Ep. 204: Joe Cecala - Democratizing capital markets for small businesses

As both a CPA and a lawyer, Joe Cecala has spent his career helping small businesses navigate venture investments, exit transactions, and other complexities of accessing capital. Along the way he came to understand how technology and the rise of electronic stock exchanges have essentially shut out small businesses from the equity securities markets. Today, as the CEO and Co-founder of Dream Exchange, he is at the forefront of building new and innovative stock exchanges focused on Early Stage Growth Companies. And predictably, management accountants will be critical to making new “venture exchanges” work.

Welcome back to Count Me In,

the podcast that explores the ways
management accountants drive business

forward. I'm Adam Larson and my
guest today is Joseph Cecala,

CEO and co-founder of Dream Exchange,

a company focused on building the next
generation stock exchange designed for

early stage growth companies. This is yet
another podcast where I learned a ton,

like how the rise of electronic stock
training essentially shut down IPOs and

equity stock market access for
businesses worth less than $50 million.

What's more,

I learned how management accountants
will play a critical role in making these

new venture markets actually work.
Whether you work at a small business,

are interested in investing
in small business,

or wants to know more about the
relationship between equity markets and

innovation, this is the podcast for
you. Let's get started with Joe Cecala.

So Joe, I wanna thank you so much
for coming on the podcast today.

We're really excited to get talking
to you about the Dream Exchange,

but before we get there, I just wanted
to hear a little bit about your story.

I was reading your bio and I just think
you've got a really great story starting

off as a CPA and to where you are now.
Let's start with your story and go there.

Sure. And Adam, thanks for having me.

I my story I like to say I Forrest
Gumped my way through my career,


I started as a CPA went to law
school and became a shingle lawyer

doing a lot of small business
venture capital transactions.

And you know, my accounting career
really informed that quite well.

I guess the big story of how we're
here today is one of my clients,

Jerry Putnam, founded a company
which became Archipelago,

actually the world knows today
as New York Stock Exchange,

Archipelago in the mid 1990s.

It was the first company
to actually carry equity

security trades using the
internet or among the first two.

And I got this national
market expertise when

that was being born.

And here we are 26 years later with
a lot of legal expertise in capital


So several years ago I
just decided that a new

exchange model was needed to
accommodate smaller companies.

And we worked on legislation for that.

It's still pending in Congress and we're
actually building a national exchange

as well.

So everything that we're doing
is born out of those early years

of learning what a stock exchange
is and does and how one is born,

and the mechanics of that and
adding the kind of practical

business of how to run one to the
legal expertise of how to create one.

And really the other,

I guess the other major portion of what
we're doing that's different is that,

you know, we're targeting what
we call underserved markets.

The entrepreneurial market,

very small companies that don't
really see interest from a stock

exchange in the earlier stages
of their business life cycle.

And we're also especially
concentrating in minority markets.

The capital group that is
financing the exchange and is the

majority owner, our minorities,
it's a black owned exchange,

the first one in the history
of the United States. So,

you know, and we're in the
licensing, we're in the process,

we'll be hopefully
licensed in about a year.

So we're in that process right now,
but things are going really well.

And that's how I got here,

was really starting as a
financial professional and

moving from financial professional
to early stage company,

venture capital lawyer.

And so I really wanna help
those small companies.

It's more about the companies through
my career I haven't helped or can't get

access to capital than it is about the
unicorn companies that have an easy time.

So that's how we got here today.

And hopefully the journey
will be easier go in the

next six years than it
has been for the past 10.

I sure hope so.

Yeah, me too. So,

and then I guess what I would say is
the Dream Exchange today as it exists,

as it perhaps might inform you know,
the audience for this particular,

you know, group.

We're really concentrating on what

are now gonna be known as
early stage growth companies.

That's actually a coined expression.
It is in the Main Street Growth Act.

And what that means is those are
companies that are very small.

They might have a valuation of, you know,

10 or $20 million,

but they're gonna be seeking capital
you know, for 10 or $20 million.

And we're providing the
mechanics of a brand new

stock exchange environment for
those early stage companies

to be traded with customized
rules and customized reporting

and customized attention that the
national exchanges really can't

provide because the financial reporting

and the cost of the coming public
and Sarbanes Oxley and DOD Frank

and the regulatory environment for
very large companies is much easier to

absorb the expense of doing that.

But how do we maintain the same
quality in investor protection

in a small market while
simultaneously making the cost less

so that those smaller companies could
get access to capital in a public market

that's really the driver behind
the meat and potatoes of the Dream


Wow, that's,

there's so much there that I think we're
gonna have to unpack a little bit of

it. And I know that for me and I
know a lot of other folks, you know,

maybe we can start with, you know,

how do you set up an exchange
and what exactly is in exchange?

Because we all hear about the stock
exchange and stocks being there,

but maybe there's a way that you can
describe it for us that even a seven year

old could understand it.

Yeah, that actually, and thank you
for asking that because that is,

it really is not commonly talked about.

Most people talk about the functions
of an exchange without actually knowing

what it is.

So a stock exchange is
merely a set of rules

by which the buying and the
selling of equity securities

is conducting. That's all it is.

And today those rules are
primarily driven by electronics.

So trading rules, what type
of order, what type of sale,

what the rules say about how
the market participants have

to conduct themselves fairly. Now,

most people think stock exchange and
what they're actually thinking about is

what's called the secondary
market, because you,

the stock is already a public company
and you wanna go and you wanna buy your

shares of IBM and you have
to go through a stock broker,

some very large organization
that is carrying trades to a

stock exchange.

Stock exchange is matching the
trades that the order book and the

matching engine of an exchange
literally matches trades today

in millionths and billionths of a
second. And that's what people think.

They see the Dow Jones averages and
they see the New York Stock Exchange

you know, set of listing is up or down.

The function of the stock exchange
is to match trades in a fair

and equitable environment. Now, the
other function that most people are,

are familiar with is the initial
public offering market, the IPO market.

And they look at exchanges and
go, they went public on NASDAQ,

or they went public on NYSE.

That's the capital
formation part of exchanges.

Now that's another kind of
misinformed use of stock

exchange because stock exchanges
don't actually take anybody public.

Investment banks do.

So the investment bank has to make an
arrangement so that when a company files

publicly and sends its registration
of its shares to the SEC,

they can also take a
registered share of stock to

a stock exchange and apply
to be listed on the exchange.

Merely getting registered shares
with the SEC does not automatically

entitle you to a listing
candidacy on a stock exchange.

So stock exchanges are the final, I guess,

line of governance between
the general investing public

and registration at the SEC.

So you can be a not so
good public company and get

a registered share of stock and still
not be eligible to have your company in

the marketplace.

So it's the stock market and
that's where everybody's going to

choose from the menu of available
stocks that have been vetted by the

NASDAQ or by New York Stock Exchange.

And once you've been vetted by
one of the larger exchanges, well,

clearly the value of the stock is
higher because you can go to a market

and match your trade with somebody.

Whereas if you're just an over the
counter stock registered with the SEC,

it's really like an exercise in digging
in the yard for the bone because

those are,

there are about 10,000 over the counter
stocks just nobody knows about them.

But the public stocks listed on
stock exchange are the celebrity


They do have secure environments
where they're checked by the exchanges

for the veracity of their
financial reporting and you
can get in trouble with an

exchange too, if you're a public company
listed and you don't play by the rules.

So a stock exchange environment
is extraordinarily valuable

to capital formation, is
eligibility to get to the exchange,

makes a marketplace where
the trustworthiness of the

information of the company and the
liquidity that would come from both the

initial offering and a
secondary trading of the stock,

because you're going to the market.

It's like if you're shopping for tomatoes
and you're walking around fields of

farms, you're gonna have a
tough time finding tomatoes.

But if you go to the grocery
store, if you go to the market,

they're gonna have already
vetted the tomato grower,

and they're gonna have looked at it all,

and it's gonna be a quality of product
that you get at the marketplace that you

can't get just walking through farmer's
fields. Same thing with stock exchanges.

So those are, there's a
lot of companies out there,

but the vetting process
and the trustworthiness of
being able to come and list

on a stock exchange adds value to
the company's capital formation.

And it adds liquidity
after it's been formed.

Cause people will buy and sell your stock.

I think I'm beginning to understand
a little bit as we go along here,

which is great, but as you
were talking about that,

and then as I was hearing you speak a
little bit about the Dream Exchange,

when during your first answer,

it seems like the Dream Exchange
is there for those non unicorns,

those smaller companies who may not have
as big of capital but still want to be

exchanged and wanna
make money on it. Right?

Yeah, that's exactly the purpose.
So we did a lot of research.

I'm a data guy, and you know,

and I have to take a little responsibility
for this because in the late

1990s when electronic stock
trading became the norm

stock exchange's business
model and investment bank's
business model was driven

by whether the company that was coming
to the exchange would have a lot of


because now you're talking about millions
and millions of trades happening in a

very electronic short period of time.

So the business model for making
money doing that is now driven by high

speed electronics. And there
was a unwanted side effect,

and that was that very small companies
don't generate a lot of trading volume.

So investment banks and exchanges
tended to not pay attention to

those companies. And at one time,

$50 million was the more than the

average public offering,
initial public offering.

So if you could be at $50 million,
there were between, you know,

some of yours as little as 300,

some of yours as high as $950
million in under public offerings.

And since 2000,

we haven't had as many 50 million
and under public offerings

in 22 years as we had in
any one year before the year


So the combined number of small
companies going public for 22 years

does not eclipse the small
public offerings in any one year

before that. And the primary
cause there are other causes,

but the primary cause is this
shift in the business model,

there's just, you can,
for a billion dollar IPO,

you'll generate more trading
volume in seven days than you will

for a $50 million IPO over
the course of an entire year.


So if you're,

if you're in the business of making
money when transactions conclude,

you have no interest in that market.

So that unintended consequences,

public market capital formation
for small companies really

was no longer workable. And
so the Dream Exchange idea,

which is encapsulated in
the Main Street Growth Act,

which is to create a brand new type
of stock exchange called a venture

exchange. And in those exchanges,

we can now customize
rules that will allow very

small companies to maintain the
trustworthiness of the public

markets, but also have
access as they did for many,

many years, decades, in fact,

before the advent of high
speed electronic trading.

And we believe that the
importance of that is, it's just,

there's a myriad of reasons.

First and foremost is that
the best ideas come from these

very small companies in
their earliest stage.

And wealth creation comes from those
very small public companies. And I mean,

I'm a child of the seventies and the
eighties. So it was commonplace, Hey,

can you get in early on a new IPO?
Did you hear about the new IPO?

And a lot of people invested their
dollars and saw wealth creation

because they got in early. Well,

today that early public market
isn't really available to the broad

American investing public. So
you're at the very tail end,

you're at the end of the life cycle where
a company's already worth a billion or

2 billion or $5 billion and the wealth
has been harvested in the private

markets. Well,

the problem with that is
we're only getting, you know,

200 total IPOs a year
where we would have 800.

So it's not that the
companies aren't there,

it's not that there isn't valuable ideas,

it's just that the access to
the public capital markets

generally is not available.

And that's not to say that private
investing and venture capital investing

aren't doing a great job. They are.
The difference is they can't do it all.

And to make customized
rules to kind of be a

throwback to allow for wealth
creation, investor participation,

and early stage company
participation has to have a overall

capital market change in the model.

So the Main Street Growth
Act has provisions in it
creates a brand new type of

securities, it's called
Venture Securities. And it,

there's a new type of company called
an early stage growth company.

I'm very proud of the fact that that's
one of my contributions to that law.

I coined that expression.

And this act is an act that's
currently in front of the US Congress.

I just want to clarify for the audience.


So actually in just a one
minute kind of Main Street

Growth Act history. So this is a law
that was introduced in 2000, well,

originally in 2016, then again
in 2018 and in the 2018 Congress,

this is a law that got,

and we lobbied heavily for
this unanimous consent first

of the House Financial
Services Committee, 56 to zero.

And I don't know, I mean, I pay
attention to some of the news,

but trying to get the two parties in
Congress to unanimously agree to anything

is like trying to get them to agree that
water is wet. They just won't agree.

But this was one where the capital
markets and wealth creation

and the ability to serve constituents
and job creation was something that

became so apparent to Congress.

It actually passed unanimously
through the House and the Senate.

The only reason we're talking about it
as a prospective law today is if you

recall at the end of 2018,

the government was shut down and any
legislation that would've passed that

year and this would've
passed was taken out.

And then we've been waiting ever
since. It's now moving again.

So the bill is again, in the House
of Representatives and in the Senate,

it's in Jobs Act 4.0. There's very good
possibility that'll pass this year.

And these new exchanges is an
industry that doesn't exist today.

It will be born in the coming years.

And there's gonna be a tremendous amount
of opportunity for people who learn

about it in its infancy.

It sounds like we're,

we're bringing this exchange and the idea

of getting your organization
out there at an IPO.

And I'm probably using the wrong terms,

but it seems like we're bringing
diversity actually into this,

this market because I feel like there's
only a certain amount of people who are

making a lot of money on the other
exchanges, but this is like, hey,

everybody can kind of do this.

Yeah. You're not using any incorrect
terms. Okay. The fact is that, in fact,

this is both sides of the political
aisle have have said this to us. They

look at it as the democratization
of capital markets

where anyone with a good idea and

that is willing to comply with the
rules can go to the capital markets

and appeal to the American investing
public to invest in their idea

in a secure public stock
exchange environment. And again,

we're not against anyone, but for example,

like proud regulation crowd funding
was passed and people say, Oh,

I'm gonna go crowdfund
my investment. Well,

when you do that and you raise
as much as 5 million as the cap,

you raise $5 million crowdfund,

you now own a private security
and it can't be resold.

The 1933 Securities Act
starts off very hopelessly.

It says you may not use interstate
commerce to sell securities, period,

full stop. So how is it done?
There's only two ways it's done.

Either you register the
shares publicly to sell them,

or you find an exemption, one of about 18,

by which you can resell your shares. Well,

that's a very complicated legal process,

and you better have a good
Rolodex of investors because you

still can't solicit the entire general
public. You own a private share,

you're stuck with it. Well, when
you're in a stock exchange environment,

you don't even know
who's buying your shares,

you go to that environment and other
people look at the same information about

your company, and they're able to
make an informed investment decision,

and you can sell your shares for
any reason or no reason at all.

And as long as they're
complying with the law,

there's a secondary market where
those shares become liquid.

And that's the concentration for small
companies that's really needed today.

And it was 50 years of our
country's stock exchange

history where the small company,
50 million and under normalized,

and it was a lot of tens and twenties
and thirties that comprise that market.

And it's all but disappeared.

And we intend to be the pioneers
reintroducing that to a secure environment

so small companies can go get the
capital they need to expand and to

run their operations and grow and
to become the public company. The,

you know, the unicorn before it's
identified as a unicorn starts somewhere.

And that's what we're concentrating.

Do you think people will start at the
Dream and then go to the other ones as

they get bigger?

That's exactly we call it the ecosystem.

So the ecosystem is first and
foremost an educational environment

doing somewhat of what
we're doing right here,

helping to get the terminology in
simple terms out into the public.

That's the first part of the
ecosystem. What are my options?

Then there'll be a lot of companies
that arrive at the Dream Exchange in its

venture exchange. We're also
creating a national exchange,

and the goal is to get the venture
exchange listed companies to graduate

to the National Exchange.
And to restore the ecosystem,

because this isn't just small companies.

So at one time we had close to
13,000 public companies in the

United States, and
right now we have about,

we have half of that total and really
only about 3,500 listed companies of

any meaningful note.

So we've reduced the
number of overall public

companies by 75%.

So the investment choices
are much, much smaller.

So the ecosystem is broken down.

We're not repopulating new
companies with new ideas

into the capital markets.
So we're losing ideas.

And this is the most
important part of everything,

and I'll take the time to say
this because it's behind the

purposes of everything we do.

Ideas and the imagination of the American

business spirit has been what's
made the country powerful and great.

There was a guy recently
who said, you know,

we won the Cold War by using
Coca-Cola and rock and roll. The

Soviet Union collapsed because they
just couldn't withstand the wave

of popularity of American
culture and our small

companies they're cool,
they have great ideas.

They have medical technologies,
biopharma technologies,

manufacturing technologies,
you know, and those are,

I'm calling it technologies, but you
know, the Midwest manufacturing base has,

we think about 7,000 eligible
companies in the southeast

corner of Wisconsin
for the Dream Exchange.


So the,

there's a vast number of small
companies and the mechanics and the

pragmatic nature of those operations,
making milestones for their ideas,

we have to get them money or
we dry up the source of capital

and the ideas that we would've been
investing in no longer are part of the

fabric of the American business culture.

So we're not creating
the new Apple computer.

It's only being created if by
chance they meet the right venture

capitalist and they get introduced to
the large VC or private equity group that

can carry their idea forward.

What about the 10 guys who may have had
a better idea and just couldn't have the

Rolodex or relationships to properly
capitalize their company and move


So the Dream Exchange is intended to
create a broader audience so that more

ideas, more good ideas help us
survive as a country financially.

Wow. I mean,

I hope everybody's been learning as
much as I have as you've been talking

through this, but, you know,

we have to bring it back the conversation
back to the accounting and finance

professional. And this
will probably be, you know,

we'll probably wrap up a conversation
here. How is this gonna affect, you know,

the CMA the certified management
accountant who is, you know,

is out there trying to be the best CFO
or, you know, be the best data analyst,

you know,

how is this gonna affect the accounting
and finance professional as this comes


I've been teasing about this for years.

I've dubbed the Main Street Growth Act,
the Accountants Full Employment Act. The

fact is with the approach that we have,

a lot of small companies are primarily
focused on internal financial

reporting management reporting
for purposes of making milestones,

making sure the business is functioning
properly, and then tax reporting.

And what we're doing is
elevating the importance

of that information in
the small capital market.

Because a lot of these companies,
they're gonna start out with,

they don't have you know,
financial accounting professionals.

They don't have a full department
of external reporting professionals.

They have their internal accounting.

So there's gonna be a bridging of the gap
between internal and external of these

small companies where we're
creating minimum reporting

requirements that are really gonna be
the labor of the management account.

They're gonna be the labor of the existing
accounting staff to understand how

to bridge the gap between the
milestone reporting. You know,

do we have enough inventory to make the
next milestone have we calculated its

pricing, You know you know,

LIFO or FIFO to make sure
that we get there. Right?

So this is far more important to the
small company in the small public

company environment than whether or
not they did accrual accounting for

estimations for whether
or not they had you know,

an arbitrage of an oil and gas
contractor, an insurance rep. Who cares?

These are,

these are pragmatic accounting
decisions that need to be

reported, because that's what the small
company investment revolves around.

Will they make their milestones,
will management make it,

And if they do,

how big can the growth of
that small organization be?

Because if I invest today a dollar, I
wanna get a dollar 10 or 20 or $2 back.

No one invests a dollar to get 99 cents
back. And in the small environment,

whether the company has good data,

whether that data is proving
that they're on a pathway to

success becomes the job of the
internal accounting function.

And we're creating customized reporting
so that those internal accounting

functions can become easily
and seamlessly part of the

financial reporting for the small company
that will come to the Dream Exchange

to be listed as a venture company. So

it's Virgin territory today.

This is an industry that doesn't
even exist. And the more we,

we'll probably be holding some
symposiums in the next year to talk

to the very audience that's
on this podcast because

we want to get feedback about the
ease with which we can make the

reporting requirements inexpensive.
So that's the other factor,

which is, you know, Sarbanes
Oxley, Dodd-Frank you know,

1934 securities filings
those types of filings

are geared towards a lot of financial
accounting and financial reporting

requirements for which we'll have.

But the bridging of the gap is gonna
really be that accountant sitting in the

chair that's really
running the show today,

we wanna add to the reporting
without adding to the burden of

expense and time. And there
will be added staff eventually,

but it'll be worth it because if you
can get to a public capital market,

adding another one or two staff to make
sure you're doing all the compliance

will be worth it for that small company.

The added expense versus getting
millions of dollars of public

capital clearly makes the
expansion of some of this reporting

worth it. And we don't
wanna go too far past it.

So weighing the accountants who will
weigh in on this will be the ones that are

doing the job today. What
requirements are necessary,

what requirements are, you
know, kind of there for show.

So we're much more pragmatic. We only
want the ones that are necessary.

So that's from their belly button
looking at this situation that is

the expansion of employment and

responsibility if they
wanna learn this new market.

And I think it's very
valuable to learn it.

There are thousands of companies who
are going to need that service and

need it internally. They're gonna be
hiring people internally to do it.

Well, Joe,

thank you so much for your explanation
and for coming on the podcast today.

We will put links in
the show notes so you,

you guys can want to
get in contact with Joe.

Please do so and you wanna know more
information go to the Dream X website.

Thank you again, Joe for coming on.

Thanks so much for having me out.

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