Vessti Blog

A New View on Alternative Investments

WANT TO INVEST IN VENTURE CAPITAL? LISTEN TO WHAT AN EARLY INVESTOR IN UBER HAS TO SAY

01/18/2019 02:25 pm

 

Every new investor dreams about getting in on the ground floor of the next Uber. Bill Malloy turned those dreams into reality.

As founding general partner at Sway Ventures, a U.S.-based venture capital firm, Malloy has made lucrative, early-stage investments in Uber, RelateIQ (acquired by Salesforce), Simply Measured (acquired by Sprout Social) and Real Networks, among others. His success at identifying, investing and growing a wide variety of companies in both new and existing marketplaces gives him a unique vantage point into the competitive world of venture capital.  

Malloy recently shared how he found success and what it takes to navigate today’s ever-changing VC landscape.

Q: How did you find these opportunities? How can investors (new and experienced) learn about VC investment opportunities?

A: I recommend picking a specialization. If you grew up around transportation and logistics, and your family has been in it for two generations and you understand trucking better than anyone, your first investment should be in that space. Stick to what you know more so than what you’re excited about.

Aside from that, my advice would be to find a vehicle where you can invest in a number of funds. Try to identify small, early-stage funds and fund managers who are deploying capital across a number of companies. That way you’re getting the diversification without having everything concentrated in a single early-stage company. There are a lot of early-stage funds that have smaller fund sizes. Similar to investing in stocks, try to find a fund that acts like an index.

We can afford to have failures but not everyone can. You have to understand the risk/reward profile.

Q: What qualities do you look for when evaluating a potential VC investment?

A: There are essentially three qualities we look for. First, we’ve got to have a high-impact return. Secondly, we’re looking for a technical moat. What I mean by that is we can’t just give a couple of million to some engineers to go build this. What is the real moat that’s defensible? Finally, we’re looking for some inside knowledge. Is the founder a student who dropped out of a degree program at MIT or someone who worked inside of a business unit at Google? We’re looking for that unique insight and inside knowledge.

Q: What were the challenges you faced as a young investor?

A: For us, the challenge is about personal bias. It’s easy to get really excited about a specific company or founder. But you can’t let emotions get in the way. That’s why everyone should take a team approach to evaluating deals—whether it’s your partners at the venture firm or your advisors. You have to constantly learn. You want to have conviction, but keep an open mind by surrounding yourself with bright people.

Q: Has anything changed over the years? What’s different? What’s the same?

A: Companies are staying private for a lot longer, and corporate and venture firms are writing massive checks. If you rewind the tape 10 years ago, that was not the case at all. At the same time, funds are also becoming more specialized—cyber focused or stage focused—which is harder for founders.

What hasn’t changed is that building a business is extremely hard. Successful founders and investors understand that it takes time. You have to be willing to be in it for eight to 15 years. Uber has grown rapidly but they’ve been around for a long time. The launch of the application goes back nine years—and there were other ride-sharing firms that were there before Uber that have gone out of business.

Q: What advice would you offer to investors looking for future unicorns?

A: Don’t go out hunting for unicorns. Try to find a company that is solving problems. Investing takes time. It takes luck. It takes the market being on your side. Focus on the fundamentals.  Does the company fit with our themes? Can we get in early? Is there a team in place? Can we get the right ownership amount? Is the technology there?

If you absolutely have to invest in unicorns—at the early stage—take an index approach like Y Combinator. At the later stage, you’ve got capital and you can cherry pick.

Q: Is there anything about VC that is particularly attractive to millennials?

A: Part of the interesting thing about venture is the mental capacity. You have to be willing to jump in and out of four areas: making deals, adding value, working with investors and running the business. With most venture, you have to have a specialization like healthcare investing, but the rest of the time you have to work across these four pillars every single day.

If you’re doing your job right, you’re working with some of the greatest technical minds on the planet. The conversations and ideas are truly game changing. Your societal impact can be astronomical. That’s a big part of why I’m in venture capital.


5 REASONS WHY MILLENNIALS SHOULD INVEST IN ALTERNATIVES

01/04/2019 12:25 pm

Millennials are less likely to invest in stocks than previous generations. Unlike Gen Xers and Baby Boomers, who prefer to invest their long-term savings in the stock market, young people favor keeping their savings in cash, according to a recent survey by Bankrate. 

Is it any wonder? This is the generation that came of age during the Great Recession. They’ve seen what can happen when the bubble bursts. 

But the answer isn’t to stick your head in the sand and avoid investing altogether. Investing is still the best way to build long-term wealth, but stocks are no longer the only game in town. And despite the collapse of the housing market a decade ago, real estate—and private equity—is still the greatest driver of wealth. As Andrew Carnegie said: “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined.”

For many millennials, strategies that include alternative investments may produce better results over the long term. Here’s why: 

  1. Lower Volatility: For investment-wary millennials, alternatives like private equity, venture capital and real estate are a great way to build wealth without the ups and downs of the stock market. “By incorporating [alternative investments] alongside, equity, fixed income and real assets, alternative assets act as a fourth asset group and can help to smooth the volatility of a portfolio and unlock return streams different and distinct from other asset groups,” said Adam Taback, head of global alternative investments at the Wells Fargo Investment Institute. Over the past 20 years, portfolios that include a 20% alternative investment allocation have performed better than ones with a standard 60/40 stock/bond ratio. 

 

  1. Steady Returns: Unlike the stock market, which favors quick returns along with outsize risk, alternative investments are ideal for building wealth over the long term. Since millennials have many years of working before retirement, they can feel confident investing in opportunities like real estate that can help them build equity over decades while also providing passive cash flow. 

 

  1. Catch a Unicorn: Millennials want to do more than turn a profit. They want to be part of something bigger. By putting their money into venture capital, young people have the opportunity to invest in the next Amazon or Uber before they become behemoths. Once these companies go public, their valuations skyrocket and they do not offer the same amount of growth as during the early-investor phase.  

 

  1. Tangible and Transparent: In a poll by Harris Interactive, millennials said they prefer to invest in a “tangible asset” like real estate. Non-traded REITs and private real estate funds provide an opportunity to invest in something real that will appreciate in value over time and also generate steady, sustainable rental income. 

 

  1. Technology Enabled: As digital natives, millennials turn to apps to help them make important decisions. That includes financial investments. But until recently, individual investors had much more access to stocks than alternative investments. That’s changing. With apps like Vessti, millennials and other investors can access information that was once largely out of reach to all but a select few.

 

If you’re interested in learning more about alternative investments, sign up here and be among the first to join this innovative marketplace. 


NOW IS THE TIME FOR ALTERNATIVE INVESTMENTS

12/21/2018 11:25 am

The longest Bull Market since World War II may soon be coming to an end. But instead of pulling out of the market altogether, investors need a game plan to protect their investments and weather any kind of market.

Diversifying can help bolster long-term performance. Over the past 20 years, portfolios that include a 20% alternative investment allocation have performed better than ones with a standard 60/40 stock/bond ratio. 

The key is to diversify. According to The Cerulli Report, Alternative Products and Strategies 2014, many investors turned to alternatives in the five years following the global financial crisis of 2008 in an effort to generate returns and reduce risk. But those benefits would have been far greater if investors held alternatives prior to the 56% decline in the S&P 500 Index in 2008. 

Used correctly, alternative investments can help improve or protect overall portfolio performance. The Cambridge Associates U.S. Private Equity Index, a benchmark measuring U.S. private equity performance, outperformed the S&P 500 Index and the Bloomberg Barclays Government / Credit Bond Index with three-times higher net returns over the trailing 10-year and 20-year periods from the first quarter of this year.

If alternatives are so beneficial, why are they still underrepresented in the individual market? Mostly because there’s a lack of transparency, with no central way to find all the options available to investors and advisors. 

But times are changing. Today, investors have access to more strategies than ever before, thanks to improvements in technology and changes in regulation that give sponsors the ability to market their products to a wider audience. 

If you’re new to alternatives, here are just a few to consider: 

Private Equity

With private equity, individuals and funds invest directly in private companies not listed on a public exchange. Individuals and institutions provide capital that can be used to fund new technology, make acquisitions, expand working capital, and bolster and solidify a balance sheet—building equity that investors can keep and let grow or cash out following a liquidity event like an IPO.  

Venture Capital

Venture capital is a type of private equity deal geared to technology startups—potentially lucrative opportunities that individuals can’t access through online trading platforms. Depending on the stage of the company, venture capital can include seed financing (provided at the earliest stage), or a Series A, which helps an entrepreneur grow and compete in the market. 

Hedge Funds

Hedge funds are alternative investments that use pooled funds based on specific investment strategies, giving fund managers great leeway in how they invest, with the goal of achieving active returns or alpha. 

Since hedge funds are designed around specific investment outcomes, there are several types of hedge fund strategies. They include long/short funds, designed to allow a manager to express either a bullish or bearish view of the market; event-driven funds that focus on company-specific events like mergers, acquisitions, bankruptcies and reorganizations; and fund of funds, which are a collection of a range of hedge fund strategies put together in a single fund option.  

Non-Traded REITs

Unlike REITS, which are traded on a securities exchange, non-traded REITs—or real estate investment trusts—are real estate-based alternative investments. By investing in an income-producing properties like apartments or hotels, investors gain steady returns from rental fees while also enjoying significant, long-term tax advantages. 

Business Development Companies (BDCs)

A business development company (BDC) invests in and helps small- and medium-sized businesses grow. Unlike private equity, BDCs permit investors with smaller investments—and more of them—to take advantage of one of these opportunities. The typically make investments in a number of companies, and pay dividends to their investors.     

You can learn about these opportunities and more on the Vessti app. Sign up now and we’ll let you know as soon as the app launches. 


GOT ALTERNATIVES? TOM INTRATOR IS MAKING IT SIMPLER TO FIND AND INVEST IN ALTERNATIVES

12/07/2018 03:40 pm

The Vessti founder is leading a revolution in investing, providing individuals with information and access once reserved for institutions and high-net-worth investors.

 

Q: How did you come up with the idea for Vessti?

Earlier this year, I was sitting with two friends, one of whom is a commercial real estate broker. While he was telling me about how his firm sources and closes new deals, my other friend, a doctor, was casually swiping through a dating app. It just hit me. If we can put these two concepts together, we can easily deliver a full view of the alternative investment landscape. Like a dating app, we can link the investor with the right offering—a drastic departure from the status quo, where only clients with advisors can view alternative opportunities, and then, only the options on their financial advisor’s platform.

But more broadly, Vessti is the culmination of an even longer journey. Four years ago, I began entering the broker-dealer space because I saw benefits, both in being able to use it as a tool to raise capital for real estate and because I believed in the industry and wanted to be a part of it. While I initially explored the non-traded REIT space, I went on to raise money in a Reg-D fund, where I got an up-close look at inherent gaps in the system: the need for greater transparency and direct distribution. Today, I am dedicated to making a shift within the industry, providing investors with tangible added value, and the ability to make raising capital more efficient, modern and streamlined.

 

Q: I know that you raised a Reg. D fund, what was your experience and what did you learn?

When we were in the process of raising capital for the Reg-D fund, we had so many issues to contend with primarily due to great inefficiencies in how capital is currently raised in such funds. We got to the point where we were only a few weeks away from the fundraising deadline and needed to quickly raise almost all the capital. To top it off, our wholesaler wasn’t performing. I knew I could go out and look for a new team, but the likelihood that it would be ready to raise capital in time was still slim to none. More importantly, if we took the risk and failed, we would not be able to try again.

So…I locked myself in my office for days at a time, called every advisor within our distribution platform, got on a plane to have coffee with anyone willing to take the time and, ultimately, ended up raising all the money just days before the deadline. Sure, there were lots of other things going on. This was not my expertise nor was it what I envisioned when we went out to raise the fund. However, if a similar situation came up tomorrow, I would do the same at the drop of a hat.

 

Q: Why is it so important to provide people with this kind of information?

If you have a full-time job and a decent income, you’re probably invested in the market through retirement accounts, annuities, college funds for your children, or just savings. Even if you are happy with your financial portfolio, most investors want to know that they have access and exposure to everything out there—that they have all the resources and opportunities to invest like an institution.

In the past five years or so, alternative investments have become far more accessible, not simply reserved for institutions and high-net-worth investors. However, for the general public, there still isn’t as much transparency as with stocks and other traditional investments. All individuals should have access to the full array of investment options, including alternatives.

The reason is simple: alternatives are generally less volatile and serve as an integral part of any investment portfolio. The Yale Endowment Model as well as many of the largest investors in the world all emphasize the importance of allocating a significant percentage of their portfolios to alternatives. We want to bridge the gap to make investing in alternatives simple and accessible to all.

 

Q: How do you see the role of individual investors in the future?

First, let’s consider any institutional investor although it may be a few layers removed is really just a collection of individual investors.

Historically, institutions have always been the whales of any financial market. They could sway and influence public companies both by investment as well as divestment, and hedge funds and private equity firms have molded their funds to meet the institution’s needs.

With the general public being far more educated today than ever before about investing and the financial markets, they are actively seeking direct access to manage, or at minimum, be involved in the management of their assets.

I’ve seen it quite clearly since being exposed to the broker-dealer landscape that individuals are constantly growing stronger. I predict this trend will drastically continue in the years to come. We are already at the point that very respectable institutional investment firms are raising retail (individual) funds, an idea which many of them wouldn’t have considered 20 years ago.

With Vessti, we are really just providing a platform for individuals to easily view alternatives available to them, and alternative sponsors to engage directly with individual investors through their offerings.

Individuals should continue to be empowered, and to facilitate this communication is a crucial next step in empowering them within a non-traded investment landscape considered more sophisticated and historically reserved for institutional investors.


EMPOWERING INDIVIDUALS TO TAKE CONTROL OF THEIR FINANCIAL FUTURES

11/23/2018 01:20 pm

Technology makes our lives easier. From shopping and personal finance to how we meet that special someone—smartphones give us access to vast troves of information, making mundane, complex or otherwise unpleasant tasks simple and straightforward.

But despite advances in banking and the rise of stock picking, technology hasn’t done a whole lot to make alternative investing transparent or accessible to the wider public. For the most part, investors still rely on their advisors to provide the best options. Even more importantly—if you aren’t working with an advisor at all—you have zero access or ability to invest in alternatives. None at all. And that’s a problem.

Alternative investments are a key part of a well-diversified portfolio, helping to balance risk and protect against volatility.

According to an alternative investment study by Strategy&, a division of PwC, by 2020, global assets in alternative investments will grow to $18.1 trillion, from $10 trillion in 2015, driven in large part by the rise of retail (individual investment). In particular, liquid alternatives have far outperformed other types of investments, with returns as high as 15% per year. Not only that, the mass-affluent (with investable assets of $100,000 to $1 million) is reaping the rewards, with assets growing 50% faster than assets held by high-net-worth investors.

If a person can simply open a dating app and have the ability to see thousands of other singles, why can’t an investor also have easy access to all the opportunities in the alternative investment landscape?  

All investors—whether you’re new to the market or have been investing for decades—should have equal access to these potentially lucrative opportunities, from REITs and private equity, to venture capital, business development corporations and more. In today’s ever-connected world, there’s simply no good reason why people should be limited or cut out from opportunity altogether simply because of who they have a financial relationship with, if they have one at all.

Technology is the great connector. In the past 20 years, technological advances have created vast wealth and opened up untold opportunities for people around the globe. But there’s still more work to do. It’s time to bring alternatives out into the light of day, making them as accessible as trading stocks, bonds or ETFs. It’s time to bring everyone into the fold.