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Investments in late-stage Private Equity: Interview with Marcus New, CEO and Founder, InvestX Capital

By Edlyn Cardoza

April 28, 2022

  • Compliance
  • Electronic trading
  • FIX

InvestX, InvestX GEM, Private Equity, Marcus New, Private Securities, Electronic Trading, FIX, ITCH, Compliance, Wealth Management Firms, SpaceX, Klarna, USA
Marcus New, CEO and Founder, InvestX Capital

InvestX delivers access, liquidity, and innovation to the private equity asset class through investments in late-stage private equity on a trading platform, InvestX GEM. InvestX empowers broker-dealers and advisors with a marketplace, technology, and insights for investing and trading in institutional-quality private equity without the traditional multimillion-dollar investment minimums.

Institutions are increasing their exposure to growth equity, but the current marketplace limits liquidity, transparency, and accessibility. More and more high net worth clients seek investments in this asset class. InvestX’s GEM trading platform provides access to trading private securities and solves the liquidity problem of private investments. The marketplace is a cloud-based solution that can be connected via a web-based login or a FIX and ITCH protocol, which integrates directly with the back-end systems of broker-dealers, further facilitating the electronic trading of private securities.

IBS Intelligence sat down with Marcus New, CEO and Founder of InvestX Capital, to discuss investments in late-stage private equity.

Could you give us an overview of InvestX’s service offering and client base?

InvestX provides sell-side firms, broker-dealers, institutional as well as, dedicated wealth management sell-side firms, the ability to invest and trade in late-stage private companies. We do that through a couple of different types of offerings. One, we have electronic trading or platform market that allows for block trades to happen. Typically, it’s two size allotments of block trades of Private Securities. For example, if you want to trade $25 million of Klarna, or you want to trade $50 million of Kraken, or you know, $25 million of Stripe or $150 million of SpaceX, we help to facilitate the buyers and sellers there to be able to create price discovery and then obviously trade matching so they can facilitate the transfer ownership in those block trades.

The second thing that we do is provide investment products for the wealth management channel for a broker-dealer, where we do the due diligence on those specific investments. Then they can have their portfolio managers, financial advisor, or wealth manager allocate portions of that into their clients’ portfolios. For example, using those same companies, if a client wants to have $100,000 of SpaceX, it’s part of its portfolio strategy, we would enable that wealth management client to be able to put $100,000 in instead of having to put in $25 million or $50 million, or $100 million, for example, in the block trade.

The objective of our business is to help sell-side firms to be able to gain access to this asset class. I have seen those in super high demand interest to investors and to be able to do it in a compliant way, which is important for sell-side firms and then be able to do that with both wealth management products as well as institutional types of offerings like our GEM trading platform.

How does InvestX select private companies for investing?

There’s no selection process on the GEM block trading board, and it is just the market. So, if your institutional vest when you have interest in Hootsuite or in Cross River or whatever company you want, we help to facilitate that. In terms of matching institutional buyers and sellers together. Because of the private markets, as you know, there’s no place to go and find like where do I buy shares or do I sell my shares of X, Y or Z company. So, we help facilitate that and help facilitate price discovery in terms of, you know, what’s the right price for those shares, in terms of a kind of moderated auction tech market.

In the wealth management product set, what we do in due diligence, we have an investment team that selects companies, and typically we have some different themes in terms of how we set companies. Still, in general, you know we have some core criteria. We look for companies over a billion dollars in terms of valuation, and they typically have at least $200 million in recurring revenue. We like to see companies growing at 30 or 40% a year and their profitability. We look to partner with great entrepreneurs and management teams of companies growing their businesses in different parts of the world, primarily in North America. But we now start to expand a little bit at the LATAM and into Europe. We look to partner with remarkable entrepreneurs and management teams to find great companies that we can grow with throughout the last number of years for their business before they typically have an exit.

So those are the kind of things that we look at, do the due diligence, and help make those investment decisions, and our clients are typically from the wealth management channel in that particular case.

How do you view M&A as a strategy?

The market is relatively new in its electrification and its adoption-related to compliance. This is because there are several issues in the private markets that don’t exist in public markets. For example, there’s regulation, FP, or fair disclosure in the public markets. There’s a compliance culture there that issuers have when they have to report on material events with the SEC and make them public, news releases, financial reporting requirements, etc., in their prospectuses to launch the initial offering for their companies. That level of disclosure requirement doesn’t exist in the private markets the same way. The SEC has been speaking a lot about changing some of those rules to try to make the private markets operate, not like the public markets, but looking at some of these asymmetrical information issues to help the market be a little more available and fair for investors.

Will we continue to see the private and public markets come together? I would say more closely in terms of their size and interests, etc., but there are still some pretty distinct differences between them. So as we think about some of these issues related to supporting the market to be more effective there, these things still get worked out. To answer your question specifically about M&A, there will be a consolidation in this market. There are not that many players today. But there will be a consolidation in this market because the scale will create more scale, more trading will create work, and more liquidity will create more liquidity. Ultimately, like any liquid market of any sort, orders gravitate to where there is more liquidity. We probably see some consolidation happening over the next two to three years. But right now, I still think that there are different ways people approach it. For example, InvestX’s strategy and how we’re approaching the market is to operate a wholesale market basically and be able to work with other sell-side firms. So, if you look at other players and someone like Forge, they backed out and went public last year. Their strategies are very different. Their strategy to go directly to the family offices and the investors to the buy-side clients wasn’t directly, so it was just a different strategy. Again, both strategies are helping the market to be more efficient, but they are just another method to help support the market.

There are different areas, and other people are working around it, and from a data perspective, other people are working on other attributes of it. Right now, we’re still a little bit early. Still, we are seeing a tremendous amount of interest in traction in terms of trading volumes and people interested and investment dollars flowing into this market, which is a huge proponent of how we’re building the business.

How is InvestX driving change in the private equity market?

We are trying to create access for more investors; it has been our vision. We think this is an incredible asset class that many investors should own and have a part of their portfolio. Historically, the domain of a small number of venture funds has been much more exclusive right in the small number of crossover funds. We think that the broader adoption will create more wealth for more people to have a portion of it appropriate for their portfolio. The way that we see helping to fulfil that vision and mission for the industry is to do that through working with partners on the sell-side. Because the great thing about working with partners on the sell-side is that the advisor, the wealth manager, and the portfolio manager are also able to make sure that it’s a suitable product for the customer. There’s advice there because the private markets still have a level of complexity that’s different from the public markets. Having a trusted advisor to support whether this is an appropriate product to help achieve some of your financial goals and portfolio or the right allocation to it, we think it’s just really, really healthy for the industry.

If you look at some of the other broker-dealers that may directly deal with customers, they have some level of fiduciary. But because they only deal with this asset class, they’re not taking that holistic approach with the client in terms of the appropriateness of the allocation, and since they could be subject a little bit more to other issues.

What makes InvestX GEM unique from other trading platforms in the market?

There aren’t many trading platforms, so I think the big thing that makes us unique is a couple of things. But one is it’s a wholesale market, and we connect broker-dealers to that platform to cross-block trades institutional size block trades amongst participants, institutional participants. That itself, I think, is unique. Most other firms in the business deal one to one with helping to facilitate trade between their clients only versus between dealers.

The other thing also is that it helps to drive clear price discovery and data around the current value fair value of that market trading or that price of that security trading, which is helpful. I think the third piece is unique because we’re wholesale. We have wholesale pricing, which allows the sell-side firms to have more flexibility. Suppose you have an institutional client like Fidelity, who wants to sell $200 million, or whichever company, the sell-side firm can decide what kind of price they want; they may have soft dollar arrangements; they may have different types of contract arrangements for fees already, and so they don’t have to pass on some larger fees in a wholesale environment, which we think is positive for them. You’re interacting with us as well because they have total flexibility in how clients can compensate them for being able to transact.

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