Benzinga - The World Economic Forum (WEF) recently held its annual meeting in Davos, Switzerland where leaders in finance and government convened to discuss policy, pandemic fragmentation and multipolarity.
Benzinga attended the event and interviewed Jeff Schumacher, the founder and CEO at NAX, the New Asset Exchange.
Prior to NAX, Schumacher was at McKinsey & Company where he became one of the fastest-elected partners in the firm and helped launch McKinsey Solutions. This effort led to Schumacher’s work in private equity and venture capital where he helped create Digital Ventures, which BCG acquired and turned into one of the largest corporate incubators. Today, NAX employs over 100 workers near global centers of finance.
Please note that the below text was lightly edited for clarity and concision.
BZ: What does NAX do? Schumacher: NAX creates products from corporate datasets. Through our joint ventures with the likes of MIAX and Deutsche Boerse (OTC: DBOEY), we place these products in different markets.
Who does NAX provide these solutions for primarily? We’re working with the likes of Axa SA (OTC: AXAHY), one of our largest partners and an investor in the business. Axa is one of the largest insurers of arts in the world. We take their data set and lift part of it to create a lending platform. If you think about it, you can go down to a car dealership and buy a car with a loan on the spot. You can’t go to the art gallery and get an art loan the same way. We’re doing what car lending did to the auto industry for art.
How much would a typical loan be worth? Depends. Potentially $50,000 to $500,000. It’s definitely not the stuff you’re buying at Costco Wholesale Corporation (NASDAQ: COST). Another important factor is that you can leave the art on the wall, and you don’t have to warehouse it. We’re taking the data sets and working with our partners to create an art-backed security that looks and trades like a mortgage-backed security.
What’s the difference between a mortgage- and art-backed security in terms of yield? You’re going to have a shorter and higher yield in an art-backed security. It helps you lift the balance sheet pressure you otherwise would have when giving the art loans.
You just launched a massive arbitrage platform, right? Yes. It gets a bounty for the insurance, a fee for the loan, and a piece of the trade. However, it doesn’t carry any assets. This platform will be a big channel partner for Axa’s core business.
What makes NAX so unique? We can commercialize ESG and allow you to make money from it. This art platform I just described to you is democratizing art. It's increasing participation in art. We have other products that we're building around the environment and climate where you can actually get returns versus just paying a tax, as you do with carbon credits.
What kind of impact can you make by commercializing ESG? We’re working on things around carbon removal functions on the planet. For instance, we have this concept around funding methane capture. So, you buy the methane credit and that money goes to fund the leaks in pipes and pumps around the world. Through that, you can pull out about 10% of the world’s global carbon. There’s another one where we can limit deforestation, as well as recapturing batteries out of cars to use that as power generation. We can also create derivatives of those products and ways for companies to make money from them.
Can you talk about some of the mechanics going on behind the scenes? We first engaged in the development side of our business. Then we built the software side of our business. Now, we're building the exchange side of the business, and we have made a consumer finance platform. We also have an aftermarket warranty platform we're putting on the market this year. We put the art product on the market this year. We're putting in a supply chain product. We'll have about 10 products out this year, and we'll probably have three or four exchange products by end of the year.
Talk a little bit about your roadmap. We spent a long time in our first year identifying the corporate members and exchange partners. In our second and third years, we developed a proprietary method to work with them, and we developed the software. In our fourth year, we've got the exchange partnerships, we've got the software, we've got the development method. Now we're commercializing and, around late 2024, we'll probably merge or go public.
What gives NAX its principle? What gives NAX principle is its capability of commercializing ESG. And, if you look at the planet and what you're hearing here at Davos today, this is a big deal. We create proprietary products. Exchanges really like that. That's where they make all their money. You don't make money on commoditized products. You make money on proprietary products. So, once you have that software development capability, and the ability to produce those products, you become very interesting to a lot of exchanges. And that's why if you listen to me list all the cities we’re in, it's by no accident that many of the big exchanges are there. We work with a lot of them.
How are you able to break into these new assets and markets with such ease? If you look at our leadership team, most of them have worked together for 20 years. We have a very unique capability of working in corporate environments. If you look at how NAX works, it goes to its corporate member, sets up a platform there and that incubator goes and looks at their corporate data sets and creates new products. Over a five-year time, there should be a portfolio of 10 to 15 products coming from that.
What are some of the results you’re seeing? Look at one of our partners who are in manufacturing. I think we have five products under development and two products that are launched. Those two products, with them as a customer, were valued at $400 and $600 million. That's a 409A valuation.
Where do you think you need to be directed to make good on some of these things that we’re talking about here at Davos? The goal for NAX is to help our corporate members commercialize ESG. If we're successful in doing that, and some of these platforms can remove significant amounts of carbon, we'll be on the main stage talking about these products at the WEF. If I'm really right, we won the Nobel Prize. Without NAX, the planet may have no hope of hitting the 1.5 degrees Celsius reduction required by 2030. We're going to get into a biotic negative feedback loop or the point of no return, and it's just going to accelerate.
If we remove Europe, are we only doing little to impact climate change? Europe's only responsible for 10%. You have to go find the other 90%. If you look at deforestation, can we fund markets to stop it? We lose 80,000 acres a day in deforestation. If you stopped it, and you can fund these markets to actually pay people not to develop the land, you remove 15% of the global carbon, or seven times what the United States emits. We're looking at tectonic moves. We're looking at how to create a market that people can make money from today, and then you'll change behavior.
So the private sector has the answer? If you can find ways to make money, you'll move the market. California, for example, mandated 10% of electric cars forever many times over. They kept pushing the dates. Then Tesla comes along with a car people actually want, and, now, it outsells BMW (OTC: BMWYY), Porsche Automobile Holdings SE (OTC: POAHY), and Mercedes Benz Group (OTC: MBGYY) combined in California. The point is to build something that has equitable value.
What has to happen to get in the way of some of the goals you have? The ability to acquire talent is one of the hardest things. You actually have to find talent that has an investor's mindset, an operator's mindset, and an entrepreneur’s mindset. Then, you got to know something about the industry, or you can't feel your way through the dark. If we're in health care, you better know what you're doing because you got a whole bunch of regulations. If you're in financial services, you better know what you're doing there.
Why are you so passionate about this? Adjacent growth. Nobody does what we do. Imagine if the Nasdaq Inc (NASDAQ: NDAQ) owned a piece of every company that is traded on its exchange. That’s us. We own a piece of every product we create. That incentivizes us to push it to others. We're not chasing a market, we're making one.
At what point does it become attractive for a competitor to enter? Now. Because we've been so stealthy, it's very hard to figure out what we're doing. It will be very easy now because we're getting to be very open about what we're doing, but we spent four and a half years. Have fun trying to catch up.
Any concerns regarding regulation? The regulation we're not worried about because we operate within the environment. To note, if the market wants it, the regulation will adjust. Think of Uber Technologies Inc (NYSE: UBER). They created something that went against the regulation, but the regulation was adjusted because the consumer wanted it. We're not worried about regulation because the products we do come out at scale, and people can see they work. We're launching the aftermarket platform, and it starts day one with 10 million customers. Imagine you're an entrepreneur and you launch a product, and you get 10 million customers on day one. You just win. You're at scale.
What makes a product less likely to fail? Our products fail for three reasons. First is product market fit. Next is talent. Put the wrong team in, and you're going to drive it right off the cliff. Another big reason is capital. That's why most of our things failed. We did not have sufficient capital for growth. You're spending for marketing or whatever else, and you just starve the thing and it dies. A big thing, when we started NAX, was to start with an asset. So, we don’t start without a corporate asset or data set that comes out at scale. This gives us unfair advantages in the marketplace because you have an opportunity to make the market. I don’t have to acquire 10 million customers. I got them on day one and my customer acquisition cost or CAC is zero.
What’s one easy way to pitch NAX to a potential customer? Traditional exchanges give you liquidity either by issuing shares, which are dilutive to your ownership or issuing bonds, which are debt. We don't create dilution or debt. We just create adjacent growth. We're like an exchange that gives liquidity without creating dilution or debt.
Thoughts on the crypto market, broadly speaking? Currencies are based on monetary policy. Monetary policies are based on governments. Governments are backed by militaries. Unless you’re going to build that infrastructure, you are going to have a tough time competing. Though I’m starting to see many people pivot away, there are going to be a few Web 3.0 companies that come out of this.
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