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tZERO CEO on investing in security tokens

Saum Noursalehi, tZERO CEO, joins Yahoo Finance’s Brian Sozzi, Alexis Christoforous, and Dan Roberts to discuss the listing of its security token connected to the St. Regis Aspen Resort.

Video Transcript

ALEXIS CHRISTOFOROUS: As more and more companies look to raise cash through IPOs or stock sales, some are taking a different approach to boosting the bottom line. Token exchange tZERO listed a security token recently connected to the Saint Regis Aspen Resorts. It's tZERO's first token not directly associated with its parent company, which is Overstock.

The CEO of tZERO, Saum Noursalehi, joins us now for more. Also our editor-at-large, Dan Roberts, is here with us. Good morning to you both.

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So Saum, talk to us about this new token, which recently started being available. How is it being received?

SAUM NOURSALEHI: It's getting very wide reception. Thank you for having me. Yeah, we're-- it's the first of several new assets we hope to add in the coming months. As you mentioned, the Saint Regis Resort that's in Aspen, a portion of that float is being traded on our exchange technology, our exchange ATS platform.

DAN ROBERTS: Saum, Dan Roberts here. Let's define our terms a little bit. We're talking about a real estate token, right?

SAUM NOURSALEHI: That's correct.

DAN ROBERTS: And the huge token sale already happened off tZERO. Now tZERO allows trading of the token. One question I would have for our viewers, who many Aspen and they might be big skiers, but they may not understand quite how this works-- what are the regulatory issues? Because we all remember the big parade of ICOs, initial coin offerings, that had a lot of issues with the SEC.

How are you guys protecting against that here? What are the issues involved with people freely trading this token?

SAUM NOURSALEHI: Yeah, so ICOs were utility tokens. And the SEC really cracked down hard on those 2017, 2018, where they saw a lot of those assets as securities. What we've seen all along was these are securities. People plan to profit from these assets.

And so what we've designed is a system where in the tokens themselves, you can code regulatory laws into the asset itself. So it knows exactly the type of offering that was done to raise that capital, whether it's a Reg D or a Reg A, and knows who can trade those assets with who. And so all of these regulatory laws are actually built into the assets. So it follows the laws.

DAN ROBERTS: Yeah, and to build off that, I know that another issue with a lot of those ICOs, you had people buying in who they weren't buying up the token for its use or stated purpose or for the connection involved. They were just buying with the expectation of a profit, as you mentioned. Are you finding that the people who are buying and trading the Aspen token on tZERO are people who they have some kind of connection, whether emotional or they're customers of Aspen, they've been there, or it's crypto speculators?

SAUM NOURSALEHI: I would say-- well, it's a mix of investors. We do have quite a bit of crypto investors on our platform. The Aspen token, by the way, is not live yet. They're just about to start onboarding the investors that own the assets. So in the next couple of months or so it should be live.

But we have a mix of investors on our platform. Some are the crypto people you mentioned. Others are just looking in to invest in private assets that traditionally investors haven't had access to-- for example, commercial real estate, like the Aspen token.

BRIAN SOZZI: Saum, how do you-- how do you make money? I go back to the Overstock annual report. It's a complicated business, what you do. How do you make money? And when does tZERO become a profitable venture?

SAUM NOURSALEHI: Yeah, we're-- right now, we're estimating it's about three years out before we start making profits. We make money like-- a lot like how an exchange makes money, so through transaction fees and listing fees. So as new issuers come to us looking for liquidity, they have to list on our ATS, or trade on our ATS platform. That's a recurring fee. In addition, the transactions that happen on the platform, we charge a fee on those as well.

ALEXIS CHRISTOFOROUS: Saum, I know that you recently announced some layoffs to your staff. You're also cutting salaries. Board members will now only be compensated, I believe, in equity. Why are you doing this? And what's the-- what's the state of your business at the moment?

SAUM NOURSALEHI: Yeah, no, we-- as you guys know or may know, Overstock is having record sales. They're having their strongest year. The last quarter results were incredible. So it's not a capitalization issue.

It's we're a startup. We've gotten through most of the build phase of our platform. So the platform is built, essentially. And so we're just shifting our focus away from, for example, a lot of engineering resources more to areas like business development, where we're actually adding headcount.

As far as the salary reductions-- like I took a big salary reduction-- it's really just as we prepare for an external raise, which we're planning to do in Q1 of next year, we really want to keep our expenses low. And in addition, me and the board, we believe in this mission so much that taking equity for some cash now, I would take that any day.