A Mutual Fund For (Late-Stage) Start-Ups

By Matthew Milner, on Wednesday, April 9, 2014

A few years ago, a buddy of mine named Charlie invested in Uber.

People thought he was nuts:

Investing in a car service? Dealing with municipal and licensing regulations?

To most folks, it seemed like a high-risk dud.

Then – because, sometimes, it just happens – Uber became a “hot” private start-up worth billions.

Charlie isn’t looking so nutty anymore:

He just sold $10,000 worth of his shares in a private transaction…

For $4 million.

But that’s not the amazing part.

The amazing part is that the buyer of his shares is thrilled

The buyer thinks those shares will soon be worth a whole lot more than $4 million.

Today we’re going to show you why the buyer’s strategy might be smart…

And why you might be smart to follow the same strategy.

Pre-IPO Shares

Charlie is the textbook definition of an early-stage investor.

He takes chances on high-risk investments, knowing that, most of the time, his bets won’t pay off. But when they work, the returns can be staggering.

400x return on his Uber shares? Not too shabby.

The buyer who paid $4 million has a different investment approach…

He’s a later-stage investor.

He finds companies that have proven themselves – private companies that already have millions of paying customers and millions in revenue – and places big bets on them in anticipation of an IPO or major acquisition.

Maybe he’s shooting for a 3x or 5x or 10x return. Sure, he won’t get 400x – but who’s complaining about a 5x return?

Unfortunately, it’s no small feat getting access to these late-stage deals. Because these deals are in such high demand (and because the valuations are usually so high), only very large venture capital or private equity funds can access them.

Until now.

SharesPost100 Fund

SharesPost is an online platform for buying and selling shares of private companies. They’ve been around since 2009, and have a partnership with the Nasdaq. They’re legit.

Now they’re in the midst of launching something completely new: the SharesPost 100 Fund, a portfolio of later-stage private companies.

They’ll be investing in companies like Uber, Pinterest, Airbnb and Spotify. Many high-growth sectors will be represented – from software and healthcare to energy and consumer internet.

Six Reasons Why You Want to Look at This Fund

Access

Getting access to private shares like Uber and Spotify – fast-growth companies backed by top venture capitalists – is tough. SharesPost has access because they’ve been working with these companies for years.

Less Risk

Compared to early-stage start-ups, the companies in the SharesPost100 tend to be lower risk – they’ve already proven, for example, that their technology works, or that people are willing to pay for their product.

Diversification

One of the key rules of early-stage investing is diversification. SharesPost’s fund structure gives you access to many of the most promising pre-IPO companies.

Less Time To Exit 

An early-stage company generally takes 5 or 10 years to “exit” via IPO or M&A and return money to its investors – if it gets an exit at all. The companies that SharesPost will invest in are probably closer to 2 or 3 years from an exit – which might mean a quicker return on capital.

Liquidity

For the most part, shares of early-stage companies are highly illiquid: your money is tied up until the company exits. But SharesPost is set up as an “interval” fund – that means there are defined periods when investors can redeem a percentage of their shares for cash, and there's no waiting around for an exit in order to get your money back.

Solid Management

The manager of the fund has more than 15 years of private investing experience. He previously managed $1.5 billion of venture capital investments.

Risks

Despite the benefits, there are substantial risks, too.

A fast-growing start-up – even one that IPOs – doesn’t always turn out to be a good investment for its later-stage investors. Zynga and Groupon, for example, IPO’d, but the price of their stock tumbled before some investors could sell their shares.

Other potential risks include liquidity – yes, this is an “interval” fund, but there are no guarantees there will be ample liquidity for all.

The Fine Print

Intrigued? Here are a few details:

  • Minimum Investment: $2,500
  • Up to $500 million being offered
  • Repurchase offers for liquidity will take place quarterly
  • Fees include “Advisory fee” of 1.90%, and an upfront fee between 0% and 5.75% depending upon the amount invested

To learn more, dial into the webinar being held by SharePost next week.

It’s scheduled for Wednesday, April 16, 2014, 11:00 am PST / 2:00 pm EST.

Happy Investing!

Best Regards,
Matthew Milner

Founder
Crowdability.com

Comments

If you enjoyed this article, subscribe to updates:

Sign-up today and you'll receive our daily insights on early-stage investing, as well as our FREE "Equity Crowdfunding Action Kit" – where you'll learn:

  • The Ins & Outs of Equity Crowdfunding
  • A step-by-step path to get started
  • Tips from dozens of Venture Capitalists
subscribe to updates

Thank you for subscribing!

Tags: Uber Secondary Shares Sharespost Mutual Funds

Share This:
comments powered by Disqus