Richard Luftig is the co-founder and managing partner of Castle Placement, providing investment banking services and raising private equity/debt capital for early-stage and middle market companies across a wide range of industries including financial...
Richard Luftig is the co-founder and managing partner of Castle Placement, providing investment banking services and raising private equity/debt capital for early-stage and middle market companies across a wide range of industries including financial services/fintech, real estate, technology, business services, energy/real assets and consumer/retail.
The firm is FINRA-licensed and registered. They have built their business around data and technology, creating a seamless process that is more efficient for raising capital. They also talked about changes in capital markets and technology, AI and cybersecurity and many more!
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[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast. Today I'm here with Richard Luftig. Co-founder and managing partner of Castle Placement. Thank you for being on the show today.
[00:00:09] Richard Luftig: Oh, no. Thank you for having me. It's great.
[00:00:11] Ronald Skelton: Awesome, awesome. Well, I always joke around and, my favorite probably the people listening get sick of my joke, but you may not have heard it yet. So the joke is always you were born and then you end up on a show about mergers and acquisition. Can you fill out the gap in between?
[00:00:25] Richard Luftig: Okay. Do you have like a couple of weeks or?
[00:00:29] Ronald Skelton: Let's do the short version.
[00:00:30] Richard Luftig: Sure. So, I grew up in the suburb of New York City and,~ uh,~ I went off to college and I, graduated and went to work for a boutique investment bank. Very similar to, Castle Placement, I might add. And I worked there for about seven years. And four years into that it was 1990, and the economy was really slow and our deal flow was really slow. A friend of mine from high school called me up and said that he was going to law school. And I started thinking about that. And my boss, at that first job was a lawyer.
[00:01:25] And it occurred to me that he seemed to have a real leg up on all of the transactional work that we were doing. He just seemed to be the guy in the room that knew most of the angles. I took all of that into consideration and applied to law school and got in. And I went at night, while I was working at this investment bank which was difficult. And, graduated from law school and then started working for, what they would call bulge bracket investment banks. I spent most of my career, prior to Credit Suisse and Bear Stearns. Always in the capital market space and, raising capital space. For the most part. I've done a lot of different things, but that seems to be the, the core of what I'm usually doing. So, during the nineties, my partner was Ken Margolis at Credit Suisse.
[00:02:18] And then in 2000, he left and went to Merrill Lynch and I left and went to Bear Stearns. And then, the world fell apart in 2008. It was a massive financial crisis and tremendous Wall Street dislocation. You remember that Lehman Brothers, went bankrupt? And Bear Stearns basically went bankrupt and saved by JP Morgan, AIG financial products. And it was just a complete mess. And Ken and I decided that it would be a really good time to start an investment bank, that did things in a totally new and different way. And that's how I got to Castle Placement.
[00:03:01] Ronald Skelton: That's awesome. And tell everybody what Castle Placement does, in a general sense of things.
[00:03:07] Richard Luftig: Sure. The funny thing is that, we've been at it for 14 years and we only do one thing. Which is really unusual for me because I'm not the most focused, disciplined person that's able to stick to something. But, we raise private equity and debt capital for our clients. And it's turned out to be pretty successful. We've raised multiple billions of dollars for our clients in all different types of industries, sizes, stages, equity, debt, geographies. So it's been really good. And I think what's different about our process is that we built the firm around a data and technology core. And we are a full service investment bank.
[00:04:02] We're FINRA license. Registered with the SEC. But we've like fully integrated the investment banking, the people lodging into one seamless process. It just works really well. It's a very efficient way to raise capital.
[00:04:19] Ronald Skelton: Having been born out of the last financial crisis. Looking at the, I would call this time, what we're in right now, in uncertain. For the last year, we've been told we're in a recession. We're not in a recession. Banks are failing and they stopped. I don't think any banks have failed in the last two or three weeks. But, for two or three weeks ago we had some pretty serious banking issues.
[00:04:36] Richard Luftig: Well, we have to check the news checker.
[00:04:37] Ronald Skelton: Yeah, right now. Cuz as we speak, it might be going down, right? Because it just, it's uncertain. I guess that's the best phrase I can come up with. We're in uncertain times right now. I think that might put you a leg up cuz you, you were born out of like, everything crashed and burned. You learned some valuable lessons then. Are you changing anything on how you operate now given the uncertain times you're in? Or are you guys set up to go? Okay, we know how to operate this is kind of where we were born. This is what we were made to do.
[00:05:05] Richard Luftig: We tend to do transactions that are a little, off the beaten path. Either, industries that are esoteric or strategies that are contrarian. Or early stage companies. Usually something about the transaction is a little off-road. We've done plenty of traditional, financing transactions for mature companies in traditional industries. But, we really like doing deals with companies that are a little different, a little unique. So, when there is a financial crisis and there certainly was in 2009 and there certainly is now. It is kind of good for us. Because our investors love those transactions where the risk adjusted, expected return is high. And I think that's what we deliver. So, it does work out for us.
[00:06:15] Ronald Skelton: Awesome. Awesome. So how do you think things are changing right now? As far as like, not only are we in uncertain financial times. In the last six months, technology has just totally changed. With all the AI stuff going on. With the economy. And then if you look past for the last 18 months and stuff, or maybe me further back now. But like a lot of things have changed inside of, how things can be financed. Even on the small deals, like the deals probably way below what you guys are looking at.
[00:06:41] I guess the, the SBA just said that they're, the SBA loans are now looking at partial acquisitions and everything's changing constantly. How do those changes impact you guys? And how has technology changed how money's being raised over the last, bit of time and how do you see it changing things in the future?
[00:06:58] Richard Luftig: Yes. You have to understand that, that we've been really lucky at Castle Placement. Because we built this platform based on data and technology and really, utilizing the internet to raise capital as opposed to the traditional, what we think are antiquated practices of investment banks. Where deals were done in, at the country club, boardroom and road shows. We just thought that like every other industry, and remember this is all the way back to 2009. But every other industry was completely transforming, because of the internet. And investment banking was not. So that's why we built the firm. And then in, starting around 2012, 2013, the government started talking about the Jobs Act.
[00:07:51] The Jobs Act did a lot of things. But one of the major things that it did was allow issuers and investment banks to utilize the internet to raise capital. So if you think about it, it is just like, unbelievably lucky for us. Plus I'm a lawyer, so, my partner and I were able to really study and my partner Ken Margolis, he's a, just a superb technologist. So most investment bankers don't really, know securities laws, amazingly well. And don't know technology amazingly well. So we were able to look at the Jobs Act from when it was first mentioned as a possibility by the Obama administration, to the time it was enacted. And like that day we were all ready to go. And we threw up all of our deals right up on our website. Which was completely prohibited prior to the Jobs Act and was unheard of.
[00:08:52] And we did it the first day. Like we were totally ready. So that was a major technological breakthrough. And then the second thing is that what we've done, and this was really the thesis from the first day, was we spent 14 years gathering very, granular investment criteria about every investor on our platform. And we have 65,000 institutional investors on our platform. So we know what they invest in. The geography, the industry, the size, the stage, the like equity versus debt. So when we have a new client and we're looking at 65,000 investors and to whom we want to send, the transaction. We can use our data and technology to narrow it down to the best candidates.
[00:09:48] And that's super important for a lot of reasons. One of which might not be, abundantly obvious. But, these investors, they receive like hundreds of
[00:09:58] Ronald Skelton: That's exactly what I was thinking.
[00:10:00] Richard Luftig: So they receive hundreds of submissions every day. And we think that when they receive an email from Castle Placement, they know that it's something that's in their box. They might not be a perfect fit for them. They may not want to pursue it. But we think they're gonna open the email because of our technology, which is, helping us to not waste their time. Just targeting deals that work for them. And that's a huge deal today. We never anticipated this in 2009, but in case you haven't heard in 2023, one of the biggest challenges for all B2B companies is getting emails to be opened.
[00:10:45] I mean, we're all inundated with thousands of emails every day. I mean, it's crazy.
[00:10:50] Ronald Skelton: It's insane. Yeah. I focus on about three different accounts and I try to clean them, those three out. I have a bunch of accounts, but I try to clean those three outs into every day. And it's very often that I have 150, 200 unread emails. In each of those accounts. Usually it's given the headline to make sure it's not from somebody personal. And if it's just a newsletter or a pitch or something, I end up cleaning them out at the end of the day if I hadn't had a chance to look to 'em. I'm just reading through.
[00:11:18] It's like, do I know the person? Is it an individual or a business? And it's just, at the end of the day, you just gotta dump 'em off cuz it just, it accumulates. So, I get that. I get pitches all the time. You get pitches all the time for things I'm sure. You probably should know what I'm looking for. If you did 10 minutes of research, you'd know what I'm looking for. I actually unsubscribe and delete 'em. Right. Because it's like you're not even gonna put the effort into, like.
[00:11:41] Richard Luftig: Exactly. And this is our lifeblood cuz we need investors to pay attention to our deals. So yeah, you hit the nail on the head.
[00:11:50] Ronald Skelton: So it's brilliant. You guys are segmenting your, in the marketing MBA world. That's my world. You're a lawyer. He got a tech guy. I'm an MBA guy in marketing. Like segmenting your customer base and actually having, knowing what each segment is, what each individual is inside of your CRM, or whatever tool you're using. And knowing as much data as you can about them and using it correctly, is a rarity. I mean, all of us should be doing it, right? And many of us know we should be doing it. But not all of us. Very few of us do. I should say.
[00:12:19] Richard Luftig: You're right. And then the last piece of the puzzle is, we developed an app called CPGO. And as far as I know, it's quite unique in the investment banking space. It allows our clients and our investors to see all of the activity with respect to a transaction. Live right on the app. So if you think about it, if we have a client in the, waste to energy space. And we show it to, an investor at Blackstone. And her name is Mary Jones, that's a made up name. So the client, goes on the Cpgo app and they see that Castle Placement is talking to Mary Jones at Blackstone about their transaction.
[00:13:12] And the banker at Castle Placement is putting in his or her notes every day. What's going on with Mary Jones regarding this specific transaction? She's asking questions, what are her concerns? What information has she looked at? Has she signed an NDA? Have we had a call with the client? All of this information is right there on that one record in the app. And the investor is looking at it and the client is looking at it. And the investor is putting in their notes. So in this case, Mary Jones is putting in, Hey, that was a great call yesterday. You mentioned that your target revenue for 2024 is $50 million. Can you gimme a breakdown of how you're getting there? And the client is seeing that live on the app and responding live on the app. So it's a very, efficient way to move transactions along and to have the Castle placement banker really, synchronized with the investor and the client.
[00:14:13] So we're really proud of that technology. And then it does like lots of other things. Like if you think about, if you're an investor, phone calls and emails, it's really kind of an inefficient way to look at new deals. But you can go on the Cpgo app and you can look at all of our deals and you can filter to the ones that you know are interesting to you based on size or industry or geography, what have you. And then literally it says, interested, not interested. You click Interested. That message immediately goes to one of the Castle Placement bankers, and we'll follow up with you. Equally important, if you say not interested, we're never gonna bother you regarding that transaction. And that's a big deal.
[00:15:03] Ronald Skelton: Yeah, I've looked at the website. There's some really cool stuff on there. I haven't looked at it today, but last time you and I chatted, there was a little thing about the tiny homes, like a project that was on there. And, I think, I love the idea of being able to like, look through there real quick. And sometimes it's demographics, business-wise. Sometimes just something catches your eye and it might be even a personal interest. You're like, I've never invested in that before, but maybe. So you start reading into something. So I think you pick up investors that, they have a channel they stick in, but they go through there and they see something like, I did. I got distracted enough on that.
[00:15:33] I read through it and started doing some numbers and figuring out if I wanted to play in that realm. I didn't, but, it's just one of the, it wasn't nothing on you guys or the opportunity. It was just, it's not in my channel. I need to stay in my lane right now with what I've got going on. But that said, I think you opened up these door here. These tools and stuff you're putting out there, it's so modern and so used to what. I'm 50 and I'm still kind of expecting to scroll right and, scroll left, and shoes or not shoes. I've been in the technology enough that, I probably, as far as technology realms falls, I'm probably more like a 30 year old cuz I'm constantly in it.
[00:16:06] So I have certain expectations of instant gratification. I want to know enough about it right now to make a decision to know whether or not I want to go deeper or I just wanna know enough about it right now to say, not interested at all.
[00:16:17] Richard Luftig: Well, if you keep getting more in depth of technology, then soon maybe you'll be able to do it like an eight year old. Well, they're saying now that with AI, they think that they can use AI tools to get kids to read a year earlier than they're learning to read now. Which I totally believe so.
[00:16:37] Ronald Skelton: My daughter and my son use my ChatGPT account. I've taught them how to prompt it to write them stories so they could read. And they're starting to read fast enough. They read it almost as fast as it's writing it for 'em. Especially like four that's a little slower. And they just like, they're hitting the continue button, not too far along after. But they'll say like, write me a children's story about X, Y, and Z and they create their own characters in their head. And, I have a voice to text thing that works really well, even for them. So they can just talk to the prompt. But yeah, they're already using it. Like, I've gotta get 'em involved with this cuz it's gonna change everything.
[00:17:09] Richard Luftig: Just put that in present tense. It is changing everything. We were, I'm not saying this like we're super smart, but we were just fascinated with AI way before it was in, the mainstream discussion. So we were working with machine learning 10 years ago. And we have integrated machine learning and AI into our, our technology platform. And if you think about it, it's really amazing because, like ChatGPT is great. And it works with like a massive data set and that's fantastic. I'm obsessed with it. But where it really gets interesting for a business I think, is when you have proprietary data. Like I mentioned, that we spent 14 years building out this data set of investment criteria for 65,000 institutional investors.
[00:17:58] Well now the AI, we call it chat CPGO. You go into our app. You can type in, hey, I'm interested in investment opportunities in healthcare. I want to invest, $500,000 and, I'm based in Chicago. And I would love to, see companies in the Midwest. Just conversational, right? And it will say, okay, here are the seven transactions that meet your criteria. I mean, it's just crazy.
[00:18:30] Ronald Skelton: I already assumed you started early. Just because you mentioned that in passing, you mentioned the word BlackRock. You're in investment banking. And BlackRocks had a lad and out. I mean, they've been working out for what? 20 something, 30 years now. And it's dominating the financial industry. It's dominating pretty much anything that turns in with big data. So I don't know if you guys use any part of that or, just seeing it coming and built your own, or what you did.
[00:18:54] Richard Luftig: We've built our own, but you're exactly right. Like if you think about it every day, we had additional data to help us. Improve the process of matching the company with the investor. So, for instance, when our holy grail is which investor is going to be interested in which transaction. That is the holy grail. Like 14 years, we've been trying to get more and more, adept at making that connection. So when an investor says that they're interested in a deal, we, not we, but, like the computer is looking at what are the characteristics of that investor. And what are the characteristics of that deal.
[00:19:46] And now we've sent a positive signal that people with those characteristics, may be interested in that type of deal. And it's much smarter than we are. So it's looking every day and building, building, building and, it's just amazing. I get really fired up every day because of the innovation part. It's just fantastic.
[00:20:08] Ronald Skelton: It's incredible what it used to take me, I was a marketing coach for a little while. And one of the processes I would do with a new client is like, show me your 20 favorite customers. And then we'd put 'em on a big, huge whiteboard. My office used to be 360 degree whiteboards, but we'd put list, list the name of the 20 favorite customers. And then we'd literally on a whiteboard chart out everything you knew about every one of your 20 favorite customers. And then we'd start certain commonalities of it. And I would build a customer persona. They didn't know what we were doing at the beginning. Cause these were small, sub $1 million a year companies most of the time. But what they didn't know we were building customer personas so that we'd know how to speak to them to customers.
[00:20:43] ~We would, ~we would identify their target market when they didn't know how to do it on their own. But that stuff could be done in seconds or microseconds now with these tools that are out there.
[00:20:52] Richard Luftig: Yeah. You were using RI. Real intelligence.
[00:20:55] Ronald Skelton: Right. That was like a one week process. They'd come in for an hour or two. We'd get everything they know and I'd say, okay, you're missing X, Y, and Z. Go find that information. So they go find it and bring it back the next day or over a week or so process. We would have pretty in-depth knowledge of those 20. What they didn't know is like, then we start circling the commonalities between 'em.
[00:21:12] But like you said, it's instant now. And I think where it's going is there's gonna be a potential where you can go, here's my top 20 customers. Here's their profile on LinkedIn. Find out everything you can know about it. And the AI will be able to search their, not only their LinkedIn, but go see what they talk about on Twitter. Go see what they're talking about on, all the other channels out there. See if they've ever written any articles for anything, and correlate all that information. And actually come up with, like, themes, things that are interested in and stuff that you would've never done that you would've not known, right?
[00:21:42] So right now I was doing an exercising the known. We knew what we knew about these customers. There's stuff that people post daily online that, you may or may not know, may or may not be able to find, but the AI tool finds it in seconds. Incredibly, interesting in that realm. And there's other stuff. Right now that you're competing with crowdfunding, right? So some of these projects that used to, be totally a hundred percent funded by, investment bankers and stuff. Some people are taking, like, especially commercial real estate deals and stuff like that.
[00:22:10] Some people are taking these to the crowdfunding world. How are you playing inside of that world? Or what do you guys think about the, equity crowdfunding and the tools that are out there?
[00:22:20] Richard Luftig: We think equity crowdfunding is amazing. We jumped into that pool, three years ago, fully. Put a tremendous amount of time and money and resources, behind that effort. And now we've built out this whole, platform or ecosystem that can do, equity crowdfunding transactions, from soup to nuts. Right on our website. We do, Reg CF and Reg A. And, there are certain things that we can't do, like we're not allowed to do. Like we don't provide the legal advice. We don't do the audit.
[00:23:01] We are not the escrow agent. And we are not the transfer agent, for instance. But we have incorporated all of those elements right into our technology, right on our website. So the client who's raising the capital doesn't have to worry about any of that. We've got it all covered. So it's just a great experience. It's an amazing way for a company to raise capital, going directly to their customers. Their potential customers. And people that are just excited and passionate about that space.
[00:23:42] Ronald Skelton: You might be able to answer the question I truly have. Can you mix and match? Can I do like a PPM and do a five, I forgot what the numbers are, but basically.
[00:23:50] Richard Luftig: Reg D506C.
[00:23:52] Ronald Skelton: Yeah. C or D. C and D, right? Or B and C?
[00:23:55] Richard Luftig: It's Reg D and there's a 5 0 6 B. And a 5 0 6 C. But we would strongly recommend that you never think about doing a 5 0 6 B and I could tell you why at another time. But we focus on Reg D 5 0 6 C. Which is, means that you can only, take from accredited investors, institutional investors. Whereas in a Reg A or a Reg cf, you can take the investment from anybody. Accredited or not accredited.
[00:24:24] Ronald Skelton: But it then you can't advertise. Like if you do one, you have certain rules and if you do the other, you have certain rules.
[00:24:28] Richard Luftig: Well, that's why we don't like to do a 5 0 6 B. 5 0 6 B you cannot do general solicitation. And Castle Placement is, very, general solicitation is ingrained as part of our process. So yeah, that's why we like 5 0 6 C.
[00:24:42] Ronald Skelton: The question I was leaning towards is, okay, accredited investors, but can I do my PPM and my, private placement memorandum. Do my accredited investor only thing. And do sourcing and do like, can I do, can I say I'm gonna raise $12 million. I'm gonna do 8 million through my accredited investors and 4 million, I'm gonna allow the crowd to do.
[00:25:00] Richard Luftig: The answer is a hundred percent yes. We do it all the time. And our clients really love that because, they have different goals and some of them want to have either a strategic investor or a private equity firm or a venture capital firm on their cap table. And they also want to have access to a crowd of rabid fans who are now owners of their company. So the answer is definitely yes. We think we have a real advantage there because we're a full service investment bank. And like Reg CF portal for instance, couldn't do a Reg D506c transaction. So they couldn't do those two things. You'd have to go to one investment bank to do the RegD and one, portal to do the Reg CF, and that's super inefficient because you're doing basically twice the work. So yeah.
[00:25:52] Ronald Skelton: Awesome. I think the reason I thought you couldn't is, cuz the person I reached out to and asked about it, he couldn't do both. And he's like, yeah, I'd recommend you don't do both. Pick one or the other. It wasn't hidden from me. He couldn't do both. And I'm always skeptical of advice when somebody can't do the other side. Cuz it's, we all have cognitive biases anyway. It's natural. It's something you can't get past. But, there's also a very explicit biases where I can't do that, so I really don't think you should do it.
[00:26:15] Richard Luftig: Yeah. That does not flow logically. Does it?
[00:26:18] Ronald Skelton: Yeah. I was like, hey, it already triggered the logic button. Like, that's why I was on. I'm gonna ask this guy later cuz, I'm pretty sure you can. I'm pretty sure it's not a bad idea. Cuz if you think about stuff like, I was talking to somebody. They have a green project, which means it's great for the environment. As far as then that I'll go. And they want the rabid fans. They want people to know what they're doing. They want people to invest in what they're doing. And there's a lot of people that are super passionate about that. But they need, like you said, they need that strategic investor.
[00:26:43] They need some people to lead him through some stuff. So, turns out he basically, he switched gears and did something else. But, otherwise I'd point 'em right at you. But they're doing something in the, in the interim until they maybe come back to that project later. But I just didn't know that you could do both. And I was wanting to clarify that cuz, it's very advantageous for a lot of businesses to have that, the raving fans be involved. Especially if you can have a sense of community. Can you communicate with these investors afterwards and have, get feedback from them and that type of stuff.
[00:27:11] Because then you're building the way do I call that, product market fit. With the communicating voice on the other side. You've got your, raving fans. They can actually tell you, what they want, what they don't want, what they like, what they don't like, that type of stuff. We did mention like the banking crisis and we're like, joked about the, better check the ticker and see if anything's crashed today. How is that helping secondary or hurting the secondary trading of private securities? Is it impacting your ability to help raise money?
[00:27:38] Richard Luftig: I'm glad you mentioned private securities secondary trading. No, I don't think there are too many people that are really plugged into that. We just received our license. Less than two weeks ago for our ats, which is an alternative trading system. It's a really hard license to get. Like, really hard license to get. I'm getting like the nightmare sweats just thinking about the process. But what it allows us to do is just that, you can go right onto CP Go and in addition to our new issuance, companies that are raising capital, you can go and look at secondary transactions. So let's say there is, a founder or an employee or an early investor in a private company that's doing really well. And their shares are worth a lot of money. And they wanna, hedge a little bit, or maybe they have a life event and they need some money and they want to sell their shares.
[00:28:37] Well, it's really hard to sell, secondary private securities. And similarly, and this is a big thing today. Investors in private equity funds and VC funds, they are kind of locked up. We say that they're imprisoned. Because the financial crisis has caused the value of many private equity, many private companies, to go down a lot. Like some as much as 80%. So the private equity firms don't want to sell those portfolio companies. Even when the fund ends, like it's a 10 year fund and you we're at the 10 year point and okay guys, liquidate everything. Give the money back to the limited partners. They don't wanna sell, cause they don't want to, lock in that loss.
[00:29:31] Ronald Skelton: It's tough to do when you raised a hundred million dollars and like the current valuation is $20 million.
[00:29:37] Richard Luftig: Yeah. But there could be a limited partner that wants or needs their money. So now they can go to Cpgo and they can put their limited partnership interest there. And then we do our same thing using the data and technology and our investment bankers to find investors that are interested in that interest. And put 'em together and effectuate the transaction. So we think that, secondary trading of private securities is going to be a big thing. We don't think it's a big thing today. We don't think it's gonna be a big thing tomorrow. But over the next few years we think it's gonna get bigger and bigger and bigger. And, ultimately it's going to be similar to, maybe not similar to, but start approaching the liquidity that you have in public securities.
[00:30:27] Ronald Skelton: Interesting. Now in order for somebody to do that, how would they, like if they didn't raise the money utilizing your services or they weren't on your platform to start with. Are they able to come to you and go, Hey, I've got equity in this company over here through, another transaction? And somehow have you helped them put that on the secondary market?
[00:30:46] Richard Luftig: Yeah. It's very, very simple. We've built out all the technology and legal regulatory licensing. It's all done and it's happening. I'm just saying it's not well known. So it's not a gigantic, portion of our business by any stretch of the imagination. But I think it will be a substantial, material part of the business in the future.
[00:31:08] Ronald Skelton: So that could be both a positive and a negative to the founders out there. If you think about it. He may not remember me, but I remember Craig from Craigslist actually. I went to a party at his house once. I won't describe the party because it was in San Francisco and it was very awkward for me to be there. I was a nobody there. I was a tech guy. I remember a story where one of his early founders owned a percentage of it, I'll get the percentage wrong, it was less than 20%, maybe it was 10% or so.
[00:31:29] And he may had approached Craig to, to buy a piece of, or all of Craigslist. And he had told them no a bunch of times. They found this minority stake owner and bought his shares.
[00:31:39] Richard Luftig: Yeah. This is exactly what I'm talking about. Exactly.
[00:31:41] Ronald Skelton: Now you're gonna have a platform out there. Whereas like, a lot of guys, they own a piece of this or that, or they just don't know how to make a transaction out of it. Then they're gonna have a platform to take that to and get help, help doing that. And there's, the second thing is there's a lot of, not a lot of visibility into those, partial owners. You may did some research to figure out that Craig had given somebody some shares.
[00:32:04] Richard Luftig: No doubt. But what we're starting to work on is like we want the CEO of the company to give us his cap table. And we can market to the existing shareholders. One of them might want to sell, another one might want to buy. They're familiar with the company. They're a very logical, place to trade. Or someone just in the Castle Placement community can just come in and buy the share. But, why would the CEO do that? Well, it's simple. Investors are very, excited to invest in a private security when there's liquidity, right?
[00:32:45] One of the big obstacles to making a private investment is that your money is locked up forever. As if the CEO can tell his or her community of shareholders that we now have a, a platform that provides liquidity to you. That's a very positive message, and that should make the value of those securities go up.
[00:33:10] Ronald Skelton: It should. And then it also, there's a risk that some of the benefits as a founder, as somebody who's founded a company, a couple of them. Some of the benefits is that they, that the investors are locked in, so they can't escape. And I say that in a loving way is the possible. All businesses have ebbs and flows, ups and downs. And to not have anybody be able to just run on you when things are going erupt.
[00:33:34] Richard Luftig: That's, that's the beauty of secondary trading. Because the money's not leaking out of the company. So if someone owns, shares in the company that are worth $500,000, and they want to sell. They can sell it to another investor on CP Go. The company is not giving them $500,000 for the share. It's not a share buyback. It's a secondary transaction. The company is right where they were before that transaction. So that's just a nuanced point that you're bringing up.
[00:34:05] Ronald Skelton: Yeah. The reason I said it may be a positive or negative, what I've seen happen is a lot of times some of these investors are very sophisticated. And a lot of times when things go rough, they'll step in and say, Hey, do you need advice? Where they were really quiet in the past, they, you know, Hey, you got my money in the line. I'd really like to hear what's going on and give you my feedback. And sometimes that's really critical. As opposed to go, with a new opportunity to liquidity. It can go, does anybody else wanna buy my shares?
[00:34:30] So you kind of remove the forced hand. I better help these guys, or they're not gonna make it. And I don't know.
[00:34:36] Richard Luftig: That's interesting. That's an interesting perspective.
[00:34:39] Ronald Skelton: Yeah. I know, I had some money into one of these startups. A friend of mine did. And I had offered advice when they got really, when it got really rough. Like, Hey man, let's chat. To whereas I could sell it to one of, if I could have sold it back to him or something like that. There was a point in the time where's like just, I wanted to be done with it. But, I kind of lost faith in what he was up to. But he pulled it off. It wasn't a multimillion dollar type of thing. It was worthwhile. I got my money back plus some. But that, that would've been a different story.
[00:35:06] If I could have had an easy out at least two stages in that process. I would've probably just said, take a slight loss, break even. I'm done. So I'm curious about how that's gonna play out. I think it's gonna be both. And it needs to be both. It's not good that people don't have liquidity in these things because it, I think it slows people from putting money into things. Lot of reasons I don't get involved in things is, you know what if I need this, but, for the projects I'm working on. I'm 51. Like I don't wanna wait 10 years for this to.
[00:35:30] Richard Luftig: No, you're exactly right. But that's what's so great about, Reg A for instance. The company can raise up to $75 million per year. When someone makes that investment, they can sell it immediately. There is no restriction on sale whatsoever. So what we've done, like when most people think of equity crowdfunding, they think of like some little startup company. And most issuers in Reg CF and Reg A are, startup or early stage smaller companies.
[00:36:01] But what Castle Placement is doing, because we have a very institutional DNA . We are signing up clients that are institutional. As well as early stage companies. So for instance, we recently, took on a client who's doing a Reg A transaction through our platform. And they are an $8 billion AUM fund manager in the real estate space. And they're, they, have a platform that is buying houses and renting the houses out. Generates nice cash flow. And they want to raise $75 million, per year to, continue to grow that business. That's like a, that's an institutional transaction. And what an amazing opportunity that, quote unquote regular person. Who just wants to invest $500. Now get access to this $8 billion institutional asset manager. I think that's great.
[00:37:03] Ronald Skelton: I think that's awesome. Yeah. I come from a real estate background. That's what I did before I moved over here. So, you're speaking my language and I was like, oh, getting to have that type of talent behind you on a minimum of investment 500, five years ago was unheard of.
[00:37:16] Richard Luftig: Unheard of. Exactly.
[00:37:18] Ronald Skelton: I just guessed at five years, maybe two years ago, but I don't remember when the crowdfunding thing actually kicked in, but it wasn't very long ago.
[00:37:25] Richard Luftig: And just two years ago, the government increased the amount that can be raised from Reg CF. It used to be roughly $1 million. Now it's 5 million. And Reg A has been increased, from 50 to 75 million per year. And there's talk, who knows if it'll be enacted, but there's talk about even raising those limits. And there's talk about, changing what the definition of a credited investor is. So, the government to their credit, understands that having an efficient capital markets is, important if not critical for the country and for the creation of jobs.
[00:38:05] There's a reason it's called the Jobs Act. Small businesses create jobs and sometimes the best kind of jobs. So, yeah, it's just a really exciting, all the things we've talked about. The change in the regulation. Crowdfunding, data and technology, artificial intelligence. These things are all coming together in a way that's super exciting for the companies that are raising capital and for the investors.
[00:38:33] Ronald Skelton: Any of those individuals that, like, I know some people that are super into tech. They work, I think one of the guys I can think of, I won't say his name cuz I didn't ask him. And he's really private. And he's really, he's a computer security guy and he's kind of weird enough to himself. But he works about a year and a half to two years really hard. And then he disappears for three months on in. He goes to a tropical island and just checks out from technology altogether. If you did that right now and disappeared from just say, January of this year until maybe six months. You'd come back to an entirely different world. We've had so many changes recently with everything going on that it, you would, you would be at a loss at the beginning.
[00:39:10] Especially if you're a tech security guy and a tech guy in general. I don't know that you could be like, just step right back into it. There'd be a warmup period of getting back into the swing of things.
[00:39:20] Richard Luftig: It's an incredible insight and it really, it's almost a shocking insight. Because less than 24 hours ago we spoke to a prospective client in security space. And he has several people, several employees and board members that are former CIA and government, cybersecurity experts. And he said that, like they're always playing defense. The hackers are always cat and mouse. But he said with AI, It's like an entirely new ballgame. Like we all think about AI, oh, it's so great. My kid can write us a bedtime story. Hackers are like, AI, great. I can get a million social security numbers.
[00:40:10] Ronald Skelton: It's insane, right? I, some of you know this, if you look at my background, but when I first came out of the military, I worked for Lockheed Martin designing firewalls for three lettered agencies. And military sites. So I have interaction with the different, agencies that are out there. They accredited our firewall systems we were building. My job was to write test procedures, break into them and prove that they couldn't be broken into. When I couldn't break it in into anymore, we took it to a three lettered agency. They did break into it and told us what we missed, right? And I got to learn from that cat and mouse game with them.
[00:40:40] There is nothing that I did on a day-to-day basis in that. As a matter of fact, a lot of times I automated my own job back then. I would write scripts and tools and stuff to, cuz I did a lot of repetitive tests on the system. I just wrote tools that would run those tests and then I would add things off, add on things each time I ran it. So I didn't have to manually do the same thing over and over again. And, to this day, the iterations that we would go through in months could be done in seconds. Just using an AI tool saying, okay, here's the initial process. What else should we look at? And it has such a broad knowledge base. It's like, oh, you should probably attack this support and do this at the same time cuz they interact.
[00:41:15] It would know things we didn't know. It's a little scary. Cuz I think that if somebody wanted to do, teach an AI, all the programming codes out there. All the operating systems out there and their, past and print vulnerabilities, I think the AI would probably be able to get through most things we think are fairly secure, in a matter of seconds.
[00:41:32] Richard Luftig: That's right. That's exactly right.
[00:41:34] Ronald Skelton: And that has nothing to do with like modern computing and things that are coming out eventually. They've been talking about quantum computing for years. There's no encryption system on the planet, they'll be able to beat quantum computing, not currently exist could, that compete quantum computing. So, I don't know when that's coming out, or, they've been promising it for years now. Imagine somebody did something that to the private security space. Or, banking space or, public security, or securities. It'd be devastating. And right now, used to that would take a small team of really intelligent hackers. And with the right AI that could take some kid being bored on a Saturday night.
[00:42:12] Richard Luftig: No question about it. And when you just mentioned that about, perhaps a need for regulation, I definitely agree. And, we spend a lot of time, working with companies that are in the blockchain and crypto space. And our position is very simple, and it always has been from day one. When the whole ICO craze happened four years ago, we had no exaggeration. 500 people come to us and say they wanted to do an ICO. And we told every single one of them that's illegal and we're gonna have no part of it. And it's a breach of securities law. And that's all coming to roost right now.
[00:42:53] For all the people that raise money, selling crypto without being registered or using a proper exemption from registration. But, now we are super excited about bringing these technologies to investors in a regulation way, using Reg D 506 C, Reg A or Reg CF, and give the investors exposure. But allow the investors to have the proper disclosure information so they can really understand the sources and uses of proceeds. Who this management team really is. What are the risks? All the things that, the SEC requires when you're going out to investors. They have those protections, but they also have exposure now, or the ability to get exposure to, these really neat companies. And we love that.
[00:43:54] Ronald Skelton: So, what do you see, now that there is rules and stuff. You think everybody's gonna fall online? You're gonna have a bunch of people still trying to do ICOs with.
[00:44:03] Richard Luftig: Not in the United States. People who are, whether you're based in the United States or importantly, you're trying to solicit investments from United States citizens. You would be crazy.
[00:44:19] Ronald Skelton: They're gonna come after 'em, right?
[00:44:20] Richard Luftig: No question about it. A hundred percent.
[00:44:23] Ronald Skelton: All right. Well I think the last thing I wanted to chat about with you about is like, kind of what's happening with private equity right now. When the markets turn, the purse strings dry up. We had a lot of companies out there that are built on speculation. Even big companies. A lot of people don't know like Uber and a lot of these guys. They're not profitable yet. Their entire company is built on growth, not profitability. Talk to me a little bit about what's happening in this space and what, is there a big shift right now going in?
[00:44:47] Like people are looking for profitable companies? Or companies that'll hit profitability right away? Is there still investors willing to put into that growth mentality that I have to grow this for 10 years before we'll ever see profitability? Like an Uber or even Amazon had to go through that phase?
[00:45:01] Richard Luftig: Sure. So there are three types of companies, right? There are companies that are generating revenue and profit. They're revenue but are not profitable yet. And there are companies that are pre-revenue. There has been a massive shift in investor sentiment, over the last seven months. So pre-revenue companies are really struggling to raise capital. We're doing it. Great companies can still raise capital and great companies will always be able to raise capital. But it's tougher. Investors are much more discriminating. They're really looking for companies with, substantial revenue. And they're really examining the type of revenue. Like they always talk about annual recurring revenue that, that they think is very likely to continue.
[00:45:49] So yeah, there's been a gigantic shift. But, that's been our, I've been doing this for over 30 years. This is always the case. Like you said, ebb and flow. I think there's ebb and flow. The great thing for us is that the money doesn't disappear. These private equity firms, family offices, venture capital firm, they have hundreds and hundreds of billions of dollars, under management, and they are going to invest it. So it's not like the money's disappearing. What's changing is very much where they're deploying the money. And that's a constant, it's always. So, like there was a time three years ago, when trying to raise money for an oil and gas deal. It was virtually impossible. Remember when oil futures went to zero? It was virtually impossible.
[00:46:40] Now, huge demand for that. Waste to energy. I think we have five current waste to energy transactions. Massive interest from our investors, just massive. Can't get enough of it. I'll contrast that with e-commerce. E-commerce really hard to raise capital right now. Commercial real estate, office buildings, retail, very difficult to raise capital. So, that's how an economy should work, right? Capital should be, moving around and deployed in the most exciting and efficient, places. So, we like that.
[00:47:19] Ronald Skelton: I think the only play in commercial real estate right now is redesigning highest and best use of properties. So currently properties are engineered or structured to do one thing. A commercial office space or whatever it happens to be. And you gotta look at each and every individual property and go, what's the highest and best use of it right now? And we were invited, I won't go too much into it, but my, myself and a few other investors were invited to go overseas for a little while. We ended up not doing it. But there was an area, let's say in Europe that had built so much commercial space out. They were actually giving tax incentive as even like government loans to convert 'em to condos and flats. Cuz they were just sitting office space setting vacant in these towns.
[00:47:57] And I think we're headed down that route, where, something's gonna have to be done with all these office spaces. A combination of thing, right? Economy's changing, things are scaling differently. People are doing remote work. All the different things that are changing and changing that commercial space. I think they said San Francisco has something crazy right now. Like a 40% vacant receipt rate. It's high for commercial real estate.
[00:48:18] Richard Luftig: Yeah. I understand. Just be cognizant. That it's extremely expensive to, for instance, convert an office building to a residential building.
[00:48:30] Ronald Skelton: Oh, we looked into it. It's the plumbing and electrical because it's not the same. And the code, bringing it up to code.
[00:48:35] Richard Luftig: And the core of the building, the elevator, where the windows are, it's just like really expensive. A lot of people in the industry are saying that it would be more, economical to knock down the building and start over than to convert it.
[00:48:50] Ronald Skelton: You hit it nail on the head there. You know your stuff. Cuz that's why we didn't go. We probably spent, weeks and a few thousand dollars trying to come up with plans and bringing people in, to like, how do you do this most efficiently? We even had people that would come in and like, show you how to set up, customized housing sizes and all this other stuff. And really creative stuff on how to use this space out.
[00:49:10] And none of it was cost effective. Like the return on investment and the time would take to get the money back out of it. I couldn't even, and fullheartedly go to my investors and go, Hey, I wanna raise $5 million and head over to Europe. We're gonna convert these. It's gonna take 12 years for you to get your money back. LIke that wasn't normal inside of our real estate deals. So we didn't go because it's like, it was just so expensive to make the conversion. But something's gotta be done. Like, there's gotta be a lot of vacant spaces going around out there.
[00:49:35] Richard Luftig: Well, there is some good news on the horizon. For instance, you'll notice that a lot of these big box retailers that are, in secondary or tertiary locations, are going bankrupt. But a lot of these huge medical conglomerates are buying those spaces and converting them into medical facilities. So eventually, hopefully it'll find its level.
[00:50:01] Ronald Skelton: Yeah. Economy has a way of leveling things out. It'll either be turned into parking lots at some point, or be repurposed. Like I said, highest and best use.
[00:50:09] So, let's make sure people know how to reach out to you, how to get in touch with you. What kind of deals you're working with? This is the chance where I want you to kind of give your pitch. Tell people what you're looking to do in the world, and how do they reach out to bring that to you.
[00:50:22] Richard Luftig: Sure. We help companies raise capital. We think that we get our clients the best execution on the planet. That's what we are built for. That's how we've built the business. That's why we're growing. Best execution could mean, the economics, how much equity you have to give up in the company. Best execution could mean finding the right financial partner that can also help you grow with your marketing or customers or technology. There are a lot of different things that can go into finding the best investors and getting the best execution. So, of course, if there are any companies that are looking, we would be happy to talk to them.
[00:51:04] And, it's really easy to find us. I post twice a week on LinkedIn and I'm very active on LinkedIn. You can come to castleplacement.com. Or you can email me directly or DM me on LinkedIn, whatever you'd like. Or any one of our bankers, of course.
[00:51:22] Ronald Skelton: Any particular deal size or demographics that you guys do?
[00:51:24] Richard Luftig: No, no. Impossible to pin us down. We've done $1 million capital raises. We've done $1 billion capital raises. Every geography, every stage. We've done, equity and debt. All industries. So no. There are no restrictions.
[00:51:41] Ronald Skelton: Awesome. Well, I appreciate having you here today. We'll call that a show and, for those of you who are guys are driving and stuff, I'll put that in the show notes and you can look it up. So any of his contact information and all that stuff will be definitely in the show notes. So that when you're at a safe location, you can, you can look it up. I appreciate you being here today.
[00:51:57] Richard Luftig: I had a really, really good time. Thank you so much.