Technology funds have had a problem – exciting global tech investment opportunities were only accessible by large institutional investors with the right contacts. Platform funds-of-funds are changing that.
It’s been a long time in coming.
Until crowdfunding came along, most equity investment remained the playground of the elite – investment opportunities were rarely available to the individual. For better or for worse, crowdfunding platforms opened that door. SyndicateRoom moved traditional angel investment online and gave sophisticated investors access to national, vetted dealflow; angel investing isn’t the local boys’ club anymore. Crowdcube and Seedrs opened up a range of opportunities to the wider investor public.
However, investing in funds remained a mostly closed door.
In the subsequent decade, asset managers snapped up the necessary fintech to allow for the best execution of individual managed accounts of funds on line. The likes of Aviva, Hargreaves Landsdown and The Share Centre offer their investors the chance to pick and choose their own portfolio of funds. However, the choice remains limited to the asset managers’ captive dealflow, making the offering likely to predominantly be the usual retail and hedge funds invested in listed shares—so it is no different to the asset manager’s previous offering, other than with the fintech benefits of efficiency and speed.
Now, in the latest instalment of the fintech saga, crowdfunding is advancing into the fund space.
Whereas before, crowdfunding only gave investors access to underlying portfolio companies, or perhaps the platform’s own fund investing in those portfolio companies, the next move has seen the debut of platform funds-of-funds. A platform fund-of-funds allows investors to invest in other funds where all of the investment activity takes place online and, crucially, the investor can pick and choose which underlying funds it wants to invest in. On a platform fund-of-funds, that dealflow is not a captive one. The investor will have a selection of any funds accepted onto the platform.
Although UK platforms took the lead on equity crowdfunding, the US has raced ahead with platform fund-of-funds. Artivest, a New York platform fund-of-funds (recently merged with the San Diego platform Altegris for a combined assets under management (AUM) of up to $3bn) has been around since 2011. London-based AtomInvest established its platform in 2017 and already has over 5,000 users. Luxembourg-based Moonfare (which is in fact German-founded) is a later entrant, having launched in 2018, nevertheless it already has over €100m AUM.
Critics of the platforms worry whether the funds will attract unsophisticated retail money where the investor simply doesn’t realise the assets are illiquid and are high-risk, high reward. However the minimum investment thresholds (typically £/€100k) should screen out the ordinary punter.
From a legal perspective, perhaps the bigger concern is whether the platform terms adequately protect investors. Although the platforms may appear identical to the non-expert, the underlying fund structures differ vastly from platform to platform. Counter-intuitively, an investor in riskier early-stage deeptech funds via one platform may be afforded greater individual investor rights and protections than an investor on another platform investing in in less risky private PE funds backing later stages.
Platform funds-of-funds are giving individual tech investors unprecedented access to invest in the earlier, high tech venture capital funds. Investors should be aware, however, that the risk profile does vary from platform to platform, and should take some advice when comparing options.
