MDB Capital Holdings, LLC

Good afternoon, everyone, and welcome to the MDB Capital Holdings fourth quarter and full year 2023 Financial Results Conference Call. I'm Lou Bassanese, President and Chief Market Strategist at Public Ventures. I just want to let you know before we start that all participants will be in a listen-only mode. We will be recording this event. After today's presentation, there will also be an opportunity to ask questions. So you can just encourage you to please use the Q&A function that is built into Zoom here. Before we begin, I do want to remind everyone that during today's call, we will be making forward-looking statements. These forward-looking statements, whether in prepared remarks or during the Q&A session, are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the risk factors section of our periodic filings with the sec specifically in our annual report on form 10k filed with the sec on march 29th of 2024 except as otherwise required by federal securities laws mdb disclaims any obligation to update or make revisions to such forward-looking statements contained herein or elsewhere to reflect changes and expectations with regards to those events conditions and circumstances We kindly ask that you refer to the company's SEC filings for more information about risks and uncertainties related to these forward-looking statements. With that being said, on the call with me today are Christopher Marlette, CEO and co-founder of MDB, Jeremy James, Chief Accounting Officer, Anthony D. John Domenico, Chief of Transactions and co-founder, and Will Rossellini, PatentVest Chief IP Officer. With that said, I will now turn the call over to Chris.

Thanks, Lou. Well, before we get started, I want to, first of all, thank you all for joining today. We got a lot of great feedback from the last quarterly call, and the feedback was resounding. This is too complicated. There's too much information. This is too long. And we all really took that to heart and recognized that we needed to simplify what MBB is, what we do, and how we're going to create value for shareholders. um we pride ourselves in trying to simplify things but we also pride ourselves on being transparent and and making sure you you know truly understand what the opportunity is all about so during that time frame we decided um there was a lot of confusion about uh the various businesses we had and i think we've always looked at it as one business with different processes and so We made a big decision internally recently that you'll see here shortly where we're going to be consolidating everything under MBB. So we're going back to where we came from. Public Ventures is no longer going to be the name of our broker-dealer clearing operation. It's going to be MBB Capital. And Pat Invest will still have its own unique brand as it will be serving companies outside of the MDB sort of investor community as well. So those big changes will be reflected shortly. We'll hopefully update our website and we will hope to see that very soon. And hopefully this will help lessen the confusion uh that we you know with the feedback that we've gotten from various people so with that i'll get into our new presentation we look forward to your feedback on this and uh very anxious to hear what you think so when you really strip down what we do we believe we basically transform big ideas into valuable public companies and that's what we've done consistently for over 25 years now and the way we do it do it is to position it as a new technology leader And I think as you understand the consistency in which we've been able to create these valuable public companies, you'll realize that we basically created new leaders and new technology categories. And that's really important to what we do and how we create value. You know, we've had a lot of, over the years, people wanna try and compare what we do versus traditional venture capital. And I was pretty shocked about 60 days ago, Carta put out this data regarding the 2018 venture class. So these were all of the companies that were invested in by traditional venture in 2018. There was about a little over 3,000 companies that were invested in. If you look in the red box, that's sort of the area we operate in, which is this sort of pre-seed, seed, and series A. None of the companies we're backing are very advanced. Most of all of them are really super early and stuff that traditional venture capitalists wouldn't even look at. And so the results were shocking in that 49%, roughly 50% of these companies have failed and gone away. They've closed. And only about 5% have M&A'd. And in that segment that we're in, no companies have IPO'd. So why would anybody invest in traditional venture? And what's wrong with their process? Because I don't think anyone would be proud of these statistics. So what we see is that they weren't new technology leaders. They weren't deep technology. And we like to call companies that don't have IP or a real significant mode around their business, luck-based business models. And a lot of these are companies that have great sounding businesses with a great team around them, but no real protectable mode. And so we think a lot of the investors do sort of tag along investments and what have you. And that's why the results are as sort of meager as they are. I do think that the great thing about venture capital and certainly what we've experienced is you do end up having a few companies that pay for all your losses. And that's always been the story in traditional venture. But I think we tipped the scales dramatically And when you look at what we do, it's really straightforward. In public venture, we're starting with companies that are earlier stage than most venture capitalists start at, yet 100% of them that we've seed financed have gone to IPO. And furthermore, 100% of those companies at some point post-IPO have traded at greater than 100% premium to the IPO price. So that means that investors have had a chance to take money off the table. They've had a chance to diversify their portfolio, has a profound impact on return, especially when you talk about time management. time, cost of capital, et cetera. And approximately 30% of the companies we've launched from ideas have achieved billion dollar market value. So again, we have those superstars in our portfolio that pay for the companies that have not performed quite as well. And what we do is what we think is quite simple, and we're quite curious why others haven't done this, but we now recognize what we do is not as easy as people might think it is, which is we have the ability to look at deep technology very early and see if it can become a leader in its in its new technology category so before we ever invest we know that we can stand them up as a new technology leader and hence once we know they're a new technology leader we know that we can take them public so we never even put the seed funding in unless we know we can take it public So that dramatically tips odds in our favor. And that's why I think our investors who have invested in our quote unquote bridge rounds historically have been so enthusiastic about it is because we've never missed taking one of these companies public. The curation is critical, and that's why when you hear us talk about going through thousands of ideas a year, which I'll talk about in a little bit, it's super important, but how do we do it? Well, this IP-centric process enables us to do it. We can usually tell within a couple hours of work what the probability is that that technology can become a leader in its in its technology vertical that's a huge advantage over everybody else and very excited you know as more of you understand how we do it that you'll get more excited about the possibilities for how we're going to scale this operation um After we've done that, we have to stand them up as a new technology leader, and building upon that is why we launched Patentvest, which is really to help stand up these companies as new technology leaders. It's a very intensive process, takes hundreds if not thousands of hours per company to really deeply understand the space that they're in and then stand them up as a new technology leader, both from a strategy but also from an IP execution, R&D, and innovation path conceptualization. And now the last leg of the stool was really we have to build that community, make it frictionless to invest in public venture or microcap companies, which is no longer frictionless in today's investment community because you can't do it easily at an online brokerage firm and you can't do it easily at a traditional, you know, traditional investment bank or larger integrated brokerage operation. So the first part of the process that we've talked about before is this unmatched curation capability. I can tell you, and as you guys get more involved in understanding what we do here, you'll realize that nobody has the ability to curate these big ideas better than MDB. I don't know of anybody in the venture community, I don't know of anybody in the Certainly not in the investment banking arena that has this capability. And it comes from our ability to understand that leadership position very quickly because of our deep understanding of intellectual property. So we go through thousands of ideas to get down to these ones, and we're effectively scaling this as we speak, and you'll understand how these numbers are going to get better and better and why we believe we can now do something that we haven't been able to do before, which was curate maybe one company every 18 months or two years to where we think we can curate three or four of these big ideas on an annual basis, which now enables you to create a portfolio of investments in public venture. As I talked about, Patentvest really then integrates this process of R&D, innovation, IP development, and IP execution by having a patent law firm and having the trade analyst team to do all the upfront work to enable this kind of possibility of creating a new technology leader. And having a clearing platform is the only way that we could actually serve the community effectively. Clearing through other firms has been very difficult for us historically. we're already starting to see um the power of having our own clearing operation even though we just started operations with it we just started onboarding accounts those of you that are participating in the public offering for clear sign right now are going to see whether it's the online trading platform the desktop platform the trading app on your iphone um your ability to have your own self-directed IRA, where you can even put private investments in it. These are all things that don't really exist to folks that really focus on investing in the microcap arena. pairing a professional trader along with your ability to trade online. A lot of these companies don't trade huge volume. These orders need to be managed. You can't just put them in on your own and expect to get good execution. So you have the ability to go either route. You can call one of our traders. You can get personalized service, we think this is going to be a really, really big deal. And I think that once you open your account, you get used to using it, you're going to say, wow, I want to do as much of my equity investing on the MDB platform. So the key to scaling up this public venture approach is really, as I said, we've got to get through thousands of companies here. And the only way we can do that is continue to hire and train the best analysts we can, both on the MDB side and the PatentVest side. You know, the great thing that I see with our analyst team is they're kicking lots of tires. They're turning over lots of rocks. They're looking at thousands of companies a year, which means they're getting smart very quickly. And, you know, we all encourage you to submit whatever opportunities you can to our team and get a sense of their capabilities to very quickly connect the dots for our investors and for all of us at MDB. But also, as we build our process as a patent investor, it enables us to stand up more companies. It's a very difficult process to come up with a winning business and R&D and business development strategy for these companies. And these companies all struggle with it, both the small public companies as well as the entrepreneurs or inventors that come up with these technologies. And this is what really enables us to create that value and leadership. So we're not all the way there yet with PatentVest, but every day we're getting a little bit better, a little bit smarter, and we're going to have the ability to really back more and more companies. And as you'll see, as we do more financings like we're doing for ClearSign and others that we have in the pipeline, we're going to add more, not only MDB shareholders, but new account holders. And I think that as we continue to build that community, we'll build more bigger and stronger communities around each of these companies. And it only gets better and better as we continue to sort of ratchet up what we're doing. So as I talked about, historically, most of the folks that invested with MDB would have two to three active investments at any one point in time. And I think that while it's worked out for them, they've made money, et cetera. We really believe that creating an asset class where you can have a portfolio of eight to 12 companies is a much better approach to life. I can tell you that it doesn't feel good when you've got three investments and two of them just happen to be going down at the same time. Nobody feels good about their portfolio. So I can attest to that as an investor and as the, as the person on the other end of the phone getting the phone calls from folks when things aren't going well. One thing we can't manage is really the asset class as a whole. The tide tends to go out at the same time and come in and out at the same time with most of these companies. So we like to say that no more than 10% of your liquid net worth should be in public venture, but we think – The way we do it, it'll be the best performing part of that, of your overall portfolio will add significant alpha, as they say, to your portfolio. We'll be continuing to curate both these private companies that we call big ideas and stand up ourselves and take public, but then we'll also be working with these public companies like the ClearSigns that are companies that can utilize our skillset that are public already. A lot of times it's repositioning them, recapitalizing them. And so we'll have a mixture of these public venture opportunities as time goes forward. And what I've been most proud of and being a co-founder of MDB is that our approach is sustainable long term. And I think this is the reason we went public is that one, we knew it was sustainable. Two, we knew we could scale it. It's got to work for everybody. And I think that whether it's the co-founders and co-inventors and folks that have started these companies with us can attest when 100% of their companies go public, that's a lot different than the 2018 class in venture where 0% have gone public. So it's easy for us to point to why they do better. They have... You know, they have valuable equity and it works much better for them. Our investor community have had great returns. Our employees have done well. And more importantly, we're standing up companies that matter. They're not just created to make money. They're created to do good and create value. So when we look at what our leading indicators of performance are, it's very straightforward internally. How many companies are we getting through? And that really is a direct relationship with how many trained analysts we have. And so we actually now have eight as of recently, and we'll continue to add more. And so that should really translate into more companies that we're financing. now that we have our clearing operation up and running which is now going to be called mdb trade as opposed to pv trade um we're starting to open accounts uh we have uh we'll probably open up i think around 100 to 200 new accounts for the clear sign offering um we this was as of the end of 2023 just one or two accounts that opened um before the year end but now that's scaling up nicely and we'll start to report to you uh the number of accounts and how many assets we have on the platform before we converted um to our own clearing operation and and sort of When we were in sort of full operation with interactive brokers, we had about $300 million of assets on the platform. So, you know, we plan to transition much of those assets over and continue to build more assets. So we think we can build a quite substantial asset platform, you know, especially now that we have a um in our mind a much better platform than we've ever had um you know versus clearing with other people historically and patent vest is just getting up and rolling i think that our our objective is to have sort of four or five large-scale engagements by the end of this year um and scaling up uh intelligently so that we can stand up more and more companies i think You know, our hope is to be able to at some point, you know, get this up to where we can handle 20 or 30 companies at any one time. But that's going to take a lot of execution over the next several years. But we're very excited about how that will add to our performance. In the last call, we referenced the investor toolkit. The investor toolkit will really give you transparency around how we spend our money, where we're spending our money, and we'll be publishing that with the new MDB Capital website that should be coming soon. But from a top line perspective, what we're trying to basically communicate is that, you know, where are we spending our money to operate the MDB platform? How much revenue is coming in to offset those expenses? And then how much money are we making on our big idea investments? And so, you know, for the year end of 2023, we had cash operating expenses of approximately $7.6 million, and we had operating revenue from financings, patent vests, and clearing operations of about $4.4 million, which meant for last year we had a cash burn of about $3.2 million. That does not include the operating expenses at Invisign or any investments into Invisign. So, you know, that's why it's important for us to separate these out, especially now that we'll still be consolidating Invisign's operations, but it will be spun out as its own independent company. And that's why we'll begin to help you to understand kind of an enterprise value calculation for MDB so you can kind of frame your mind and say, okay, what's inside of MDB? What's it worth? Where's the stock price at? What am I paying for MDB? So we'll also provide this sort of very simple calculator. We'll provide the data on an annual basis, and then you can kind of impute um where you believe it is during the year we'll give some limited guidance um so As of the year end 2023, we had about $31.5 million in cash and cash equivalents. We had about $5.8 million in public venture securities that we had in our portfolio. Invisign is the only big idea investment. We have it valued at $5.9 million, and it's going to be going public soon. At $4 a share, we have a little over 8 million shares. So you can see where that asset can go from 6 million to 30 plus million in value and greater. We hope that Invisign will do a hell of a lot better than just the IPO price. so um but if as it is at the end of 2023 that's what notionally was valued at if you took the stock price at the end of uh as of as of yesterday with the stock the shares outstanding we'd have a market value of 77 million which if you then take out the value of our portfolio gives you an enterprise value of roughly 33 and a half million dollars so Our way of looking at it is, is if now Invisign is valued at market, you're paying close to nothing for MDB. So what is MDB worth? well mdb you know we believe that the enterprise value should grow significantly with our market value as people understand that we can scale we can do more of these transactions we can create more value and create create a lot of um wealth for the shareholders So talking about how do MDB aid shareholders realize value, one, by being a shareholder, you're gonna get priority pro rata access to all of the companies we're financing, whether it's the big idea companies we're spinning out or whether it's the public company financings we're doing, we're gonna be updating the shareholder list at least on a monthly basis. and allocating all of these opportunities that are highly curated that, again, I don't believe anybody else has the ability to curate on a pro rata basis. Also, as our public venture portfolio matures, we plan on doing, as we have historically as a private company, stock or cash distributions to the stakeholders. And I think that as we demonstrate that we can consistently create these valuable companies as we have historically, we'll see the enterprise value of MDB increase as I think it will be logical for investors to understand that this isn't luck, but it's a process that we're getting better and better about with each year. So when looking at 2024, we hope to finalize and announce our next big idea of private company investment. We have a number of them that are, um i would say in advanced stages of of of being looked at we're hoping to close on one of them in the not too distant future uh which i think will add um a lot more uh you know another big idea to talk about which i think will be very helpful for people to get their minds around that this is this is going to be a consistent process We're completing our first public offering underneath the broker-dealer operation, and I'm excited about that. So that's exciting. We'll have our first one done. We now will be fully operational, so now it'll be easy for us to underwrite our own offerings on our own platform. And hopefully that'll lead to four to six of those per year, which, you know, that coupled with the revenue from clearing and revenue from Pat Invest, our goal is to at least get to cash flow break even from an operations before any gains on big idea investments. We referenced that we're going to create a unified brand. Everything's going to be under MDB Capital. So we'll be doing that here shortly. We hope that'll eliminate a lot of investor confusion, that it's one process for whether it's a big idea company we're spinning out or whether it's a new public company that we're financing. And lastly, we just filed... the First Amendment to the Invisign S-1. And so that is on track to be spun out and go public here very shortly. We hope to be able to sort of unveil that to our community in the next few weeks. So very excited about that and very confident we should be able to have Invisalign public very soon. And I think that's a big milestone for us to get through. And I think that talking a second about Invisign and why we're so excited about it, really synthetic biology was this field that everybody got a lot very excited about because it offers so many benefits to being able to manufacture chemicals. Um, with biology, as opposed to the traditional mechanisms, and I think that the whole world has become sensitized to it, whether that's biofuels, whether that's new drugs. Um, whether that's new flavors and fragrances, um, the promise of synthetic biology has been huge. But. The way they've done it through fermentation using cells has not worked. It doesn't scale. They don't get the yields and the costs. While they can produce them, they can't produce them at costs that are feasible for the marketplace. We are highly confident we can now prove to the world that we can actually deliver on it by getting outside the cell and using enzymes. And we now have designed many chemical biomanufacturing pathways. And I think that the world's going to wake up to that opportunity. that cell-free biomanufacturing is the future of synthetic biology. And we're going to have a leading company in that space. So stay tuned. It's going to be exciting. And with that, I'll turn it back to you, Lou, for questions.

All righty, at this point, we're going to start a question and answer period. I just encourage you, a few people have already submitted questions through the Q&A function. If you hover over the bottom of Zoom, if you're not familiar with it, there's a Q&A icon there, and you can submit those questions there. I do have a few already here. I can answer one quickly. Is the ClearSign opportunity closed? Yes, as of right now, it is closed to new indications. We send out emails ahead of time. So we just encourage you to keep an eye on your email inbox. If you are not on our email list, for whatever reason, you can go to our website, the investors tab and make sure you're signed up there so that you hear communications about the upcoming deals. Another question we got here, Chris, just if you could tell us, is there a difference between the level of diligence that goes into the big idea, private investments versus the companies that are already public that you're looking to do four to six financings per year or more?

There really isn't. We really leave no stone unturned because our hurdle rate of the information that we need is can they be a leader in the space? And then we also have to understand how far it is away from commercialization and a value inflection point. And sometimes it's a bit easier with a public company because there's more information already been coalesced because they've been public. But I would say the diligence process is virtually the same. And I wouldn't say that it's that much different.

Okay. Question that kind of follows along that we talk about our community. I've got a question here. How can MDB shareholders and community members help in the due diligence of potential deals that you're looking at?

You know, it's something we haven't. figured out exactly how to integrate our community. Right now, I think I would say we've created an investor portal. I think that telling us about yourselves and what have you, we need to start to reach out to people that have expertise. in these various areas better i think part of it is us part of it is also um just reaching out to the folks you that you talk to on a daily basis at mdb and say hey you know i'd be happy to help out and diligence um some of these opportunities you know make sure that we understand what your expertise is, and we welcome it. It's a lot of fun for us to be able to pick up the phone quickly and engage an existing shareholder or investor in these companies to help diligence these companies. It really is what It helps catalyze the community as well because so many of our community members talk to each other. It helps to really educate, you know, sort of co-educate the rest of the community as to the leadership potential of these companies.

Yeah, and I'll just say, too, as an action to take as we continue to open up access to the portal, if you are interested in helping us diligence, you can send us an email to community at publicventures.com, community at publicventures.com, and just let us know what your areas of expertise are, and that'll put you at the top of our list to understand what makes sense to reach out to you for. Next question here could be for the Pat Invest team or yourself. If you could help us understand, you said in the press release that it was really critical to helping stand up these technology leadership companies. What are the challenges that you find that the entrepreneurs are experiencing and what is the benefit that Pat Invest is providing to them externally for those engagements, but then also to the firm as a whole to find new ideas?

Yeah, that's a great question. So one of the things that I've realized, both being a board member, an investor, an entrepreneur myself, is that most of the time when you're starting a new company, no matter what it is, you really face an information problem. You want to know who are the players of the market? How can I differentiate my product offering from the other players in the market? What are the threats and opportunities that exist as a result of my intellectual property position? And all of those are really hard to get, but there is a process to go get that information. So in the case of InDesign, I'll give you that as an example. InDesign has the ability to create chemicals in multiple product categories. Each one of those product categories have different dynamics. Each one of those product categories have different IP from different companies coming at it from different directions. That's a lot of information to sift through. Well, we do that so that now we can look at it, say, in biofuels and know, okay, who are the potential competitors or who are we potentially displacing? Who are the people that would be most interested in partnering with us that have complementary technologies and skill sets? I would tell you, doing this now for 30 plus years, if I ask a CEO of a company that, he can't articulate it. He or she can't articulate it. And in my mind, it's pretty darn important to be able to articulate that. That's what PatentVest does. Not only does that, but what that then does is creates an innovation path that nobody else is executing on. Patent attorneys don't do this work. And so we're still having challenges convincing people until they actually engage with us and see the work product. But I think that it becomes very apparent because at some point we do have the ability to communicate what the path is for value creation, but it's a lot of work and it's thousands of hours of work. Well, it's hundreds of hours of work definitely, probably more than 1,000 hours of work to do that. And these companies don't have the resources to do it. They don't have – they can't go to their patent attorneys. They can't just hire a CTO that can do this. But this is information that they critically need. And I can tell you there's nothing more frustrating than sitting in a board meeting and asking management, you know, who are our prime targets to joint venture with? Because joint ventures in big ideas create value, shows that you're getting closer to commercialization. Most of the time, they can't articulate who they are and why they should be approaching them. So we make sure that that happens. And that's, again, it's translated in a series of reports, and those reports are available. And, you know, and I think that as more of our community understands that hard work we do, they'll understand why we can create billion-dollar companies from ideas.

Thank you for that. So related to that, too, we got a question here is how to how to shareholder sign up for the investment platform, which we recall we call our member portal. Again, if you'd like to apply for access to that again, just send us an email at community at public ventures dot com. We will send you an application to give you access to that to prequalify. So as Chris alluded to as well, we're going to start producing more documents. that get into the details of the work we've done on each opportunity and that member portal will be the place that we provide that information um the last couple questions here all revolve around the same thing in the invisign offering a couple people asking if we've received official uh invitation for that and the answer is no not yet we just filed the second amendment a matter of minutes ago so chris can you just spend the the last bit here talking about the details of the Invisign offering, what's going to be, how that's going to be handled. Is there going to be a record date that you need to be a shareholder as of that date to participate? Is an account going to be required at MBB Capital and just some of those details?

Sure.

So first of all, participating in the offering is a It's going to be most easy by opening an account with MDB. There are going to be selected other syndicate members, people that we've worked with historically, but for the most part, it's very hard to syndicate or distribute stock to others. other brokerage firms. And so for the most part, the easiest way will be to open an account at MDB. We're going to allocate based upon your sharehold ownings in MDB. So we do have We have a list of shareholders, and we're going to choose a record date in the future, probably fairly soon. And based on your ownership in MDB, that's the allocation you'll get for inventory.

So what we've tried to do is create a meritocracy with regard to how we allocate offerings. It's always been, you know, when we have a very, when we have an offering that's not, you know, not hugely oversubscribed, it's usually not a big, big deal because we have enough of it to go around to most folks. But when we have an offering that's heavily oversubscribed, it's not very much fun because I'd rather have an offering that's just subscribed than one that's wildly oversubscribed. I know it's counterintuitive, but it was always more difficult because, you know, who do you allocate these oversubscribed offerings to? And so we made the decision that the fairest way to do it is just based on your pro rata interest in MDB. And so we'll pick a future record date probably fairly soon now.

And based on that record date, that's how we'll allocate it. You know, in the case that Invisign is significantly already subscribed, then basically we'll have a logical, a way to allocate the offering to the various shareholders. Okay. I think that wraps up. I would just want to emphasize here that if you are considering or thinking about participating in the Invisign offering, that you start the account opening process now, particularly if you would like to do that. that through an IRA, that process takes a little bit longer. So the more of that upfront work you can get done in advance, the easier it makes the participation moving forward. So again, if you have questions, you can reach out to us at info at mdb.com or info at publicventures.com and we can walk you through that process. With that, it looks like we've got all the questions that are here that have been asked. If anyone has any follow-up questions, please just reach out to us. At this point, I'd like to turn it back to you, Chris, for any closing remarks. Nope. Thank you. We'd love to hear your feedback. So if hopefully this simplified what we do from the last call. If there's information that we didn't deliver on this call, please let us know. All of us that are on this call are all you know, readily available to get your feedback and suggestions on how to make this better and better over time. And that's about it. Thank you. Thank you, everyone. At this point, that'll conclude our call. We will post a recording. shortly on our website. And again, you have our contact information.