Welcome back to the 2024 Piper Sandler Global Exchange and Trading Conference. My name is Patrick Moley. I am a senior research analyst covering the exchanges, online brokers, and trading companies. It's my pleasure to welcome our next guest, CEO of Forge Global, Kelly Rodriques. Kelly, thanks for joining us. It's great to be here. Forge is a private securities marketplace headquartered in San Francisco, California. Kelly, I'm gonna ask you, for those of who maybe aren't as familiar with the story in the audience, to just give a brief overview of the business and the areas that you're focused on. Excellent. Well, we're really excited to be here. We are beyond a trading marketplace for private shares. We also have an element of our business, which is a data business that's both a derived data and a data product for providing insights and pricing discovery for the private markets. And we also have a custodial business, which holds investors with a specific interest in holding non-traded securities. So those three things sort of make up the three legs of the stool of the Forge business. All right, so turning to the environment, it's been a more difficult environment for the private markets recently. Could you maybe just give us a state of the union on where we sit today, how the second quarter is trending? I think you said on the first quarter call you expected revenues to be in line with or better than the first quarter. And maybe just speak on why, you know, an active IPO market is a good thing for Forge. Yeah. Yeah, so, since the decline in multiples coming out of 2021, we've seen a pretty significant valuation overhang in the private markets. What does that mean? Well, the private markets don't adjust to changes in valuations in as real time as the public markets. About 30% of the companies that we track have now reset and are trading at or above their last trading rounds. What's happened in the last couple of years is a lot of companies that raised money at high valuations in 2020 and 2021 have gone through a big valuation reset, and many have resisted this. So about 70% of the market hasn't raised capital in over two years. What that means is you've got pretty big bid-ask spreads, up to about 28%-30%, that started to prevail in 2022 and continued through the beginning of 2023. What's happening now, and starting in the first quarter of 2023, the market started to improve. So as we rolled through what have now been 4 successively better quarters, we are starting to see meaningful improvement in volume. We saw a pretty big shift this last quarter with buyers and sellers really shifting. This was essentially a buyer's market until last quarter. 60% of the bids and asks now are buyers. And we've seen the bid-ask spread now shrink to 8.8%, which is a big deal. That's what it looks like in really healthy markets, so we're optimistic. But ultimately, for this to come back to really a vibrant marketplace, we need the IPO window to open up and see the optimism of that. That's one of the biggest indicators for what we see driving volumes in the later stage. You have seen four consecutive quarters of revenue growth, sequential revenue growth. So I mean, as we look out, it seems like things are improving. The bid-ask spread's obviously narrowed, but how confident are you that you will continue to kinda see improving trends? And, you know, we have a presidential election coming up later this year. You know, unsure what the IPO market's gonna look like in the lead-up to that and maybe after, but how are you thinking about kind of this momentum that it seems to be building in your revenues? Yeah, for sure. Look, I think what the data tells us, and we look at a lot of data, we've got a more highly reliable pipeline than we've seen in a couple of years. So that gives me really good visibility, better visibility into Q2 and Q3. It's hard to say what it looks like after that. Our view, probably along with everybody else in this room, is that there's likely gonna be some degree of interest rate relief sometime this year. If that happens, then everything else is probably about what goes on during the election. But IPOs are warming up, but we don't yet see, you know, a rush for the exits. But there's a lot of companies that are watching, and until that really starts to happen, we won't see an accelerant of this. The pace with which we're improving quarter-over-quarter, we expect that to continue. Let's talk about new products and the outlook for your new products. Forge Pro is one that you launched. You're, you know, you talked about the go-to-market strategy with Forge Private Market Index. I guess the question is, just overall, can you just walk us through, you know, the products that you're rolling out- Yeah ... your confidence in them, and the impact that it could have on short-term revenues? So we're extremely excited about the investments we've been making. For the last couple of years, you know, this, this is a company that has not historically been a burn company. We, we went public in early 2022, which was an incredibly difficult time. We raised a big chunk of money, and we were committed to using this period when the market was disrupted to invest in building the next-generation platform, which is essentially the modern infrastructure that will allow us to trade and offer data on a global scale. And we're about two years into that. Many of you who would see our products won't see some of the benefit, as that really is meant to benefit efficiency of trade and electronify the space... But the things you will see that are innovative are Forge Pro, which is the first combination of our deep order book with effectively an OEMS, so you can manage order management flow with data in the same place. We've been working on this for quite a while. We brought it out to a fanfare and really a great reception to our key clients in Q1. So it's still pretty early, but we're really excited about institutions coming to trade with data and have it be fully automated into Forge. We're super excited about that. The other big thing that you mentioned is index, and you should really watch this space, because part of what we believe is gonna happen in the private markets, because companies are staying private so much longer. I would just mention this on Bob Pisani's show today. People are saying, "Well, why aren't companies going public? What's - are they gonna start going public sooner?" I don't think so. I think companies are gonna continue to stay private, who have a long-term investing horizon. So we launched the first investable index this last quarter. You can buy a basket of 60 companies, the most liquid, cap-weighted private companies in the world, in partnership with Accuidity, which is a group that spun out of Fidelity, to build an index product to give access to baskets. Now, this has not hit the non-accredited space yet. We primarily operate within the accredited and QP world. But we believe in the next 12 months, you're gonna start to see the emergence of index funds that will allow everyday investors into the private market through this kind of instrument and this kind of vehicle. We're super excited about that. We think that changes the game for private company liquidity and who can participate in the space. And how would that work? Like, how do you create a vehicle that, you know, holds private securities, but is gonna be available to not accredited investors? What’s the structure look like? What are some of the hurdles you have to- Well, if you're familiar with '40 Act or '40 Act interval funds, there are a few of them out there. What you're essentially investing in is quarterly liquidity, where the underlying securities are companies that are available on Forge as single names, but you're buying them in a basket that's driven by a passive strategy. So the guys that put out Accuidity, now this is a $5 million net worth product. We're not there yet. You know, they all come from these passive complexes, which have built products that represent a massive amount of public trading. So we just see that coming to the private market. Now, to pull it off, these 60 names or however many names, they could be thematic, they could be vintage, you could have an AI index, you have to have the underlying. And the biggest place to buy these underlying positions today in the private market space is Forge. And so we think that will not only fuel access, but that will fuel volume on the Forge platform as well. Are you having any conversations at this point in time about what distribution would look like if you did have a fund that was available for retail investors? Yeah. So here's what I would say is our strategy, and I would ask everyone who looks at this space, because it's a massive TAM, to watch out for this over the next few quarters. We believe that this is such an interesting space to public fund managers, that they're gonna come in, and I'd say we're looking at distribution partners for our index that are some of the largest distribution players in the world. And many of them have already declared that they're gonna look at private market indexes for the next 5-10-year strategy. Both MSCI and S&P have made these declarations publicly, and there isn't a bigger source of cleaner data to build an index in the world than Forge. So we'll be looking to distribute through a combination of partnerships and through direct relationships with funds. Today, fund managers make up a significant portion of the buyers on our platform, so we've got kind of a dual strategy for distributing the index. If we think about just the institutional, not institutional channel, but the accredited investor channel, what are your conversations? It seems like that would be a product that's attractive to RIAs or something, folks that already have those accredited investors on their platform. What sort of conversations are you having with RIAs, I guess is the question, and what products are they most interested in? So RIAs already make up a group of buyers that represent accrediteds on Forge. That's a segment that we operate in. What's really interesting is I've had conversations in the last year with some of the largest wealth complexes in the world, in the country, who have said to me, "If you put a non-accredited index product into the market," each one of these big players are looking at $2 billion-$3 billion of potential takedown. I think it's a really interesting product for institutional asset managers, whether they be RIAs or part of the wealth complexes of the big banks. So we know the demand is there. Sure. It's just a matter of the maturity of the market, and can we serve that level of demand, and so what timeframe can we do it? So you recently expanded into Europe. I think you said on the last call that you'd already had some stocks that were traded over there, or securities that were traded over there. Can you talk about just that ramp, what that's looked like, some of the early takeaways? Yeah, so, it's an interesting story. We went to Europe about three years ago. We had investors, buyers, and sellers in about 89 countries. We were seeing the unicorn world of private tech emerge rapidly in Europe. The last couple years, things have slowed down there. But we still believe long term, it's the next interesting market for us to play in. So we set up a small team in Berlin. We just opened an office in London, and in the last quarter, we've started making our first trades. What we're seeing in the dynamic is buyers of U.S. private stocks emerging in Europe, where we're having to match a buyer or seller in the U.S. with a buyer or seller in Germany or in the U.K. So it's not a market that's developed enough to have two-sided trading. Here in the U.S., and we've been at this for, you know, 12 years, we currently cross about 96% of every trade by representing both sides. In the European market today, there are buyers that can't find a seller, and there are sellers that can't find a buyer. So what's happening now is we're starting to match pent-up buy and sell side demand with one side emerging from the European market. So that's-- we thought that was gonna happen. That's probably how we'll operate for the next 12 months, but we think over the next couple of years, as companies and funds come online there, we'll start to see a trailing dynamic that looks like the U.S. market maybe five years ago. So going back to Forge Pro, there's one other thing I wanted to hit on there. You rolled it out. What are some of the early takeaways? How many of the users are actually trading on the platform? Mm-hmm. Are they using it just to see data? What does that customer set look like? So we're tracking, we're tracking a couple things. First of all, we, we put it out there in a fairly limited audience. What we wanted to do is get it out there, get feedback from some of our biggest customers, and then use that feedback to iterate on the development of it. What we've heard so far is a couple of takeaways, surprising takeaways. One, "Hey, I went there to try and buy this, and I didn't realize you had this security, and once I got a chance to look at what the bid-ask is, I decided to buy something that I didn't originally intend to buy." So we are seeing commentary back that at least our best customers are using it in ways to buy things that weren't originally expected in their asset allocation. We're also seeing, for the first time, them actually submit these IOIs through the full electronic experience. Previously, you could see things on Forge. You could look up company information, look at data, but the second you wanted to buy it, you wanted to talk to somebody and say, "You know, what's the bid-ask on this, and can I negotiate it?" And your last mile required a person. We're now seeing people fully submit through the system, and we're really encouraged by that because that becomes the starting point for firm bids and asks, and that's really what we want to drive into the behavior of the market. Because this is a market that is pretty opaque. Price discovery has been difficult. We think once we clean up and get price discovery right, firm bids and asks will be next, and we believe Forge Pro will evolve into something that's really an industry standard over the next few years. So we've been working on it for a few years, still early days, but, look, I think, you know, our stock is, if anyone's looked at it, is down, you're gonna bring it up, and we're hoping that this is that tipping point for the market. Some of these products will help us get there. And if we think about Forge Pro, have you had conversations... I think there might be, like, a partnership opportunity there. I don't know what that looks like, but have you had conversations about other brokerages or platforms utilizing it? And then on the topic of just this platform, it seems to me like it would be something that some of these private companies would find useful to know where their securities were trading in the private marketplace. How big of an opportunity is it to sell to corporates? This is all part of a sequence of sequential strategy for Forge. First of all, there's no doubt we built this for institutions to use, and our intention is to open up and allow other institutions to use Pro and to rapidly expand our volume. We have, up until now, operated as a pretty large, kinda closed environment. There's a number of existing high-quality brokers that trade with Forge today, but we have not broadly opened things up, and we really require this technology to be in place before we open it up. So this is the beginning of a new strategy. And so, more, more to come on that. Sure. But I think as soon as we feel like we've got good product-market fit, then our view is, let's open it up, and let's use that to rapidly scale and invite others to participate. All right, let's talk about the path to profitability. Your revenues are growing. You've committed to keeping headcount flat, lowering the overall cash burn. How are you thinking about that cash, that path to profitability, and how soon do you think you can get there? Yeah. So, this is the number one question I'm being asked. You know, we've probably talked to 100 investors in the last 12 months. People who get the story and who dig in say, "Wow, this is a super interesting market space. How long is it gonna take you guys to get profitable?" We've given little guidance here, but here's what I can tell you: We're capitalized to a level where we can get to profitability with the cash that we have. What we're talking about now is coming back out as we address the Street for our Q2 results and looking to give greater definitive guidance on the timeframe to get to profitability. But we hear it. We know the market right now wants to hear from us. "Hey, we hear the story. We love the story. Tell us when it's gonna happen, and then we'll give you, you know, a view of whether we're ready to come back into the company, given the timeframe to get there." So, we're not ready to say and decidedly and declaratively yet, but we will soon. ... So, your strategic investments have been a big part of your growth strategy, M&A as well. When you reflect on some of those things, how do you as CEO and the board of directors look at an acceptable level of cash burn? And maybe you mentioned a cash minimum on the balance sheet. Yeah. Well, first let me make this point, which I forgot to mention. What we did in 2022 is we said, "Okay, the markets have kind of frozen up here, and we're gonna burn a lot of cash in 2022." Going public was super expensive, getting everybody up on all the compliance requirements and the maturity required to do it. We made a commitment in 2022 that we would have sequentially lower burn until we get to profitability. We would do that by a combination of cost cutting, headcount management, and managing the strategic investment so that we could be truthful and commit to and deliver on lower burn. We did it in 2022. We did lower it in 2023 over 2022. We've committed to lower it in 2024 over 2023, and we're gonna materially lower it this year and in 2025. So here's the way I'm thinking about it. We look at the level of investment. I, our head count has been flat, about 345-350 people for a couple years. I got 100 people that are committed to just building the next-gen platform. So I got a bunch of very smart engineers from exchanges, from Goldman, from every pocket of the trading world, building this right now, and I expect that sometime in the middle end of 2025, we're gonna start rolling out the biggest chunks of this. This will give us the ability to manage our cost structure as I get through this massive build. So again, an acceptable level of burn for me is, you know, make it smaller each year, and on our 3-5-year plan, we gotta be a profitable business. And on the way there, we can't get low to the point where we've got concern from our shareholders and our board. And the board knows it, and the board has got big investors on it. I mean, Motive and Deutsche Börse each own about 15% of the company, and they've put about $100 million+ each into the business and are true believers. So, you know, we're not gonna let them down. We're not gonna let our public shareholders down. You can bet when I tell you we're gonna be profitable, I'll make that happen. Let's end on a big-picture question. What does Forge look like in the next three-to-five years? What does the private market look like? Who are your competitors? What are your thoughts there? Yeah. So I think what our North Star looks like in 3-5 years is we are the leading global player in trading, data, and custody. The biggest shift that I see is data and data-based products like some of the derived products I'm talking about will become a bigger piece of the overall revenue composition. And not unlike the public exchanges, this data component is very high margin. It's like SaaS software. It's in the high 80s-90s% gross margin kind of business. That will be a bigger piece. The trading aspect of our business will be significantly more efficient, electronified, and will be at volume. Custody will be a service that we add to hold accounts, to hold cash, as we do now, and this business will be very difficult to compete with on a global scale, because the regulatory frameworks that connect into this global order book are quite complex. What I didn't mention is in the European example, we deployed the API of our global integrated order book into the European front end. So if you're in Germany, if you're in the U.K., if you're in the European region and you wanna buy something, you're gonna go and look at the order book of the world through that access point and be able to trade in a regulatorily safe way with a counterparty in the U.S. Think about that in Singapore, in the Middle East, and throughout the European region, and I think our competitors will have to raise a lot of money to come and build something at that level. And so will there be competitors? Yes. Will we see consolidation? Probably, and we wanna be there when it happens and use our balance, not our balance sheet, but our stock, our currency, to be a consolidator of the space at the right time. Great. Well, I think we're all excited to watch it grow over the next couple of years. Kelly, thanks for joining us. Thank you. We'd love to get the support of everybody here. Thank you.