A fast-growing investment firm that calls itself “the world’s largest crypto IRA investment platform” has moved its headquarters from Long Beach to a prominent office site in Irvine, near John Wayne Airport.
Revenue at iTrust Capital Inc. has gone from $3 million in 2020 to $47 million in 2021, according to co-founder and Chief Executive Todd Southwick. It recently raised $125 million in a Series A round that valued the company at $1.3 billion.
“Our revenue blew everybody else off the chart,” Southwick told the Business Journal. “We didn’t know it was going to make as much money as it did and as fast as it did.”
The company is the latest among Orange County financial firms giving customers access to the relatively new and oftentimes risky world of cryptocurrencies.
Newport Beach-based Miramontes Capital has set up a new entity for bitcoin investments and Irvine-based Acorns Grow Inc. is permitting customers to invest 5% of their portfolio in a bitcoin exchange-traded fund (see story, this page).
Left Lane Capital, a Brooklyn-based private equity firm with investments in startups like Costa Mesa’s at-home training platform FightCamp, which raised $90 million last year, made its biggest investment to date by leading the Series A round for iTrust.
The company “serves clients that seek long-term, tax-advantaged exposure to cryptocurrency as an asset class—a formidable and fast-growing market opportunity that traditional financial institutions have not fully addressed,” Left Lane Principal Matthew Miller, who is joining iTrust’s board of directors, said in a statement.
“We were impressed by iTrustCapital’s lean, focused approach, world-class management team, significant revenue growth, and strong reputation in the crypto IRA ecosystem,” he said.
Southwick, a 2000 University of California, Los Angeles graduate with a degree in political science, says he has “a Mark Twain type of résumé.”
He has begun a variety of companies that have sold everything from coins to television products to marketing analytics.
Southwick said he even once reversed merged a television network into a publicly traded jewelry store.
“I’m an expert in startup companies,” he said. “My first startup was at age 19 and I’ve never had a real job, ever.”
His friend Blake Skadron followed the early days of cryptocurrency, which at first Southwick didn’t understand. The pair in 2018 decided to start their own firm because the cryptocurrency industry “was clearly a big broken mess” full of dishonesty.
“Our closest competitor was charging 15% for one transaction, and you had to talk to someone on the phone so you couldn’t do it 24 hours a day,” Southwick recalled. “When you went to sign up on their website, it would misrepresent the offer. Their goal was to get you to a commission sales rep.
“There was an opportunity—just be honest and straightforward with your clients,” he said. “The roadmap was right there.”
The pair passed the hat among relatives and friends to raise $1.3 million in initial capital.
Those original investors “did really well—they [made] 100 times their money,” Southwick said.
After the Series A funding, Southwick and Skadron own nearly 50% of the company, valuing their stake is worth north of $600 million.
The pair built the iTrust website so users could open an account in only three clicks. It provided a place where customers could safely store their cryptocurrencies.
“We’re trying to make it accessible to all people by not making it scary and intimidating and putting yourself at risk by not doing things right,” he said.
“My dad’s on the platform, and he was one of the first clients. He’s 85 years old.”
They emphasized the use of Roth IRA to legally avoid taxes.
“If you want to invest in cryptocurrency, why wouldn’t you do it in a Roth IRA, as opposed to 50% off anytime you make any money?” Southwick said.
In February 2020, the company had five employees and 185 clients. A year ago, it had 15 employees and 6,000 clients. Now it has 104 employees and 33,000 clients with a goal of 150 employees and 200,000 clients by the end of the year.
“It’s been crazy growth,” Southwick said.
Its competitors include websites like Kingdom Trust, Choice IRA and BitcoinIRA.
In 2018, the Securities and Exchange Commission issued an alert for investors to be aware that self-directed IRAs may be conducted without SEC registration and may involve fraudsters using digital assets to promise high returns.
Southwick, who said his company isn’t registered with the SEC because cryptocurrencies are considered a commodity rather than an asset, is aware of the industry’s reputation.
The company last year said it has increased its security by integrating with New York-based Coinbase Custody, which undergoes routine financial and security audits, and its assets are backed by a $255 million commercial crime insurance policy.
Company executives emphasize that they don’t advise clients nor make promises, and their goal is to achieve “high consumer trust levels.”
“We’re the onramp to the freeway” for cryptocurrency, said Kevin Maloney, senior vice president of corporate development. “We’re onboarding clients and once they’re on the freeway, they get to choose the car and the speed they’ll go. We don’t recommend; we’re not a broker-dealer. We are simply a service that allows you to self-direct, to self-trade your own assets.”
Maloney has a deep pedigree in Orange County’s financial world, including stints at First American Financial, Pacific Investment Trust and RevOz, the real estate investment arm of Newport Beach’s Bhathals’ family office (see story, page 50).
Maloney said iTrust took off during the pandemic as older adults had more time to research this new field.
“We thought it’d be all millennials with $5,000 to $10,000 accounts, but it ended up being working professionals that are 40 to 65 that sat home during COVID and said ‘what might this do for my future,’” he said.
Another prominent executive is Sara Priola, who manages legal and trust issues for iTrust. Priola co-founded Figure, a San Francisco-based fintech lender that has been valued at $1.2 billion, and Provenance, a blockchain technology designed for the financial services industry.
“She’s always taken seriously the idea of doing things the right way,” Southwick said.
The company originally charged $29 a month fee, which was dropped last year.
It now charges a 1% fee of the value of every trade. The company says it’s conducted $4.5 billion in transactions.
The value of its assets can swing as wildly as the cryptocurrency values; it was $1.5 billion on a recent visit by the Business Journal, down from $2 billion a few days earlier.
The iTrust website lists 28 different cryptocurrencies to choose from, such as Bitcoin, Cardano and Ether, along with gold and silver.
“It’s similar to small cap investing where the customer is picking the individual cryptocurrency itself,” Southwick said. “The only difference is we might be doing it on weekends. We don’t have a close. It’s 24/7.”
Adios Long Beach
Earlier this year, the company decided to leave Long Beach, whose leaders had “a failed opportunity,” company officials said.
“They did all of that redevelopment for downtown,” Southwick said. “Our building was beautiful, but it really wasn’t safe in downtown Long Beach.”
Many of the firm’s software engineers live in Irvine so they decided to move here as a midway point in Southern California. It’s leased a 25,000-square-foot fifth-floor spot at WeWork’s Lakeshore office location, on Von Karman Avenue next to the San Diego (405) Freeway.
“Here in Orange County, there are no safety issues,” Southwick said. “Also, where else are you going to find 25,000 square feet already built out, ready to go with a week’s notice?”
The Irvine spot’s three times the size of its Long Beach base, and gives the company the opportunity to expand significantly more in the future, officials said.
The 1997 Internet
Southwick expects the cryptocurrency industry to grow as awareness increases. Anybody who says they can predict its future in three to four years “is full of it.”
“Cryptocurrency now is like the internet was in 1997—it’s a completely unsettled space,” Southwick said. “We know there’s opportunity. We know it’s big. We don’t know what it will look like.”
“The only thing you can say with certainty is that it won’t look like it does today,” the CEO said.
“Our strategy reflects that feeling. We have all the pieces ready.”