Investment Marketplaces

It’s no surprise that there are too many investment marketplaces to name.  After all, marketplaces tend to thrive in markets that are:

• Volatile
• Varied
• Fragmented on both sides

The world of investment management certainly meets these requirements.   In the US there are approximately:

• 6500 publicly-traded stocks (and given the SPAC phenomenon it will be 10,000 soon!)
• 8000 mutual funds
• 7600 ETFs
• 1000 Venture Capitalists
• 3500 active PE funds
• Thousands of start-ups seeking funding in any given year. (Andreessen Horowitz thinks 4000 per year qualify.)
• 10,000 family offices
• $42 Trillion in assets under management.

Multiply $42 trillion by any reasonable fee and you get a substantial revenue pool from which investment marketplaces can draw.

B2C Investment Marketplaces

B2C investment marketplaces target primarily accredited investors (depending on their jurisdiction).  They are especially prevalent in venture capital and/or crowdfunding.  In the US, the JOBS ACT of 2017 created this opportunity.  And boy did entrepreneurs respond:

• Angel MD:  Angel investing for doctors and dentists in healthcare start-ups.  I love the verticality of this one, but it seems like it could be fraught with insider information issues.  Perhaps that is its attraction!
• Consilience Ventures:  “Deep tech” venture investing via securitized CVDS tokens.  The website claims “tokenization means higher liquidity and lower risk for investors.”  Someone is going to need to explain that one to me!
• Fundable:  Crowdfunding for small businesses.
• Funderbeam:  A true marketplace trading shares in private companies out of Estonia.  What could go wrong?
• Funder’s Club:  Venture investing alongside institutions.
• Fundsup:  Venture investing with an emphasis on academic partnerships and accelerators.
• MicroVentures, Net Capital, and Our Crowd:  Venture crowdfunding for accredited investors.  (Our Crowd has an emphasis on Israeli start-ups.)
• Republic:  Venture crowdfunding in Canada.  Offers for accredited and non-accredited investors, with a minimum investment of $10.  (Would you like a venture investment with that latte?)
• Roofstock:  A marketplace for investing in single-family home rentals.  Whole, or fractional, ownership options.
• SeedInvest: Equity crowdfunding, venture capital, and angel investing.
• StartEngine:  Also equity crowdfunding, but this one is publicly traded.  It is also backed by Kevin O’Leary of Shark Tank fame.  If you want to invest in one of these marketplaces, here’s your chance.
• Yieldstreet:  Funds and opportunities for accredited investors to invest in alternatives such as art, marine, and private business credit.  Beware of disappearing ships if you do the marine investing.

The term “democratization of [fill in the blank]” is overused, but this really is the democratization of investing in various asset classes.  Caveat Emptor.

B2B Investment Marketplaces

These are marketplaces that  make matches between GPs and LPs or other asset managers and manager research teams.  As with the B2C examples, they exist in many asset classes:

• Aurigin: Deal origination platform for matching middle-market corporates with institutional capital providers in PE, real estate, and project finance.
• Door Funds:  A really interesting one.  It’s basically the “Common App” for due diligence of asset managers by manager research teams.
• Evestment: A database for institutional investors to search performance data on asset managers.  Bought for $700 million NASDAQ a few years ago.
• Gust:  Matching angel groups, venture funds, and start-up programs with start-ups.
• iCapital Network:  Marketplace for connecting Registered Investment Advisors (RIAs) with alternatives investment managers.
• InvestorScout:  A database of 37,000 VCs, angel investors, and PE funds.
• Novable:  AI scouting engine for corporate venturing.
• Palico:  Matches GPs and LPs in PE.  (I just wanted to write a whole sentence with two-letter acronyms.)
• Qodeo:  Matches VCs, PEs, family offices, and direct LP investors with businesses.
• Raized.ai:  Start-up scouting tool for angels, syndicates, VCs, etc.
• Sploda:  Creates due diligence summaries of companies for verified investors (not clear to me if it is institutional investors or not).
• Zephyr:  Seems to be a competitor to Evestment.

Summary

These marketplaces make search and discovery much more efficient.  They don’t solve two underlying problems:

1.  There is enormous dispersion of results within some of these asset classes.  It’s estimated, for instance, that 65% of venture funds fail to return their original capital.  While the top quartile performers are, in theory, easy to identify, it’s hard to get access to them.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.  PE (and perhaps VC) fund returns seem to be compressing as the industries grow. And passive public equity investments have been regularly beating active investments during this bull market.  In short, it’s very hard to keep an edge.  Though that does not keep us from trying, as the marketplaces will attest.