Venture through the mind of an every day investor: Silicon Alley based company changing the way investors access private funds

Despite an overwhelming number of startups coming out of the Bay Area, there is one east coast Series A company that has caught my eye: Artivest.

Hedge funds have traditionally managed money exclusively on behalf of institutional capital and ultra high net worth individuals. Since the birth of private funds, accredited retail investors have been unable to invest with the world’s greatest capital allocators. Artivest changes the way in which these investors access, invest and communicate with smart money private funds. On the flip side, Artivest creates a new way for funds to raise capital from a growing investor base.

Citi estimates that by 2018, of the $5.8 trillion dollars invested by hedge funds, $977 billion (17%) will be managed on behalf of retail investors. This is an increase compared to the numbers at the end of 2013, when of the $2.9 trillion dollars managed by hedge funds only $268 billion (10%) was managed on behalf of retail investors.

Disclaimer: I do not speak on behalf of the company; I’m not an investor in the company nor do I use the service. These are my observations and opinions and do not reflect any private information or the opinions of any employees of Artivest.

Artivest is a New York City venture-backed FinTech Company changing the way wealthy individuals and financial advisors access and interact with private funds and other alternative strategies. In the past, due to very large minimum subscription requirements, only institutional capital (endowments, foundations, pensions funds, fund of funds) and ultra high net worth individuals and their families were able to access private funds.

Now enter Artivest — an online platform that allows accredited investors and financial advisors that manage their money to evaluate, apply and access capacity in alternative investment funds. Artivest establishes relationships with out-of-reach funds and offers bespoke research on these funds to their investors to incorporate in their evaluation processes. It then pools together capital to meet fund subscription minimums or agreed upon capacity. My assumption is that Artivest charges the accredited investors a fee when they invest in a fund, and then charges the private funds a placement fee for raising capital.

“The Artivest platform elevates the investing experience for investors, advisors, and funds” — company website

Investors:

Key takeaways:

  1. Artivest offers accredited retail investors access to professional fund diligence at a fraction of its usual cost. Having previously worked at a multi family office, I understand the intensive due diligence involved in allocating capital to funds. Allowing retail investors to access this type of research, without having to do their own diligence or pay a large advisory fee, is revolutionary.
  2. Most private funds lack online data rooms where they share fund-specific data and documents. Artivest is automating this process and changing the way such information is shared and consumed. Usually, fund documents and data are sent via PDF to never-empty, hard-to-sort inboxes.
  3. Historically the fund subscription process is completed by hand and can be extremely tedious and error-prone. Once again, Artivest is automating the fund investment process by attempting to eliminate as much paperwork as possible, driving efficiencies across multiple channels.

Advisors:

Key takeaways:

  1. In recent years, Registered Investment Advisors (RIAs) have been increasing their appetite for alternative investment solutions. Artivest provides RIAs the ability to offer their qualified clients capacity in private funds. Artivest provides professional level diligence and easy access to RIAs, so they don’t have to spend resources doing their own manager diligence.
  2. RIAs can manage money on the behalf of hundreds of clients. The Artivest platform allows them to access private funds at scale without having to prepare an overbearing amount of paperwork, making this a manageable solution while enhancing client product offerings.
  3. To have an edge in the truly digital age in which we live, Artivest provides a online performance-tracking portal to RIAs to monitor the investment performance of their clients.

Funds:

Key takeaways:

  1. Due to the sensitive nature of fund-related information and restrictions on marketing private funds, funds generally withhold information from their current, let alone potential, investors. Artivest offers a secure and safe environment for funds to disseminate confidential information and updates to approved platform applicants. Since funds can now share information and updates in real time, while the industry norm is once per month or quarter, these data rooms and communication tools can be ground-breaking.
  2. On boarding clients can be a painful process. Artivest automates the process by moving the subscription application and client interactions online. Since the subscription process is typically done by hand and takes a considerable amount of time, Artivest’s technology makes easier the lives of both the investors and Investor Relations teams.
  3. Using Artivest, private funds easily gain access to an untapped pool of capital within the alternative investor landscape. It is inefficient for funds to raise capital from an investor base that can write checks in only small sums. Artivest gives funds an opportunity to communicate with this investor base, thereby managing relationships and attracting capital from an audience with shallower pockets.

Backing + Team:

On May 4th, 2015 Artivest raised a $15 million dollar Series A round lead by private equity giant KKR. Additional participants in the round included RRE Ventures, Peter Thiel, Nyca Partners, Anthemis Group, FinTech Collective, Deep Fork Capital, and Nellie Levchin. Having incredible backing like this really gives the concept a stamp of approval. The KKR investment reinforces the effort alternative asset managers are putting into attracting new types of investors.

Artivst is lead by founder James Waldinger, a former investment team member at Peter Thiel’s hedge fund, Clarium Capital. According to the team’s biography page, an impressive cast of technologists and former investors surrounds Waldinger.

Value proposition:

Through technological advances, Artivest gives retail investors the ability to access institutional level investment opportunities. It gives funds the ability to tap into new forms of capital. Finally, Artivest gives advisors the ability to access private funds at scale and manage the subscription and monitoring processes.

The bottom line is that Artivest is driving fundamental change in a once out-of-reach and elite industry by offering access to private funds, driving technological efficiencies and tapping capital from a new investor base.

Correction:

The funds Artivest offers are currently only available to Qualified Purchasers, not investors who are only Accredited. You can be an Accredited investor and not be a Qualified Purchaser, but not the other way around. Please use this link (https://artivest.co/accreditation-definitions/) for a side by side comparison.

It is still remarkable that Qualified (retail) Purchasers are able to access private funds and research at a fraction of the cost, but do note that you must be a Qualified Purchaser to access the Artivest funds instead of Accredited as mentioned in the article.

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Original story found on LinkedIn