John Marsala, a New York-based technology consultant, wanted to get in on the next Uber. But unless you’re on Sand Hill Road or happen to be friends with Marc Andreessen, accessing those sorts of deals is pretty tricky.
Marsala spent decades investing in large cap public stocks and placing small bets in private equity deals. He watched individual private companies grow, but stayed away for fear of getting burned on one deal.
Now he’s investing 5 to 10 percent of his personal wealth in the SharesPost 100 Fund, a basket of late-stage startups which aims to mitigate the inherent risk of picking winners.
“I think diversification, the ability to have someone else who’s knowledgeable pick your stocks and ones that you may not have access to — it’s a very good thing,” said Marsala.
SharesPost launched the fund in March 2014, and its holdings are up 25 percent since inception. It currently has $70 million in assets under management.
“If you’re a growth investor and need growth returns — really, it’s hard to find those in the public market and we wanted to make them available to the main street investor via the private market,” said SharesPost CEO Greg Brogger.
The SharesPost 100 is classified by the SEC as a closed-end interval fund, and therefore is required to provide more reporting and transparency than a typical venture firm.
As such, it’s open to retail investors, with a minimum $2,500 investment. It’s also a lot less expensive than many of the other options available, charging an annual management fee of 1.9 percent of total assets under management.
If an investor potentially is new to the asset class and is trying to understand which companies they should be paying attention to, it’s a great way to start to follow a number of companies with some level of insight and analysis more or less immediately,” said Brogger.
The fund is SharesPost’s attempt to identify the 100 most promising private companies that are likely to be acquired or file to go public within the next year and a half. Its current portfolio includes Spotify, DocuSign and SoFi.
Because of the fund structure, there’s no liquid market for the shares, and investors can only sell a portion back to the fund on a quarterly basis. Marsala sees this as an improvement on the alternatives.
“That makes it a little bit more attractive than other investments. I have an investment that was made in 2008 and was supposed to go public and hasn’t,” said Marsala.
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There are other options available to accredited investors looking to gain exposure to the private markets.
CircleUp launched the fund this month and hopes to open it up to retail investors in 2016, pending SEC approval. Its target client is early stage non-tech investors with a minimum $25,000 investment.
Sanket Parekh — whose family built a multinational consumer products business based in India — manages his family fund out of Miami. Parekh has moved 10 percent of his portfolio into CircleUp’s Marketplace Index Fund, increasing his overall exposure to private companies through the platform to 25 percent.
“Their process around doing due diligence around [companies] before they put them in the platform is quite robust,” said Parekh. “The fund provides significant access to a basket without having to do all the due diligence yourself.”
“We view what we’re doing at CircleUp as providing opportunities to investors which they haven’t been able to reach,” said COO Rory Eakin.
The MIX Fund invests in retail and consumer products startups that do not touch tech and charges a 0.5 percent management fee with no carried interest.
“Our fees will be 75 percent lower cost to most private equity investors,” said Eakin.
Parekh echoed that sentiment. “Compared to everything else, their fee structures were quite attractive.”
EquityZen’s 1-year-old Late-Stage Fund is another platform for accredited investors looking to diversity their exposure within the private markets. A $20,000 minimum investment is required.
CEO Atish Davda would not reveal their fee structure or which companies are part of the fund but said it includes late stage companies with tens of millions in revenue. EquityZen gets access to those companies because they use its software to process transactions.
The fund is aimed at investors who plan to buy and hold. “This is a Warren Buffett type of investment,” said Davda.
There are other ways for general investors can tap the venture market. One is GSV Capital, a publicly traded investment fund that buys shares of private tech companies. Another is Hercules Technology Growth Capital, which provides startups with venture debt. In both cases, stock investors are buying shares in the parent company, versus investing in a fund.
Image credit: CC by Chris Potter