic team and platform. They’ve bought investment platforms to diversify their offerings to include real estate, video game, and small business financing. They’ve been thought leaders in the crowdfunding space and helped usher in the continued development of Reg CF.
And they’ve launched an innovative investment structure — the Republic Note, a profit sharing digital security meant to align the incentives of the community with activity on the Republic platform. For alternative assets, generally more illiquid assets, to achieve full mainstream adoption, liquidity mechanisms will need to be introduced. Republic is also working on building liquidity mechanisms so that alternative assets will become as easy as buying and trading stocks.
(5) Republic is creating the on-ramp for investors to access private markets. In doing so, they may create net new investors in the asset class, particularly from an engaged community of non-accredited investors who now have the ability to invest into alternative assets and build wealth.
On-ramp companies can become incredibly valuable businesses. Republic is creating the on-ramp to private capital markets for investors to access alternative assets at any investment size and in a growing number of assets.
We are firm believers that alts have gone mainstream. And Republic is a prime example of an enabler of this trend happening.
This is why we believe that Republic has the potential to be the brokerage firm of the future, much like Charles Schwab did in the 1970s. And we are thrilled to continue to partner with Ken and the Republic team on their journey to democratize access to private investments to people can profit from investing in things they are passionate about.
