Interview date: October 18th, 2022
- 7:42 – Consumers being monetized without consent
- 15:37 – What is Phuncoin?
- 23:32 – The crypto-grifter problem and how PHUN ensures transparency
- 45:40 – Phunware: The first meme stock
Mike Fay: This is CEO interviews and I am Mike Fay. I’m the founder of Blockchain Reaction. And joining me today for CEO interviews is Alan Knitowski. He is the CEO and co-founder of Phunware (NASDAQ:PHUN). Alan, thanks so much for joining.
Alan Knitowski: Thanks for having me. Always appreciate it.
MF: You bet. So I think this is this isn’t your first time doing CEO interview series, but maybe for those who haven’t seen you before or heard of the company, can you briefly kind of describe your background and talk a little bit about the company?
AK: So Phunware, where I’m at now is about a 14 year old company. We set it up from day one and I did not want to do anything but get it as a public company on Nasdaq or the New York Stock Exchange. So everything we did while we were private was like, hey, been there, done that, sold some companies.
AK: We’ve been very blessed. I learned a lot. And now we’re going to scale the company, take it public and see what that’s like. So it took about ten years and $100 million. By five years of that was in the first 30 million was angel money or own money and private. And then 70 million was a couple of rounds of institutional financing, which would have normally looked like A Series B and C.
And then we went public on Nasdaq about four years ago through a SPAC special purpose acquisition company, which no one had really done at the time. There’s a lot more like a direct listing, so we didn’t really raise money overhead. Covid hit, so we had several years as a new public company where normally you’re introducing yourself to the financial markets and for the most part, we were just kind of trying to survive on the other side of COVID, which we’re now at, and getting back to scaling and introducing our company to the public markets.
MF: Very nice. Phunware specifically looks like it is in kind of I would say if you wanted to simplify it, data monetization or you know, kind of like audience monetization, would that be fair to say?
AK: Well, that’s part of it. What we really are is an enterprise cloud platform for mobile. So when we started the business, we wanted to be a software company. We wanted to provide everything you need to succeed on mobile with a focus on Apple, iOS, and Google Android. So, thinking of Phunware like you would think of Google Cloud or Amazon AWS or Microsoft Azure if all they did was focus on the digital transformation needs of large corporations and a very heavy bias on mobile first, and as I said, Apple, iOS and Google Android environments. We help people to engage, manage and monitor large mobile audiences that scale. That ranges from smartphones to tablets
to wearables to digital signs, kiosks, in-car nav systems and things like that. And now we kind of sit at the intersection of mobile cloud, big data and blockchain and all things that go along with those markets. But everything is about, really, these devices and how do I reach you 24/7, 365 on a 1-to-1 basis in real-time, indoor and outdoor across GPS, wi-fi beacons and everything in between.
MF: Very good. You talked a little bit about, you know, kind of like the mobile part of it. And, you know, I think that people kind of understand smartphone has this ubiquity. Everyone has one. Some people have more than one. But I was actually looking at one of your slide decks recently and Phunware seems to be, is building a user experience, like almost like a white label, a user experience. Is that something that you kind of see yourself doing?
AK: Yeah, we have found that there are really two customer sets that we sell to business, to business or business, to government. One customer said, are people that say, you know what? Like we need some help with use cases and features and functionality, a kind of back-end system to operate all of these digital transformation needs, especially as it relates to their mobile applications for consumers or channel partners or their employee base.And in those cases, we look like flour, sugar, water, vanilla. If you were making amazing cake and those folks say, you know, let me license your software development kit or your application programming interface or your software libraries 1 to 5 years SaaS. And we’re going to license that capability, but then we’re going to develop it or we have someone to develop these things for us. And we really want access to your analytics or your mobile engagement or your location services or your advertising or other forms of capability. And like I said, about half of our customers like to build things themselves. The other half kind of say, you know what, we’re really good at health care. We’re really good at luxury guest experiences for hospitality.
But they’re like, you know what? Can we just license your platform, and we pre-integrate it for vertical audiences where it’s their brand, it’s their content, but they can effectively do what they do best. They can standardize on us, and we license a 1 to 5-year right to use. So there’s kind of a 50/50 mix in that case, using my cake analogy, it’s more like saying, You know what, I don’t want to learn how to be a baker.I just want to learn how to, you know, eat cake. I love cake. Maybe you could give me some sprinkles or you could give me some icing of a certain type. But I don’t really want to learn how to take all those ingredients and bake. And so we had to provide it for both audiences because, you know, in things like health care, certain customers like to build everything internally and really control what they’re doing.But there’s a lot more in health care. They just say, you know what, we do medical, dental and vision really well. We know we need this. We just don’t know really how to do it. So can you help us out? And what we do with all of our customers is we think about like digital transformation as this over-encompassing umbrella. If we’re in health care, we’ll talk about the patient experience. If we’re in sports, we’ll talk about a fan experience. If we’re in hospitality, it’d be like a luxury guest experience. And so the semantics change slightly, but at the core, you know, it’s engagement management, monetization, large audiences. And then how do I engage you before you’re here, while you’re on-site and after you leave.
MF: You know, kind of finding, you know, how do you hit the same person, you know, once you have them in kind of a funnel, if you’re a business, right, and, you know, you’ve spent X amount of dollars acquiring a customer and you don’t want to have churn, how do you keep getting kind of like an incremental spend out of each, each customer? It’s very interesting. You also have a blockchain-based token that I think we’ll get into in a little bit because the company is very interesting. You’re sitting kind of at this intersection of like a public blockchain, but also, like you said, some customers, some clients, especially in health care, they like to kind of have their data sets more internal, which is completely understandable for, you know, HIPA, stuff like that. All right. But I think that a big theme that I’ve seen from your company as well recently is is privacy. And so if you’re looking at competing with, you know, like the Googles of the world, you know, how do you get that privacy message out there? I think that some people kind of understand how they’re being monetized, but the masses, I don’t think, really do. Is that difficult to kind of get that? Yeah.
AK: I think it’s frustrating. Right. Like all of us know that we’re being harvested. You know, when you go on Facebook or Instagram or you use Google or YouTube, you know, we are the product. We are the source of using free and free isn’t free. We know free just means instead of you licensing something, you’re paying for it. They’re going to harvest you and sell you off to the highest bidder and they’re going to keep that. Most of the time when people spend money on advertising and marketing, they know probably half of it’s wasted. They just don’t know which half. And so what we really got sick of, honestly, was the violation of the personal sovereignty of people worldwide who really don’t even know what’s happening to them. They suspect it. They have no visibility to it. So largely why we added blockchain to our platform wasn’t because we were trying to chase the next new great thing. We had a blockchain because a lot of our customers were like, We want to have an open, auditable public ledger that shows illicitly every interaction between our brand and these audiences. And we wanted to demonstrate that we were actually operating in a fair way, that we were being transparent and open about our engagement with these folks. We want to delight them and excite them, and we want them to value our brand and spend more time with us, spend more money with us, and that relationship largely got violated. So what we’ve found is we added a couple of tokens, what we call Phuntoken and Phuncoin, that go inside of a Phun wallet. And even if we ultimately touched the Phunverse, we made all these things wrapped around the Phunware brand to empower you to be in charge of you, for you to regain personal sovereignty, for you to decide per brand, per application, per venue, I can share as much or as little as I want. Everything. Nothing. Something in between. I can decide I want to have one relationship with Starbucks because I want to get stars and I want to get loyalty and rewards. I want to get benefits, and discounts. I want to get food and beverage and other things that I care about.
Maybe someone like Home Depot, though, is much more for contractors. I’m not a contractor and I don’t want to share anything. So what we did is said, you’re in charge of you. You decide and you discriminate. If you want to use that word, in any way that you want. Be as open or closed, if you want to have any kind of mobile experience, you get to decide. And we think that’s how it should be. We don’t think that any of us magically volunteered our consent for any of these groups to take our data yet alone, our personal identity, you know, there’s personal information. There is what my likes and interests are. There’s what I’m willing to trade for profitable engagement between myself and a brand. But at the end of the day, none of us really knows where our data or information is out.
We don’t really know how to stop it. We don’t know how to kind of put the proverbial genie back in the bottle. In, Europe that was easy for Phunware to comply because we already gave everyone power over themselves a magic exit or mute or delete button. No big deal. When we deal with children, which we did often with Discovery kids or Disney, we always cared greatly about being under 18 years old and making sure you had protection and consent in parallel. You talked about health care, what could be more sacred than our personal health information? And you know, why should I have to have that compromised? And as a result, we wanted to have personal health information, HIPA compliance. And then, you know, it’s interesting when people often talk about this like, may I ask you like when did you consent for three organizations you don’t know, to have all of your credit information, your banking information, your spending information, information about your debt. Like, when did you decide to hand over all of my financial information to Equifax, TransUnion and all of these beloved credit agencies? Did you ever do that?
MF: If you’re asking me. I don’t recall doing that. No.
AK: Yeah. And I think every adult I’ve ever met, every child I’ve ever talked to, that’s a teenager or a young adult. No one has. So why do they have all this financial data? Why do they get to discriminate based on demographic income, debt, education? Like who anointed these people to have this power? And why are we tolerating? So when we set up this concept of like a mobile loyalty and rewards program that would go along with our multi-screen as a service platform, we said, Look, you be in charge. They want to engage you. What’s in it for you? Be selfish. Like our God given right is personal sovereignty and freedom. I know we’ve kind of lost our way in the United States over the last several years and watching around the world, there’s been stunning and breathtaking to watch the encroachment on our lives, demanding, you know, we talk about HIPA, personal health information and then what do I do? I look you in the eye and say, oh, you want to come into my bar? Do you have a vaccine?
MF: Right.
AK: And my answer would be, who the hell do you think you are? I don’t owe you an answer. I don’t owe you compliance. I don’t owe you some kind of, like, magical. Oh, please let me into your establishment. This is offensive. It’s wrong. Central bank digital currencies are bogus. What PayPal just did was a test run. We shouldn’t have social credit scores.We’re not a communist country. We’re from China. Like, I don’t know what people have done to lose their way, especially big tech companies, big media companies. Anybody that wants to play with the World Economic Forum like this is an assault on our personal rights, our right to pursue life, liberty and obviously happiness. And this is just wrong. And it’s time for all of us as adults to stand up and say no more.
MF: There’s there’s a lot there that I think that a lot of people would agree with. You know, depending on it doesn’t even really matter. I don’t think, you know, left or right. I think it’s the conversation philosophically, at least in politics for a lot of people, I think has become more are you for freedom or are you for some sort of a central authority? And you talked about central bank digital currencies. I think that that’s one of the things that as someone who studies the cryptocurrency space quite a bit, that sort of instrument I think should be a little bit more terrifying to people then I think that is is is understood a would you call yourself an issuer of a token?Is that is that fair to say?
AK: Yes. So what we did at Phunware is we tried to look at the economics of the relationship between brands and consumers. And we tried to look at the overlay of the data oligarchs who basically have treated us all like profit to be harvested. So good for them during a period of history that they managed to do that. But at the end of the day, what we did is we created a dual token economy under an ecosystem that was based on a customer data platform where on one side you would have all the users who were voluntarily opting in, not just because they felt like participating, but because they could do an action and they could get paid for it. They could buy things, they could earn things. And on the other side of this ecosystem were brands who honestly wanted to have auditability, and traceability. Some means to understand in an open, transparent way what was happening, you know, when they were spending this marketing money or this advertising money for all these campaigns. You know, when you use Facebook’s platform or Google’s platform or Twitter’s platform or Snap’s platform, you waive as part of the terms of use your right as a brand to audit any of it. Right. You literally just have to trust whatever they’re telling you is happening is real. And as we’ve seen with the battle for Twitter with you on Mars, there’s bots everywhere. The people aren’t real. It’s all a mirage. And so brands are spending money and it’s just as bad as having click for, you know, the process for money. So we set up this ecosystem of brands on one side, consumers on another. In the heart of it is a customer data platform. The more people that download our PhunWallet, the more engagement we see, the more engagement we see, the more information is shared, the more information is shared, the more it populates the customer data platform with people that have specific interests, specific demographics, specific areas of need. Like, Hey, I’ve got a kid in the fall going to college and I need a student loan or I would like to refinance my house or I would like to find a new vehicle to purchase or to lease. Well, I can put those into segments and then the brands, instead of having to just throw lots of marketing and advertising dollars to randomly find a way to reach people as new customers, they can say, Wow, look! Here’s a whole segment of people like waving their hand. Like, I want to refinance my house. Well, those have more value, of course, that’s interesting, but not as interesting as, you know, I need a student loan for my child in the Fall. So, you could make these an ecosystem of benefit. What we did is we created what we call a Phuncoin, which is a regulated security token that only trades on securitize as an ATS, it’s fully regulated full , compliance. That COIN was created so that you could have people buy it, stake it, lock it, hold it, and then they would be eligible for financial benefit could be in the form of dividends.
The dividends could be in dollars, they could be in fund where stock which is shown on Nasdaq, could be in Bitcoin, Etherium, or other sorts of crypto, or it could be profit sharing or fee sharing after the customer data platform within the ecosystem. So that was the purpose of the security token utility token, Phuntoken, this could actually use their traditional fiat dollars of all of their marketing and advertising money.
They could buy credits in our platform system. Those credits could then be exchanged for different demographics and segments of interest, which have different values. But what’s really happening is the dollars are being converted to Phuntoken. The Phuntoken or credits and token are consumed to access those individual segments, and then a portion of those Phuntoken get distributed to those audiences when they’re consumed by those brands.
So it’s kind of a win win for everybody involved. And the brands can stimulate, you know, virtual activity like answer a survey, share it with your friends, watch a video. Or it could stimulate physical behavior that’s profitable in the real world, like show up at the car dealership and test drive or check in at this physical location and get a restaurant benefit or anything like that. And so what we tried to do is to create, as it turns out, we’re the first publicly traded company on earth, especially for Nasdaq or the New York Stock Exchange that has ever issued its own cryptocurrency. Yet alone two, a utility token, Phuttoken, and then a security token called PhunCoin. And that was quite fascinating for us because there weren’t any gap or faseb rules when we went through the SEC to get public. We were the first public company to ever interface with the blockchain and cryptocurrency group at the SEC. I always said, You know what’s worse than working with one government agency to get public is working with two groups at the same government agency to get public. That took us eight months, but we got through it. Now you’re seeing a lot of these discussions.
Where FASB is going to have mark to market accounting. We buy Bitcoin and we have a theory of another cryptocurrencies that are on our balance sheet. We do that on purpose, but we believe that, you know, the new rules of mark to market is going to be a lot more rational than saying, oh, when did you buy Bitcoin? What’s the lowest price it’s ever been? Take a non-cash impairment charge. All this craziness so we’re trying to do as a public company is to be a lot like Red Hat was with Open Source and Linux where you know you can download open source, you can go grab an Apache Web server. But a lot of companies felt more comfortable going through Red Hat to get to this new innovative world in a safe, auditable, secure way instead of perceiving that they were playing with the wild, wild west.
MF: Yeah. I think that, you know, you mentioned you said the word safe. And I think that that’s actually a pretty fair word because most of the tokens or coins are not, you know, done through the SEC. And there’s, I think, going to be quite a bit of fallout from all of that. You’ve specifically worked directly with the SEC, you’ve, I think, do it in a way that insulates you from a problem down the line, which, you know, was very smart. So I guess from the perspective now of, you know, the user of, you know, the Phuntoken or the PhunCoin, have you found it that you’re getting a crypto native person or you’re getting more or less of a crypto native person to come into the platform and to and to buy into that kind of reward structure?
AK: Yeah. So I would say at the initial stages, it was a lot of early adopters, so I would say a lot more crypto-oriented folks who understood, you know, there’s Bitcoin, the asset, which is one of human history and then there’s everything else right then that everything else there was people who believed it was an altcoin. And then of course, you know, most people would say the shit coin. Honestly, I can’t stand all of the bogus activity that goes on in the world of blockchain and crypto.
You know, I’ve used all of these platforms from Blockfi to Nexo to Coinbase to Ledn to even Celsius, right? I am sick and tired of the masses being taken advantage of, being rug pulled, you know. And when you think about Bitcoin, you know, we all know why it was designed. It was an entity that no one knew who created. Right? It was version 1.0 that was perfect from day one. It was an inflationary schedule that everyone knew with a scarce asset, and it went through all the methodologies to effectively try to keep central banks and politicians, and legislatures honest with the use of fiat currency, which is true. Bitcoin was like, Hey, here are all these cryptocurrencies we can use. Here are what the digital assets could mean. Here is how you can get value from them for different use cases. And we threw in decentralized finance and then everybody went through and said, okay, how do I, you know, use Defi and crypto and digital assets instead of a traditional bank instead of the traditional finance means? Like, if I have collateral, why can’t I drop it?
The smart contract use my collateral for benefit and I don’t need to fill out forms and go through all this process. I’ll just allow the contract to be code as law. And you know, the good news is a lot of the tech is quite great about all that. The bad news is there’s a lot of scum that actually play in crypto and blockchain. There are a lot of people from traditional finance on Wall Street that left the boiler rooms and the pink sheets and the bulletin board. And they ran. We see people gaslight and lie their asses off. We see rug pulls hacks. We see unethical, immoral, pathetic human beings that are grifters in a space contaminating the value of blockchain in crypto and digital assets by trying to steal and harvest and Ponzi scheme and you name it. So we always want to do it. Where was the say? My name is Alan S Knitowski. I’m fully doxxed. I’m the president, CEO and co-founder of Phunware or the Nasdaq traded company. If you want to check out our financials, we are fully audited. We filed with the Securities and Exchange Commission. We want to make everything is open, candid and transparent as possible. Oh, by the way, here’s the rest of the management team. They’re fully doxxed as well. Here’s their board, which is an independent board. And guess what? They’re fully doxxed. And we wanted to make sure to have no BS and to say, do it right, do it like Phunware does it. Every other public company be like Phunware. That was our goal. And we understand we were so far at the bleeding edge, you know, being the first to go through the SEC’s crypto and blockchain group, we were learning like they were learning. Being the first to then say, Hey, we need to talk to the chief accounting officer, as you see, because we have to file our public filings every quarter and every year. But there’s no GAP or FASB rules like what do we do? Like, okay, I have Phun token. We have Bitcoin, we have Etherium, we have U.S. dollars. Like how do we deal with all of that to report financially to the public markets? How do we talk about that with analysts, with funds, with retail investors? And so we’ve tried to do is to be, excuse me, a bit of a guinea pig. Red hat was first as it related to open source and Linux and that kind of way.
And we wanted to be the first for this because we see the value in blockchain, you know, we see the value in having open, candid, transparent interactions. We see the importance for public and private companies to be able to go to a public ledger and have full audit ability for auditors, for boards, for governance, for everything so everybody can trust because nobody trusts. And where we see that sort of bastardized and abused, I would like to see them get very aggressive with those folks. Watching what’s going on with Celsius. The idea that people can get on a weekly AMA, ask me anything, stare at a camera and just lie their ass off, lie about insurance, lie about protection, lie about withdrawals, lie about the loans. Change the terms of service on the fly without you knowing about it. Violating the Federal Lending Act by not even having anything that you’re doing actually adhere to truth in lending statements, not getting licenses, gaslighting everybody, rug pulling, dumping tokens like CEL on retail being the exit liquidity and over and over and over and you’re just watching like these folks need to have aggressive legal actions, civil and criminal, and they need to be made an example of you cannot be yanking money out of your own business and gaslighting the world all the way up until the day before you freeze redemptions, file bankruptcy. It’s a joke and there is no such thing as you or me or anyone on earth deposit your assets in your account, in your wallet, even if it is a centralized exchange and saying, Oh yeah, I donated it to you, it’s all free. It wasn’t mine, it’s your property because I actually deposited it. That’s a joke. Just like loans, right? You provide collateral like Bitcoin or theory, and then you take a loan, 25, 33, 50% loan to value collateral implies what? It’s yours. You took your collateral to take a loan. You and I went to a pawn shop. I would take off my watch. I give it to them. They would figure out a value, give me a loan, keep my watch. That’s the collateral. And then if I service it now, I’m in good standing and I’m operating in good faith. You don’t get a right to steal my watch. You don’t get it right to sell it. You can’t go on the town with it. But as soon as I’m done paying for it, what happens? They give it back. It’s mine.
You don’t get to do that. And if you and I open the pawn shop down the street literally within a week or. Hello biking. Alan, can you show us your license to be operating the business? Can you give us your information on lending? Walk me through your collateral. Let me see what you’re doing with your book of business on loans. How are you operating? But you’re telling me Celsius could go from zero to like $20, $25 billion in assets and nobody looked? What? Where were the regulators then? Where were the state AGs? Where were the federal version? Where were people around the world? This is not okay. And I think folks like us are responsible for helping guide people through this process, take care of them. And just like we started on the Internet, you know, nobody knew what it was. Nobody had used it. And then we all learn. And I think that that’s critically important, something we’re very focused on. And I think that, you know, regulators and, you know, take your pick judicial system should be intimately involved in this for bad actors.
MF: Yeah, you bring up some really interesting points. think that Celcius honestly you know maybe TeraLuna was the first that kind of collapsed. But when we look at this year for crypto, I think Celsius is going to be the one that people remember as being the real issue with what happened here. But with your platform, with what you’re building, bringing on different clients, different companies. And if they build these rewards type of, you know, I guess, programs within Phunware, is there, do you foresee an ability, let’s say, you know, there’s a speedy reward comes on to Phunware and then someone who uses Speedway and has all these rewards that they’ve earned you know, through the Phunware platform but on speedy rewards, if they then move and there is no speedway, you know, at their new location somehow, can they then take those and then, you know, trade them, trade out of them for like Phun token or something else that’s through the Phunware platform? Is that kind of what you envision?
AK: Well, yeah. What we do envision is we license software to our customers. Those customers are in different verticals. So in hospitality, you find folks like Atlantis, Bahamas or if you jump in to health care at Cedars-Sinai or Mount Sinai, like we understand that each ecosystem is kind of like its own little island, right? So certain brands, first and foremost, focus on their own customers and then they may focus on the interrelationships within their walled garden of brands. You know, if you’re working with Carnival, they might have eight different cruise line brands, all uniquely different, but they’re all under the same umbrella. Marriott might operate the same way with hotels around the world, whether it’s Ritz-Carlton or Marriott or Courtyard by Marriott, with all those brands. So I think first you have little islands, then you have islands within islands within the same umbrella. And then there’s open nature of how do you integrate separate islands together? And it’s kind of crawl, walk right where people learn this in parallel to your point. Then you have to have lots of ways to onboard and off board financial benefits. For example, you can have a Phuntoken and exchange it for gift cards. And I might use those gift cards for Starbucks or Home Depot or something else in other case, I might exchange the Phuntoken for products or solutions or services, which could be experiences like a trip or an excursion or some other, you know, benefit. So there’s got to be exchange ratios. And then separate from that, as things start trading on centralized or decentralized exchanges, then there’s some market price that is going on in parallel to this exchange value. So in an ideal world, what we want to do is we started with a way to operate it all our self within our own ecosystem, and then you start providing connectivity to centralized, decentralized exchanges. That’s one form of on board and off board. And separately you provide on board and off board through traditional loyalty and rewards programs or through exchange based products and solutions. You know, no different than what I use Southwest Rapid Rewards. I have enough points I can exchange those for travel.
MF:
Got it. That makes a lot of sense. Getting back real briefly to to the privacy part there, there are actually a couple of other privacy-type focused companies that are that are using blockchain as well. One of them that I think comes to mind is Brave, through the Brave browser in the build-out, this web based application where you can opt in to advertising, receive a token, and then use it however you want. Have you kind of, you know, taken a similar approach, I guess, to what they’re doing because it’s application based and you can kind of do with.
AK: Yeah, I mean, the basic attention token and the Brave browser are kind of interrelated and specific to the way they want to think about privacy with browsers. Right? So if you’re a Google Chrome user or a Safari user and things like that, what you find out is you don’t really have a lot of privacy. Google is in a massive lawsuit right now over the concept of incognito mode, which really isn’t right. And it’s kind of a running joke even at Google that they are now in a lot of trouble over the fact that they know you and I might think I’m incognito, but you’re really not. So with Brave, I think, you know, they’re focused on the browser Internet access market. You know, you get some sort of intersections here and there. It’s unclear how the SEC would view the basic attention token that they’re using that’s never really been challenged. So the real questions always are, okay, is that going to get grandfathered, is it going to get attacked? You know what’s really going to happen? Does it pass how we test these crazy things that go on? And when I ask people like how much money has brave or based on the tech basic, attention token or any other crypto spent on legal and audit, you know, if they don’t have a seven-digit answer, they probably don’t know what they don’t know yet. And they’re probably still waiting to see what’s going to happen. Right now, Sadly, there’s so many bad actors that there’s so much low hanging fruit and that every now and then there’s a high profile thing like what you watch with Ripple, with XRP, and then it turns into, are we going to comply? Are we going to settle, are we going to fight? A lot of that noise isn’t helpful to any of us. You want innovation. You know, I think, you know, what a lot of people are doing is it’s great as a concept and then you got to get really, really granular and very, very detailed as to what’s happening and why and as it relates to our ecosystem. Our ecosystem is very centered on mobile and very centered on the brands that we work with, that license software from us. It doesn’t mean, you know what Brave does couldn’t be competitive in some way or there could be some intersection. Our bias towards mobile and the concept behind what we were doing, a bit different, a little bit different focus. It’s a big market. So I, I think what Brave’s doing to go after Safari in Chrome and other browsers is a bit different from us trying to control a lot more of the mobile software. When I started the company, I had a vision to have a Phunware ID for every human being on earth with a device touching a network that hit their favorite brands application and then use that happened to run software. So I was kind of laughed at when I started that. After I’ve now hit over 17 billion Phunware IDs and you can reach up to a billion or more at scale every month and you have a petabyte of data growing at five terabytes every day through hundreds of apps and then thousands of apps touching the world’s biggest brands. So it isn’t so foolist anymore. So at the time when we said, I’m going to reach everyone on Earth, that’s the ha ha, Alan, that sounds really cool! And now it’s a matter of saying once you scale with that, how do you get people to download? In our case, a phone wallet. They get iOS and Android, we get them comfortable, they can opt in or not in whatever they want, whatever their own personal interests and biases are, and they are in charge of themselves. And then whatever they opt in gets into that customer data platform as part of segments. And once you add tons of users, tons of engagement, tons of opted in data, that’s known with KYC people, God forbid. On the other side, you have brands who then want to engage. And that’s a, you know, very healthy, you know, environment for people to interact through where everybody can win. And we just haven’t seen that before. So that’s what we think is going be unique. And if you value people for being people and you respect the money brands are going to spend and then you provide a healthy, safe environment that’s auditable and traceable, we think that’s what the future of this should look like.
MF: One more question before we start to wrap up. If I am a new investor who’s never heard of your company and then I look at Phunware after listening to this interview and I look at the chart and I go, five years on the chart, there is very obviously something that happened a couple of years ago. Can you explain what that was?
AK: Yeah, my private time, I write a series of books that would be like an encyclopedia on, you know, the way people think Wall Street works and then, like how it actually works. When we went public, as I said, through a special purpose acquisition company called Stellar Acquisition three, it traded under the ticker as STLR. It had about $72 million in a trust and SPACs were set up to be a non operating company in search of an operating company to merge the surviving entity becomes Phunware and then we trade as PHUN, which is what happened now when we went public. It was a very unique time at the tail end of 2018. We had, you know, Hanukkah was followed by Christmas Day on the 25th, on the 26th, with about 5 minutes before the proverbial pumpkin expired on the SPAC, we closed our deal in the state of Delaware, and the next day, the day after that, we opened for trading on Nasdaq between Christmas and New Year’s. While a lot of people were out, well, what happens? We had a lot of people that knew about us that wanted start buying our stock. So they go into the market on a worldwide basis and they start buying stock. Hundreds of shares, thousands of shares, tens of thousands of shares, you name it. So what happens? Market makers then take a legitimate buy order and they pair it with a short to provide liquidity and they do that. Market continues. We started at probably a little over $10 a share. We start trading up 15, 20, 30, 40. Well, what happens at T plus two? You have to settle those trades. Well, when they went to settle those trades, they hadn’t realized that there really wasn’t any free trading stock available in the float beyond about 144,000 shares, which was quite unusual because we had 45 million shares outstanding, but they were all locked up. But we really didn’t take any money from the SPAC. That 72 million and trust was basically a return was more like a direct listing. But because of Hanukkah and Christmas, there were a few hundred thousand dollars left in the SPAC, largely by accident. So by law at the time, the SEC mandated that that was the only free trading stock in the float. So we had a whopping 144,000 shares. So then that 20, 30, $40 share price went to 50 and 101 50, 200 to 50, 300 350, 400 for 50, 500, 550. So we peaked at about $17.5 billion in value. But two weeks earlier, from 300 million in value and a share price that went from $10.60 at open to $550. Two weeks later, while I was out at the Consumer Electric, the market cap kept surging….1 billion, 5 billion and it was insane. So we went literally straight up and then we started getting flooded with investor relation complaints. Take a guess what the biggest complaint was worldwide during that three week window. What would you think?
MF: Oh my, share availability? I don’t know.
AK: Well, it turned out that the biggest complaint worldwide is we are not allowed to buy your stock. Why? When I go in to buy PHUN, why won’t it go through? And we’re like, Wait a minute. What? And so we had to call Nasdaq, and I literally had to get on with the executives of Nasdaq. And I said, Hey, I know it’s the United States and everything, but we still have two sided markets here. Right? And as it turned out, the market makers were so terrified and losing so much money from the T+2 settlement. And because they couldn’t find shares, they had to bid up at any cost to get out of those shorts. And because there was only 144,000 shares and most people buying had some familiarity with hodling, they weren’t selling. So where do you get the shares? And people just kept bidding them out. And as it turned out, those market makers for all of Nasdaq, all of the New York Stock Exchange, all of Wall Street, if they didn’t settle, they didn’t just lose their market making license for Phunware they lost it for all of Wall Street. And so they settled at any cost. And then they just simply said, you can hold it, you can sell it and Phunware was the original meme stock before there were meme stocks. Same thing happened with GameStop and AMC, but years later we were the initial poster child. Within about a year of us going public, the SEC changed the rules. They didn’t call them the Phunware rules, but I do. And now you have to. No matter how you go public, there has to be at least more than a million shares in the free trading float. And that was addressed because, you know, it didn’t help us, but it got us in that bad situation because then that which goes all the way up.
Yes. What it has to go down. And we had all these Phunware warrants with a strike price of $11.50. That became the arbitrage by the warrant at $11.50 short the common stock, arbitrage the gap. And then we had five, six, 7 million shares trading hands, which is pretty hard, right when you have 144,000. What was happening is it was Reg. SHO, naked shorting and we were triggering the short circuit breaker on the on the threshold securities list because people were selling millions and millions of shares that just didn’t exist. And guess what? To get liquidity in the markets, we had to get ahold of the SEC, but of course we could not get through to them because of the holidays….we would call and get “Hi this is the SEC the government shutdown right now we can’t help you but if you’ll call back when we reopen…. and so January of 2019 was us calling, getting a voice message from the SEC for 35 straight days, trying to get our resale S-1 through so that we could provide liquidity in the market, which was impossible and it was crazy. So I could literally go on for hours about all the unique things I’ve seen in the trading markets. Ultimately, it took the first year of trading to get settled in, and our reward for that was welcome to Covid for two years. So really it’s only kind of now that we’re actually doing financial conferences, introducing Phunware but the good news is we do have a worldwide brand recognition because when you’re the top performing stock every day like a month straight and then you’re the top losing stock every day for a month straight and you have all that activity and everyone’s on their radar screen, everyone around knew us.
I went to a conference in Dubai. I was walking with a friend where a teacher with our brand had someone literally walk up and grab me. I need to buy you a drink. And I’m like, Oh, okay. You were you on the managing director for $1,000,000,000 family office, husband and wife out of New York, London? I’ve been trading your stock and I got in it $15 and I sold it for $90. And I guess you owe me a dinner and cigaret and literally, you know, that was kind of what would happen to us. And then on the reverse it was you ass, you son of a bitch, you cost me money. And I’m like, So you were YOLO trading on Twitter without understanding what you were doing and in reality we were good or bad. We were just dealing with a structural problem inherited and it traded like insanity and it shouldn’t have traded that way, but it did. And we also saw a few blips in the chart, as you saw, because we had licensed software to the Trump-Pence campaign for the 2020 presidential election. And whenever you had people with Trump derangement syndrome and Orange Man bad, that meant you had Phunware derangement syndrome and Alan Man bad and because we had the nerve to license to them, you know, we had association with Dewak and TMTG and Rumble and a lot of the activities, you know, we’re a software down the street here in Austin is Michael Dell. You know, I don’t think anyone was calling screaming at Michael Dell for selling hardware to the wrong group. We’re a tech company. You know, I feel like Microsoft getting yelled at for licensing Windows to Republicans or licensing Office 365 to orange man bad it’s it’s kind of pathetic actually.
MF: We live in an interesting times. Alan, with the last couple of minutes that we have did you want to add anything else about Phunware, specifically that you think investors should know?
AK: Well, I think all investors should know that our goal is to continue growing while we’ve been public for three years. It’s been a unique three year period. So we’re really a small cap company masquerading as a micro-cap company. When you look at our market value, when we went public at 300 million, we’re three years later trading at a little less than half of that. So we look at a great entry point. We look at a great future ahead of ourselves. We have 14 years of building a platform which is unique. We have probably 25 or 30 patents underlying everything that now seems obvious, and we’ve got a lot of growth. You know, we had the biggest performance of revenue we’ve ever had as a public company. We followed that in Q2 with another record we announced set for second half of this year, we would have another record. And so we know that even if you’re growing 30% year over year or more, that’s the top 8% of companies, you know, in all of Wall Street. So we’re blessed right now with some good growth. We believe that that’s going to continue. We believe it’s a great time to be able to get involved while the markets are being punished. We have lots of liquidity. We have lots of excitement on the horizon with big brands that are using us a lot, new customers that we’re adding. And you know, other than that, I think it’s really a matter of like looking at people who’ve won eras of computing. You know, when you look back in history, you know, who won the PC era. It was a lot of the Microsoft and Dell who won the Internet era. Well, that was Google who won the social era of computing. Well, that’s Facebook, Meta, Right. And you say, okay, way back in the day. And who won the client server era?
Well, that was probably Oracle. You know, right now we think there’s this mobile computing era and this new era of blockchain that’s going on. And we think that we’re positioned to try to win that when we want people to think of technology, we want you to think of hardware, software, firmware and of course, Phunware, which means applications that exhibit game like mechanics of behavior.
And we believe that we have the world’s only platform uniquely dedicated to making you an expert in digital transformation. And the great irony of COVID is that it really slammed like a wrecking ball into the side of companies to realize you get mobile right or your business is dead, you need to engage before you’re at our site, while you’re on site, after you leave.
And if you won’t do it, someone else will. And we’ve seen this in hospitality. We’ve seen it in health care. We’ve seen it all over the world at this point. And even though the markets are a bit challenged and inflation is rampant and interest rates are spiking and we have all these liquidity issues and macro issues and geopolitical issues, at the end of the day, people are going to execute and they’re going to want to execute on this device wherever you’re at, whatever you can.
Because if you don’t give me what I want, 24 by seven by three, five, screw you. I’ll find someone who will. That’s how kids think. It’s how adults think. And that’s okay. Know, be in charge of yourself, have the mobile experiences you want. And what we think is we’re going to provide a platform in the same way that AWS and Google Cloud has provided one except, we’re going to win that mobile era of computing.
MF: There it is. He’s Alan S Knitowski from Phunware, CEO and co-founder. Thank you so much for the conversation today. I really enjoyed it. And I’m Mike Fay from blockchain reaction contributor to Seeking Alpha. This has been CEO interviews. Speaking of I hope you enjoyed it and until next time.
AK: Thank you.
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