Every retail investor’s dream is to have institutional-level access to alternative investments, including venture capital, private equity, hedge funds, and commercial debt products.
Which is precisely what DarcMatter’s platform provides. DarcMatter is bridging the gap between retail investors and private investment opportunities, while making the entire process frictionless and transparent for both investors and private issuers while remaining fully compliant of all current financial regulations.
Which is always what every one wants.
Cofounder and CEO Sang Lee, a former investment professional who has accrued a wealth of expertise in financial regulation, business, and financial structuring, explains how it all works – to everyone’s advantage.
Tell us about the product or service.
DarcMatter is an online investment platform that provides retail investors with transparent access to private investment opportunities such as venture capital, private equity, hedge funds, and commercial debt products. By utilizing proprietary structuring and technology, DarcMatter is able to provide a frictionless process for both investors and private issuers while remaining fully compliant of all current financial regulations.
How is it different?
There are several firms competing to digitally provide alternative investments to qualified investors. iCapital provides investors with access to private equity funds only. TrustedInsights is competing for the same customers as DarcMatter, but is more heavily focused on increasing informational efficiency between issuers and institutional investors. By aggregating individual investments and administering them as a single LP, the DarcMatter model considerably streamlines capital raising logistics and post-closing investor management for issuers while providing investors with institutional-level access to alternative investments.
What market are you attacking and how big is it?
There are $33.5 trillion investable assets in the United States, with an estimated $1.67 trillion allocated to alternative investments. It is estimated that allocations to alternative investments will increase proportionally as the public markets display increasing volatility. DarcMatter provides direct and unfettered access to alternative investments normally unavailable to the retail market. We target financial advisors and family offices as conduits to affluent investors on the investment side. On the issuer side, we target placement agents, private companies, venture capital funds, hedge funds, private equity funds, and commercial debt issuers.
What is the business model?
DarcMatter provides issuers the ability to access qualified purchasers. These fund managers are charged a monthly subscription fee for the duration that their deal profiles are live on the platform. The platform also features opportunities through feeder fund structures, allowing accredited investors to invest in diversified portfolios of opportunities sourced and packaged by DarcMatter. Investors who invest through a feeder fund are charged a small administrative fee (per annum) and a processing fee (for capital transfers). Our fees are significantly lower than other products currently featured in the market.
Why did you embark upon this venture?
DarcMatter is an expansion of an already existing platform, Return on Change. Return on Change offers investors access to startup companies within critical sectors. We learned that startup investments only comprise a minor portion of the private capital marketplace. As our experience and ideas evolved, we discovered that the entire private placement industry’s eventual adoption of product distribution technology presents a massive opportunity. Online investing will naturally adapt to meet the needs of investors plugged into this market, and DarcMatter would have an opportunity to be the industry platform of choice.
From your data, what are retail investors most interested in investing in?
The market is showing signs of increased volatility in 2015. Many of the investments offered on DarcMatter are illiquid compared to those found in the public markets, and as a result, uncorrelated to the broader macroeconomic environment. Considering these attributes, alternative investments serve as an important diversification tool for a well-balanced portfolio. Additionally, with the potential for outsized returns, alternatives become more attractive as retail investors become aware of them and these products become more transparent. According to a KPMG study, institutional investors intend to increase their allocations to alternatives in the next three years to as much as 10% of total holdings, mimicking the trend set by Yale’s endowment model with its extensive use and success with alternatives. The global AUM of alternative investments has risen by 119% over the eight years from 2005-2013. This trend will continue and spill over to the retail market as more and more digital platforms and money managers begin to offer alternatives as a way to diversify through risk while also increasing potential returns.
What are the milestones that you plan to achieve within six months?
The DarcMatter platform is fully functional and operating. DarcMatter will continue to enhance the product in order to provide value added analytics and tools to improve the decision making processes behind alternative asset allocation into portfolios.
In the next six months we plan on adding key financial and business development hires to expand the offering base and investor universe. Focus will be set on increased development of internal product offerings based on data collected from market users over the next few months.
If you could be put in touch with one investor in the New York community who would it be and why?
John Mack – Former CEO & Chairman of Morgan Stanley.
John is a formidable part of the NYC financial services scene with significant experience in recognizing critical changes within the market. Additionally, he has a perspective and appreciation for the new paradigm driven by technology., He has also weathered some of the worst of times in the industry, which would provide invaluable expertise and perspective to build a resilient foundation for a scaling FinTech company.
Why did you launch in New York?
The DarcMatter leadership team is in New York through and through, born and raised. New York is also the center of the financial industry. Additionally, Silicon Valley is seeing strong competition from Silicon Alley in Manhattan, where some of the best and brightest entrepreneurs are seizing the opportunity to develop leading businesses. NYC has unparalleled networks of businesses leaders, technology infrastructure, and diversity, making for a perfect hub.
What’s your favorite NYC happy hour spot in NYC?
Our office is right by the Hudson River, so during the summer, it’s usually the Frying Pan. The Half King is also pretty good.