You have to speak up when you finally find your voice and have the courage to step up when you know something is not right or fair. You have to say something; you have to do something. I finally did something this week. I submitted a copy of my testimony to the House Financial Services Committee Task Force on Financial Technology hearing on “Combatting Tech Bro Culture: Understanding Obstacles to Investments in Diverse-Owned Fintechs.”
PREPARED TESTIMONY AND STATEMENT FOR THE RECORD OF
Pamela Norton/CEO Founder TitleChain
“Combatting Tech Bro Culture: Understanding Obstacles to Investments in Diverse-Owned Fintechs”
House Financial Services Committee Task Force on Financial Technology
July 18, 2022
“When you see that money is flowing to those who deal, not in goods, but in favors — When you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them but protect them against you — When you see corruption being rewarded and honesty becoming a self-sacrifice — You may know that your society is doomed.” Ayn Rand, 1957
My name is Pamela Norton, and I am the CEO/Founder of TitleChain, a female-founded and led decentralized finance/financial technology (DeFi/Fintech) startup. I would like to thank the Chair and the Committee for this opportunity to provide my testimony to help accelerate a pathway for democratized access to capital for diverse-owned Fintech companies in the US. I firmly believe that digital assets combined with blockchain technology can provide a gateway to democratize access to capital markets for everyone, everywhere. Unfortunately, funding for open banking, peer-to-peer payments, and privacy-preserving financial resources is currently the purview of only those “in the club.”
My belief in distributed ledger technology (DLT, commonly referred to as Web3, blockchain, or just crypto) and my “aha” moment in the space came in 2015 when I read about a machine for creating trust. The title chain concept began as I started connecting the dots to understand the power of an immutable ledger, property rights, and frictionless money systems. I was inspired to create a new asset class. I filed a patent for a decentralized title and transfer of assets to safeguard ownership rights and reduce the use of counterfeit goods, pirated software, and theft of trade secrets that cost the U.S. economy between $225 billion and $600 billion yearly.
I am now seeking to commercialize the technology with the launch of TitleChain, offering next-generation digital assets title services, targeting the $31 trillion market for intangible assets for inventors, creators, change-makers of patents, trademarks, copyrights, and trade secrets. Over time, I believe we will tokenize everything from US Treasurys or money market fund shares to smart energy grids used as reserves and collateral in DeFi pools. The tokenization of these intangible “asset-backed” digital assets can bring trillions of dollars of tangible real assets for selling, trading, borrowing/lending, and fractionalized (shared)ownership rights into a decentralized finance marketplace with the scale of institutional assets.
I believe we need to democratize access to capital for diverse-owned Fintech companies to ensure communities traditionally left out of our capital markets participate in a meaningful and diversified way over the longer term and earlier in this economic cycle of a new generation of value and wealth that is being created now. The DeFi culture is a perfect home for diverse-owned Fintech startups as they share common beliefs: decentralization, ownership, self-sovereign identity, security and privacy, democratization, individual empowerment, shared incentive, inclusion, and a desire to make the world a better place.
Obstacles to Investments
As a female serial tech entrepreneur, I have experienced several disruptive tech cycles, launched products to “Cross the Chasm: marketing and selling high-tech products to mainstream adoption, and lived with the ever-so-present and exclusive “bro culture” club that commands the lion’s share of funding to the exclusion of women and gender-diverse founders. The tech culture hasn’t changed over my 30 years in the space; the investment environment is worse and more corrupt than ever.
Decentralized/Fintech startups raised $2.1 billion in the first quarter of this year, and NFT-focused startups have raised $2.4 billion, both all-time highs. Q1 2022 was the second quarter in which US crypto startups pulled in more than $5 billion.
I have been unsuccessful in securing any investment into TitleChain to date. The only female-founded and led US DeFi/Fintech crypto startups that I have uncovered to disclose a successful seed round of funds raised are Rlabs and Afropolitan, for a combined total of $7.1M raised year to date.
These inequities exist in direct opposition to these facts:
- Women-led businesses account for over $1.8 trillion in profit yearly
- Investments in Female-Led Companies Perform 63% Better than in All-Male Founding Teams.
- Women-led startups generate 10% more in cumulative revenue over a 5-year period
We have an immediate need to fix the rampant corruption, fix the DeFi protocols that encourage leverage, fix the scams, and fix the “bro club” culture of greed from Crypto’s first hack back in 2011 to 2021, when VCs funneled $134 billion into the hands of Fintech startups made up of 99% male founders according to a recent report from TechStars.
VCs such as Bessemer Venture Partners, Andreessen Horowitz, General Catalyst, and Sequoia Capital are now registered investment advisers with the US Securities and Exchange Commission. The regulatory designation historically reserved for hedge funds and other asset managers allows these firms an unfair advantage to hold investments other than direct stakes in private companies such as public equities, cryptocurrency assets, and secondary shares. Hence, the cycle and circle of influence that these large firms have as they have strategically positioned themselves as advisors within the US SEC to give access to those “99% male funded companies” who will be first in line to access the trillions of dollars to be made in the Web3 digital asset marketplace.
My interest in the concept behind blockchain technology and a decentralized economy is its inherently inclusive nature. Yet, DeFi will only improve transparency and adoption when legislation supports using a “Reserves Digital Asset” Standard designed with built-in security and privacy in transactions, accessibility, and equality for all participants. In addition, this new Web3 DeFi-powered economy, with these standards in place, will give underrepresented communities a unique opportunity to circumvent the established gatekeepers and forge their way forward.
Diversity and inclusion as transformative forces
How can we reinforce US leadership in the global financial system and the technological and economic innovation sector without taking full advantage of innovative ideas from women? How can we responsibly develop payment innovations and digital assets while advancing technology and regulatory standards that align with US values when we do not value the contributions of our entire society? Diverse-led FinTech companies can directly impact our competitiveness in the global marketplace, and society’s failure to value women-led ventures directly impacts the growth of our economy as a whole. As mentioned, women-led businesses account for over $1.8 trillion in profit yearly. Yet, only 12% of venture funding decision-makers are women, and female founding partners only make up 2.4 percent of all partners.
Women’s leadership styles help foster a collaborative, inclusive, and consultative approach to accelerate change together. In addition, women have innovative ideas that can move at the speed of the Internet by adopting Web3 technologies to combine the best part of the token (i.e., cash) economy with the best part of the bank-note (i.e., Venmo) economy that can facilitate secure, privacy-preserving, inclusive, frictionless, high-velocity, low-cost transactions that are all viewable on a transparent and immutable ledger.
Rewire the system to rewire behaviors
Unfortunately, biases can only be reduced rather than eliminated, and it is difficult to control biases embedded into our current system. As a result, we have had suboptimal funding support for diverse led DeFi/Fintech ventures.
Female-led companies can not only compete with their male counterparts but, in many cases, eclipse them. My goal in speaking to you today is not only to shine a light on the current inequities in the marketplace but also to propose a legislative solution.
Strategies to rewire the system using the gamification theory concept can directly tackle biases to incentivize investors with rewards-based returns. Game theory is a branch of mathematics that examines the strategies employed in competitive situations where the outcomes for players depend critically on the actions of the other players. It has been applied to everything from war to business and biology. I am proposing new legislation to launch the 2022 Opportunity DeFi/Fintech Zone program, a cryptocurrency game theory-influenced female and market-friendly Web3 business investment platform.
2022 Opportunity DeFi/Fintech Zone Fund
The concept and framework are to launch the 2022 Opportunity DeFi/Fintech Zone Fund, an economic development tool that encourages accredited investors to invest in female and gender-diverse Fintech entities such as Web3 funds, startups, and DAOs in the United States. The program’s purpose is to fund projects, spur economic growth, and create new business and job opportunities that support female and gender-diverse DeFi/Fintech companies while providing tax benefits and rewards to investors. As such, I request the consideration of the Committee’s Task Forces on Financial Technology to support legislation for The DeFi/Fintech Opportunity Zone program concept created under a new act named “The Fintech Business Act of 2022” ( Public Law No. Tbd ).
The 2022 Opportunity DeFi/Fintech Zone approved participants can be on-boarded to raise funds by tokenized offering on a Web3 securities platform. Investor stakeholders will receive a tokenized security instrument represented by a $ USD digital token floor price for the investment. The securities issued are based on an exemption from registration under the Securities Act, targeting the US accredited (as defined by Rule 501 of the Securities Act) and non-US investors (defined by Regulation S). Accordingly, I recommend a Minority Depository Institution in the US Primarily Owned and Led by Women to participate in supporting these new startup ventures in the program.
Investors can participate in qualified DeFi/Fintech Opportunity Zone opportunities through an investment called the DeFi/Fintech Business Act Opportunity Fund (DFBAO). The DFBAO Fund provides eligible investors with short and long-term tax deferrals. The longer shareholders keep their interests in the fund, the more rewards and the greater impact they receive. For example, shareholders (token holders) will pay no taxes on 25% of the gains after one year. After two years, 50% of the gains will not be taxed, and those holding investments after three years avoid paying taxes on all gains. The technology leverages blockchain and smart contracts to make equity programmable. Investors receive equity security that represents a right to equity or future equity in the company and converts all equity securities into company stock when a liquidity event occurs, typically a sale, alternative exchange listing, or IPO.
While investors can benefit by investing in DFBAO Funds, educational communities and women will also benefit. The company must be female-founded or diverse gendered-owned. The company will select from an approved list of Web3 education funds where a 5% fee is charged to the investor based upon the value of the total investment. The 5% payment fee goes directly to fund training for women and diverse genders in DeFi/Fintech funds or DAOs selected by the company.
The Web3 Opportunity for Women to Lead
During the pandemic, a staggering 4.2 million women across the country had to leave the workforce — a full million more women than men included disproportionate care-taking responsibilities as schools, daycares, and senior centers were closed. The pandemic also disproportionately impacted the venture capital funding of female entrepreneurs. While the overall US startup ecosystem brought in 16.2% more venture dollars in 2020, investments in female-founded businesses fell by 3%, and deal count dropped 2.2%.
The loss of women in the workforce and business can cause devastating personal financial burdens and a loss for the future of our economy. Should no action be taken to invest in women, specifically in Web3/Fintech, our global GDP growth is estimated to be $1 trillion lower in 2030, tracked at the same unemployment rate as men’s in each sector. Moreover, when women have access to capital to lead, they often create new opportunities for other women to succeed. When VCs invest in women, they make more money. Research has consistently shown that female leadership can positively impact business performance and growth.
As a woman in the technology sector, I am not looking for any kind of advantage over my male counterparts. Diverse-led companies prove over and over their value to the marketplace; our work speaks for itself. The only area we are lacking is the opportunity to enter the marketplace. Allow us to prove our mettle, and we will do just that.
I sincerely believe that this proposed legislation will be obsolete in five years. Once women are allowed to shine in the Web3 space, the free market will take care of the rest. Investors who continue the old ways of the “bro club” simply won’t be able to compete with those who embrace an inclusive model where the only determining factor is whose idea is the best.
I hope my testimony and journey communicate the power of innovative female-led Web3 companies with diverse teams that need a platform to overcome obstacles to secure funding; it is well known that diverse teams can help to solve the major economic issues facing our country. The more inclusive we are as a society, the better the outcome will be for not just business and government but also for humankind. I applaud the Committee’s commitment to working closely with the Administration on exploring the emergence of digital assets and thank you for considering this proposed legislation.
In closing, I am still a firm believer that I live in a country and nation where laws can be designed to protect us and that when we see corruption being rewarded and honesty becoming self-sacrifice, we stand up and fight against that injustice. I don’t believe our society is doomed even though I see money flowing to those who deal not in goods but in favors and those getting richer by graft and by pull than by putting in an honest day’s work. Like many disruptive innovations, breakthroughs can come from unexpected places, people, and diverse ideas. I believe fostering the Fintech Business Act of 2022 legislation for the DFBAO Fund will unleash radical impact for transparent decentralization of data, ownership, control, value, and power — a true paradigm shift for all.