Problem: Investing today only allows you to buy shares of companies once they have gone public on the open markets. While this offers an opportunity for great returns, in these cases much of the value has already been captured up stream. Investors who get early access to IPOs have access to better deals. One level up from this are investors who have access pre-IPO. One level up from this are investors who have access into financing a specific individual. Ultimately, a business that could up-level to fundamentals would be in a great position to provide unique deals for investors who are willing to take on the risk.
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Solution: This business would up-level investing to its fundamentals to create avenues for investing at every stack of the creation process of a company. Before public companies there are private companies, and before private companies there are affiliations (groups of individuals), and before affiliations there are individuals, and before individuals there are generational families.
For an illustration of what I mean, I want to provide an framework for you think about.
Future public company investing <—(occurs on)—> Public Option Markets (e.g. Chicago Board Options Exchange)
Public company investing <—(occurs on)—> Public Stock Exchanges
Pre-IPO company investing <—(occurs on)—> Venture Capital Funds / SoFi (giving amateur investors early access to IPOs) / other Secondary, Pre-IPO Exchanges
Affiliation investing <— (occurs on) —> No platform today
Individual investing <—(occurs on)—> Bitclout (Your favorite creator has a coin you can buy or sell. The price goes up as more people buy. You can have your own coin too.)
Familial investing <—(occurs on)—> No platform today
The business would offer platforms in each of these areas but would start with “affiliation investing” and “family investing” as a beach head. As I define it, Affiliation investing is the strategy of investing in a group of individuals rather than in a specific individual or a specific company. Family investing, similarly, allows people to invest in specific families. For instance, Stanford Business School’s Class of 2020 recently created an affiliation-based venture fund to allow anyone to invest in one another. As described by TechCrunch in July 2020,
One group of Stanford graduate students is well-aware of their favorable odds, and think that they should be able to cash in their classmates, too — not just accredited investors and the super-wealthy.
They have put together Stanford 2020, a new fund created entirely by Stanford classmates to invest in their fellow students’ ventures.
The idea was spurred by six students, who after a year of working with Fenwick & West law firm to find a suitable legal structure landed on creating an investment club — multiple parties can invest together as long as they have some form of shared ties.
Steph Mui, a founding member of Stanford 2020 and former venture capital associate at VC firm NEA, formed the club in defiance of the inaccessibility of angel investing, which she described as an elite Silicon Valley status symbol.
“Especially in Silicon Valley where it seems kind of a status symbol and only accredited people can do it, it feels very elite” she said. “We started thinking more about if we can actually make this something that the whole class could participate in, or at least make it more accessible to more than just like these small pockets of people that do it behind closed doors.”
Stanford 2020 club members must put up a minimum of $3,000 to join the investment club, and any eventual returns will be distributed proportionally to the investment each makes. So far, Mui tells TechCrunch that $1.5 million has been raised across 175 investors, with 50 investors willing to give $500,000 on the waitlist. In fact, the club is so “oversubscribed” that it is working to give money back.
Stanford is obviously not the first school or group of individuals to think about doing this (in fact, StartX attempted this in 2013 and eventually shut down). This business would democratize the investment fund model by allowing anyone to create an affiliation group to invest in one another. Similarly, it would create a simple and easy platform for families to invest in themselves through a financial vehicle.
Up-leveled in the stack, this business could also tap into allowing anyone to invest in an individual persona, even before they have a business or their own venture. Perhaps the best example of this that I’ve seen is from BitClout. As described by them:
BitClout is a new type of social network that lets you speculate on people and posts with real money, and it’s built from the ground up as its own custom blockchain. Its architecture is similar to Bitcoin, only it can support complex social network data like posts, profiles, follows, speculation features, and much more at significantly higher throughput and scale. Like Bitcoin, BitClout is a fully open-source project and there is no company behind it-- it’s just coins and code.
This business would compete directly with BitClout and play into the larger industry trend of democratizing finance in the 21st century. Globally, the financial services market is expected to grow from $20,490.46 billion in 2020 to $22,515.17 billion in 2021 at a compound annual growth rate (CAGR) of 9.9%. Of course, this business wouldn’t play in the whole financial services market; but supposing it only played in the crypto currency market, it would be in a huge industry. As reported by Quartz, the market value of all the world’s cryptocurrencies surpassed $1 trillion in early January 2021. “The record came at the end of a supercharged six-month bull run. At the end of June, the value of all digital currencies added up only to around $260 billion,” they write.
With so much innovation happening in finance, up-leveled investing could be a positive trend in the future.
Monetization: Percentage of trades processed through the platform.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)
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