OZ Pitch Day - March 7, 2024
Why are cryptocurrency investors turning to opportunity zones for tax relief and social and economic good? Opportunity zones offer investors unprecedented tax incentives; combined with Bitcoin, investors can expect significant returns with a positive social impact.
Tom Frazier is the CEO of Redivider Blockchain, an investment fund that brings together Opportunity Zones to create jobs and Bitcoin mining to help propel the future of humanity.
Click the play button above to listen to our conversation with Tom.
- How bitcoin mining works in both a regulatory and political framework.
- Job growth from opportunity zones, especially in the trade and service industries.
- Why crypto investors look to opportunity zones to defer their capital gains.
- OZ funds with a Bitcoin component and how to combine the two into profitable business opportunities
- Current trends in opportunity zone and bitcoin investments and how to take advantage of the growth to come.
- How OZ funds deploy long-term capital to low income communities to spur economic development.
- Bitcoin as an asset class and how to equip investors with the tools to find investment opportunities that will make a positive impact.
Featured On This Episode
Industry Spotlight: Redivider Blockchain
Redivider is investing exclusively into two portfolio companies. The first investment is a majority stake in a company building and deploying edge computing data centers throughout US Opportunity Zones. The second investment is a minority stake in a Bitcoin mining company leveraging those computing services.
Learn More About Redivider Blockchain
About The Opportunity Zones Podcast
Hosted by OpportunityDb.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.
Jimmy: Welcome to The Opportunity Zones podcast. I’m your host, Jimmy Atkinson. Joining me today from Seattle, Washington is Tom Frazier, CEO and fund manager at Redivider Blockchain Opportunity Zone Fund. Tom, welcome to the podcast. Good to have you on the show, Tom. You and I only talked on the phone for the first time a couple of days ago, and I was so intrigued by your fund and your concept for Opportunity Zones that I had to get you on the podcast right away. So I’m really excited to get going with today’s episode. So the Blockchain Opportunity Zone Fund, it’s very unique. And I wanna talk with you about Opportunity Zones in a minute, but first, how do you view Bitcoin, and what is the investment opportunity in your opinion there?
Tom: Yeah, sure. So Redivider Blockchain it’s an Opportunity Zone Fund, you know. At a high level, it’s a pretty simple way to look at it. Think of a Venn diagram, right? It’s got three circles. One is data centers, the second is Bitcoin mining, and the third is Opportunity Zones. And what we do is sit squarely in the middle of that. And we’ve specifically gone down this path because Bitcoin represents something I think, integral to humanity and kind of multiple generations. We’re in a very early moment of the idea of creating a digital platform or digital real estate, you know, with this blockchain that has a limited supply, you know, there’s only 21 million Bitcoin that will ever be created.
And we’re still very early in the adoption cycle of that and its ability to transform the world from my perspective, Bitcoin is gonna onboard a billion users in half the time it took the internet to do the same. So if you think of the impact of the internet and what it’s had on every single business, Bitcoin has the potential and trajectory to do significantly more than what the internet has done. And that’s exciting to be a part of, and we’re hopefully delivering innovation in the ecosystem both early now and into the future.
Jimmy: Oh, incredible. I’m looking forward to hearing more about that. So you basically are sitting in the middle of that Venn diagram as you described, data centers, Bitcoin mining, and Opportunity Zones. So let’s focus on Opportunity Zones for a second now. How do you view Opportunity Zones politically speaking? And maybe you can characterize the potential that you believe that Opportunity Zones have to create impact in this country.
Tom: Yeah. We didn’t come at the Opportunity Zone Fund approach specifically for the benefits of the investor return, you know, which we can talk about. You know, for us, it really came down to…we think the idea of Bitcoin is polarizing. You know, it’s a new technology. It’s very early. Politicians don’t necessarily have an agreed view on it universally state by state. And for us, we think Bitcoin, the crypto industry more broadly is something that is going to become more and more political as time goes on, both domestically and abroad. And so for us, we were looking at how can we do Bitcoin…how can we do Bitcoin mining in a way that works well in a regulatory framework, but also works well from a political lens? How can we get all the leaders of the country to hold hands despite differing opinions on a variety of topics? How can we get them to hold hands on what we’re doing?
And that’s really what drove us to the Opportunity Zone model. A lot of the Opportunity Zones throughout the country at a municipal level are Democratically controlled. A lot of them are in Republican states and at the end of the day, you know, for us to deploy large scale distributed data centers throughout the United States in multiple states, in dozens and dozens of cities around the country, the Opportunity Zone alignment on both sides of the aisle seem very compelling. And that’s going to give strength for, you know, our investors, but it’s also gonna give strength to our business. And ultimately, that’s gonna add a certain strength to Bitcoin.
Jimmy: That’s interesting. Yeah. Certainly, Opportunity Zones has pretty broad bipartisan support. There’s some detractors particularly on the Democratic side of the aisle, but overall, it’s got a lot of broad bipartisan support, whereas Bitcoin is a little bit more charged and politically fraught, I suppose. So I think your thinking is if you can somehow put OZs within… If you could somehow put Bitcoin or Bitcoin mining within the OZ wrapper, then it makes it a little bit more defensible. Is that essentially what your thought process is there or maybe you could clarify for me?
Tom: Yeah. Look, I think the Opportunity Zone incentive does have some detractors and a lot of that has to do with the fact that from my limited view of the property side, you know, a lot of the Opportunity Zone Funds that are out there are not focused on the qualified Opportunity Zone business, they’re focused on property and really the results of the may mean that they’re not creating jobs. They’re not doing things in the spirit of the program, which I can understand why there are some detractors. With us being an Opportunity Zone fund that is investing into a business, that is something that is going to help bridge the economic divide. You know, we are going to create jobs for Americans, and more importantly, we’re gonna create jobs where America needs them in these economic areas that probably have less than what other people might have.
And it’s not just about new job creation for us either. It’s also about helping preserve some of the jobs that are already there that may have industries with atrophy. So we can hire electricians, and welders, and plumbers, and carpenters, and trade labor that we’ve seen massive industry decline, and we can do them in each of the Opportunity Zones we go into. So from an OZ perspective, the job creation angle for a business is fundamentally different than that for buying property. We think that’s a big win. For us, you know, we think that’s a big win as, you know, time goes on for those detractors.
And in terms of Bitcoin, there is a pretty big divide between Bitcoin and other crypto projects. You know, I think the SEC is very much viewing a lot of crypto projects as potentially unregulated securities or at least things that need to be looked at, investigated, and understood more to figure out how they work. Bitcoin, because it’s what’s called proof of work mining, which means computers that are used to issue new Bitcoin since the beginning, Bitcoin is very much seen as an asset class. SEC, IRS, Treasury, etc., they view Bitcoin probably different than they view other crypto projects.
And the political side to Bitcoin, we’re seeing a lot of adoption around that specifically because there are more on-ramps for Bitcoin that are happening in the financial markets. You know, we’ve seen ETFs launch here, domestically, we’ve seen Bitcoin mining companies go public, they get access to the capital in those markets. We’re seeing that trend proliferate worldwide as well with more on-ramps for Bitcoin. And really that gives it an opportunity for politicians to create an adoption program. You know, I don’t think that people don’t like Bitcoin, I think like any technology, there’s an adoption curve that has to be managed. And I think we’re past the beginning on that and, you know, we’re now moving into a much bigger scale and so the political aspect is gonna become more and more important over the next decade.
Jimmy: Yeah, absolutely. Really, really interesting to see how that industry will continue to unfold over the next several years and decades as you say. One thing that you honed in on, in your last response Tom, was the lack of business investment so far within the Opportunity Zone program. Most of the capital that’s been raised to date through Opportunity Zones has been focused on real estate.
There really hasn’t been a lot of business investments so far, even though, you know, probably dating back to the inception of the legislation or the inception of the concept, it was really first imagined to drive capital toward business development in these typically undercapitalized areas of the country. Looking at the most recent Novagratic numbers, they’re tracking a subset of the qualified Opportunity Fund Universe by no means the entire universe, but at least it’s an optional survey that some of their clients and some other qualified opportunity funds respond to regularly, and they are tracking roughly $20 billion worth of capital that’s been raised by Opportunity Zones Funds today.
And so far less than 4% of the amount of capital that they’re tracking is going toward business investment. But at the same time, it seems like that could be the future of the program. And I know it’s a small number now, but it has grown. That portion of capital raising is growing faster than real estate at this point in time. And I don’t know if you have any additional thoughts on that, but it is interesting that your fund does have a pretty strong business component to it.
Tom: Yeah. I mean, those are staggering numbers. I mean, the idea that the majority has been in property when, you know, clearly the economic drivers to bridge the delta between the economic, the Opportunity Zones and non-Opportunity Zones clearly articulate the nature of this whole country, right? It’s driven by business and small business is such a big portion of, you know, literally the backbone of America. And I see that growing and, you know, that should continue to be a growing industry. And that’s what led us to the program. We found it and really thought that, “Hey, this is gonna be interesting. And it really has a good fit for what we’re doing.” Because when you think of a data center business, data centers are deployed and measured in decades, right? So this is a long… For us, this is a long-term business, and it’s one that’s very decentralized because we’re deploying…think of like edge data centers.
There’s smaller facility, like a 40-foot shipping container instead of a 200,000 square foot building. And, you know, so we’re deploying these in a very decentralized way throughout the country as a business. So we are acquiring property, but we’re operating a business, we’re paying taxes, we’re hiring people. And that seems like it should be the spirit of the program going forward. And a group who’s gonna be one of early adopters of that. I mean, if there’s only $680 million in capital, that’s gone to business and our fund alone is $250 million, that really shows the potential and opportunity for other people to start OZ businesses.
And what we’ve found in our experience so far, maybe kind of highlights some of the reasons why it hasn’t been, why the adopted yet is, there’s a lot of nuance about staying compliant for a business. And it’s actually proven so far to be significantly more difficult to understand the impact of that nuance compared to just launching a business. And, you know, I think that’s something where the federal government could definitely do a lot more in terms of helping people through the process to go and create a qualified Opportunity Zone business.
Jimmy: Yeah. Agreed. It is nuanced both from the angle of structuring the business and staying in compliance and also in terms of investor education too, I would say, so there’s a few hoops to jump through there. So you touched upon a little bit your business model, but I’m curious to hear more about your fund now, what is the investment thesis exactly? And maybe if you wouldn’t mind, could you go into greater detail on the business model where you’re building these data centers and how many you’re gonna build, and tell us everything you can essentially about your model? I’m very curious to learn more about it.
Tom: Yeah. So we are a data center company first. I think that’s a critical piece to understand compared to a lot of the Bitcoin mining companies that have really said, “Hey, we’re gonna be mining companies, and the data center is just the method to do it.” We’re very much coming at this as we’re a data center business first. So we’re manufacturing our own data centers. Again, we’re doing it in essentially a 40-foot shipping container. And the reasons for using that as a model are probably outside the scope of the conversation, but we have a factory that is gonna be producing these facilities. Everything is prefabricated, which gives us very high consistency in our data center. It gives us very high quality in our data center. And ultimately it gives us very great operating efficiency because we’re designing everything to specification. And that allows us to do a repeatable process that we can improve over time.
So those data centers are built and then they get deployed to Opportunity Zones throughout the United States. So, you know, we’re currently working with some of the largest data center experts in terms of location scouting. Not every location makes a good site for a data center. And ultimately, these data centers are designed for the Bitcoin mining industry. We’re using a technology called immersion cooling, which for the non-technical listeners think of a bathtub that you put a computer into that has special fluid. And what it does is it isolates that computer from the local environment. And strategically that’s important for us because if you deploy computing power into Florida with high humidity, let’s say, or you go into Texas with high heat, or you go into Alaska, that’s got very cold temperatures, the uniqueness per location is very high. And so for us doing immersion represents strategic difference because our data centers can be more universally produced and universally deployed.
And ultimately, you know, they’re focused primarily on Bitcoin mining, where we get special computers that do the job of mining Bitcoin. And as a fund, when we really got under the hood about the kind of OZ incentive and how things can be structured again, there’s a lot of nuance there. And so we’re taking 90% of our fund and deploying that into an Opportunity Zone business, and per the OZ program, we can take 10% and use it outside of an Opportunity Zone. So our model is to take that 10% and have a Bitcoin mining company that sits outside the OZ, and that mining company essentially outsources all of its function to our data center company inside the OZ.
And so the data center will offer lease, the mining company will pay cash for that lease. And all of the Bitcoin will sit on the balance sheet of the mining company outside of the Opportunity Zone, which fundamentally is the perfect alignment for what the OZ program is intended to do. Deploy long-term capital and infrastructure and job creation in economically imbalanced areas throughout the country, but at the same time, we can build an asymmetric return profile for our investors because not only are they participating in the security of the Bitcoin network, but they’re also participating in the ever-increasing price of Bitcoin.
Jimmy: A really fascinating concept. So you do have a Bitcoin component within the fund, but per the regs, you’re treating it as a “bad asset”. And bad assets within a fund can get all the way up to 10%. So you’re gonna hold that Bitcoin company a bad asset at the 10% level, and the rest, the 90% balance will go toward the data center business. That’s really interesting how you’re doing that. And you’re the first Opportunity Zone Funds that I’ve spoken with that has kind of come to terms with the fact that Bitcoin is a bad asset, but you’re still incorporating it into the fund. So talk to me about job creation, because you were speaking about that a few minutes ago. How is your fund specifically creating jobs? And do you have any numbers on amount of jobs that each data center creates and the types of jobs that you’re creating?
Tom: Well, let me go through the model of that. So we’re taking a hub and spoke approach. So what we mean by that is we’re dividing the country into five areas. In each of those five areas, we’re going to have a landmark location. And that landmark location might have in terms of power, you know, it might be a 100 megawatts of power that we would deploy multiple of our data centers, which, you know, are all roughly, just around the math. Let’s say there’s two megawatts, so we put 50 data centers in one location that’s the hub. And at that hub location, we would have a team of people that work there. And then supported by that hub are a bunch of spoke locations. You know, these might be more lights-out locations. And so on a message that we’re working with all the municipal and state leaders, which were measured in the dozens now around the country that we’re talking to, we’re creating jobs in the state primarily through the hub location.
And then those staff are actually operating on a break-fix basis for those spoke locations that are much smaller. So we’re kind of doing that model to divide the country in five. And then, in addition, we have two special locations. We have our manufacturing facility, which is probably coming online middle of next year, which is about a 70-plus thousand square foot building to manufacture our data centers. So that has its own job creation metric. And then we have our kind of head office. And the head office is where we have our centralized team. Think of it like a NOC or network operating center where there’s a team of people that are monitoring the whole nationwide infrastructure. So really we’re kind of doing project-based job creation when we set up a new site and all the work that goes in that we then have the dedicated teams in each of those five regions.
And then we have the head office team for our more technical support. And then we have the manufacturing facility. And I think another key portion of our job creation story is the fact that we wanna create jobs in these areas. And what we found is there’s probably a skills mismatch for the most part. We go into a town that might have, let’s say, 3,000 people. It’s unlikely that we’re gonna find highly-skilled data center folks or even Bitcoin folks. So to accomplish our goal, we’re also building an entire training program where we can help bring up the education in this industry for new types of employees and new types of partners. And even extending that into a second chances program where someone who may have come out of the prison system, we wanna be able to enable them to have a future and ultimately, help create some spotlight moments for these communities where people can feel like there is hope and, you know, there is an opportunity to do something greater.
Jimmy: That’s great. So pretty diverse range of asset classes that you’re holding. You’ve got the manufacturing centers, you’ve got data centers themselves, you’ve got the Bitcoin mining business, and the Bitcoin itself and all of the jobs that come with creating maintaining those facilities. It sounds like a lot of job creation in a lot of these communities all over the country. I wish you nothing but the best success with all of that. What about some challenges that you’ve faced so far, Tom, specifically with regards to Opportunity Zones? We were talking earlier about how it is a nuanced program. What are some of the biggest OZ challenges that you’ve faced?
Tom: Well, I think the biggest has been the fundraising process for an Opportunity Zone initiative is unlike anything I’ve ever participated in. On the surface it seems quite simple, you know, everyone has capital gains, the country is doing really well and we can just trip over money to put these capital gains into a fund. The reality is sophisticated investors have sophisticated platforms and infrastructure to manage money. So initially it was like, well, let’s find all these capital gains. Let’s talk to… where’s the avenue of capital gains? And part of that was going to 1031 exchanges and people who might understand how the Opportunity Zone part works, and that didn’t really yield a lot of results. And I think there’s still a huge opportunity around education transitioning some 1031 real estate projects into Opportunity Zones. I think the other part two it is, you know, when we set up the structure of the fund, it was very clear to us that a data center business is pretty capital intensive and not everyone that wants to invest with us has capital gains, but a lot of them have ordinary income.
So designing our fund in such a way that can facilitate capital introduction from both cap gains as well as ordinary income working through what that means for all the tax consequences for both of those groups, how the basis management occurs, how to do negative returns from the operating business to the fund and the LP in the right way. There’s a lot of nuance there specifically for Opportunity Zone Funds that we’ve run into that have been challenging.
I think some of the other challenges for us as an OZ project has been the idea of Bitcoin mining. What is Bitcoin? What’s this magic internet money that you’re talking about and how is that going to help my Opportunity Zone? So, I think part of that has been an education process from us to local leaders to understand that it’s not magic internet money. As far as the U.S. is concerned, it’s an asset class that’s investible just like anything else. And luckily, this year we’ve seen just a tremendous amount of news around what Bitcoin is and how it operates. And from an individual who just wants to stack sats as they say, and put some money into Bitcoin all the way up to institutions driving capital through sophisticated vehicles, like ETF futures, that education in the broader market has been a huge help for us. But we do still find that to be somewhat of a challenge in terms of universal education around Bitcoin and as discussed the fundraising side.
Jimmy: Yeah. That’s doubly tricky for you compared to most other OZ funds. Most other OZ funds don’t have a Bitcoin component and it’s difficult enough for them to educate the investors on the OZ program. But now you’re also having to educate investors, not only just on OZ, but also on Bitcoin.
Tom: And the biggest thing there about the investors, you said the detractors of the OZ program, I think a lot of people really see the OZ thing as impact investing. Like they have bad returns. And I think that is, again, going back to the OZ business versus real estate, I think that’s a real opportunity for us as a community of Opportunity Zone, fund managers, or participants to really showcase that doing good doesn’t mean you can’t do well, you know, and this do good, do well, do right sort of idea is very possible. And we’re proof of that. It is very possible to have a very successful business, deployed an Opportunity Zone that has incredibly attractive return for investors.
Jimmy: I completely agree. And frankly, if the returns aren’t there, the OZ wrapper doesn’t make sense because the OZ benefit only makes sense if there’s a profit at the end of the day, right? So, well, we got a couple more minutes here, Tom. I wanted you to tell us about the team behind your fund because you got a few all-stars on the team. I’d like to hear a little bit more about who’s helping you out with this endeavor.
Tom: Well, we’re pretty lucky and we’re lucky that we’ve come up with the core idea of our business that resonates with people that we can create our own gravity. And what I mean by that is we have a no A-hole policy. That’s the only rule we have in the business. And we go very forward with that. Every conversation, the very beginning, like this is how we operate. And the point of that is because there’s a lot of people that feel they have to be guarded and they have to be adversarial in business. And that’s just not how I look at it or my business partner at American Justin, we all have these great guys create karma vibe. And that has really allowed us to build this business and open doors with just amazing people all over the place. And we’ve been supported and have had help by just dozens and dozens of people.
We’ve formalized a lot of advisors with our fund that align with us and just to call out two in particular. When everyone talks about the Opportunity Zone incentive at the end of the day, one guy sat down at a computer and typed out a bunch of words that became law. And as far as the qualified opportunity fund is concerned under treasury, that guy was Dan Kowalski. and, you know, Dan, he is a true veteran of the U.S. Government and definitely, definitely a great American. And when we talked to Dan about what we were doing, you know, he was extremely impressed or I believe he was extremely impressed with the alignment that we have with the spirit of the program. We’re deploying in dozens of Opportunity Zones around the country. And to my knowledge, I think we’re the largest fund by deployment by orders of magnitude.
I mean, we’re literally talking about dozens and dozens of OZ’s here. So we’re having a broad impact across the country, not just in one location. We’re doing it for a business, which has a lot of job creation. We’re doing it in an industry that is, you know, going through massive positive transformation, which is Bitcoin. And, you know, ultimately Dan is like, “Yeah. I’d love to be an advisor to the fund and help you guys on your journey.” And it’s great to have someone who’s literally the wizard of OZ because he wrote the incentive. I mean, having him on our team is just a massive differentiator because he offers so much value and is just an amazing guy.
One of the other people that we brought onto the fund is far more strategic about the business as opposed to the opportunity zone. His name is Tad Hunt. He’s an advisor to us. He works for a subsidiary of Google and he’s been in cloud computing forever. He’s a thought leader, he’s a patent author in the space, and ultimately, our business is making data centers. And when you think about it outside of Bitcoin, you know, we have a factory that’s producing one, three, five data centers per day coming out of our facility. We can deploy these things beyond Bitcoin. You know, so if you think the 5G network, the ads you hear on the radio or TV about how the speeds are a lot faster, well, they need data centers close to those antennas. And when you think about the cloud, the cloud is this idea that’s out there, but the edge of the cloud needs to be improved as big applications, they have these massive bills to push data to the cloud, we need to push the cloud closer to the edge.
And so we have data centers that can do that. And so those are very attractive markets. And so, you know, we sought out Tad and brought him on as an advisor to really help us break into those other industries beyond Bitcoin. And just on, and on, and on. We’ve just got so many people in the Bitcoin space, in the crypto space, in the property space, in the immersion cooling, in geothermal cooling, in property development, on and, on and, on. We just have this incredible list of people around us. And, you know, I’m very proud to say that the reason we were able to do that is we’ve very much focused on being good human beings trying to make a difference, and at the same time make it very attractive for our investors.
Jimmy: Well, that’s incredible. Tom, and I’ll admit when I first got your call or started hearing about your fund, I was a little bit reluctant because I’ve seen a lot of different funds that have tried to become Bitcoin OZ funds. But I saw Dan Kawalski was one of your advisors, I’m like, “Oh, well that’s interesting because this guy wrote the reg. So if he is endorsing this fund, they must be doing something right.” So that’s a pretty amazing endorsement you have there. Well, we’ve run out of time for today’s episode, Tom, but I wanna thank you for the insights you’ve provided today. And thanks for bringing a really interesting and unique product offering to the podcast. This has been great chatting with you and learning a little bit more about how OZs and Bitcoin can intersect. Before we go though, can you tell our listeners where they can go to learn more about you and Redivider?
Tom: Yeah. I mean you can look me up on any social media platform. I’m Tom Frazier on basically everything. Our website is redivider.fund or redividerblockchain.com. We’re also on all the usual social media platforms. I’m @tomfrazier on everything. And feel free to reach out. We’d love to share more about what we’re doing, about our ESG narrative, and how important that is for the Opportunity Zone program. And ultimately, if we can assist any of the listeners out there in our model or help you on your journey, we’d love to do so.
Jimmy: Great. Thanks, Tom. And for our listeners out there today, I will as always have show notes on the Opportunity Zone’s database website. For this episode, you can find those show notes at opportunitydb.com/podcast. And there you’ll find links to all of the resources that Tom and I discussed on today’s show. And I’ll be sure to link to all of the different ways that you can reach Tom and his team at Redivider. Tom, it’s been a pleasure. Thanks for joining me today.
Tom: I’m grateful to be here. Thank you very much.
Jimmy: That’s it for our show today. A huge thank you to you, our listener. If you like this episode, please rate and review us on iTunes. The Opportunity Zones podcast is produced by the opportunity database, visit opportunitydb.com to learn more about Opportunity Zones and Opportunity Zone Fund investing. You can learn how to subscribe to this podcast and read more about today’s guest in the show notes by visiting opportunitydb.com/podcast. And we’ll be back soon with another episode.