Retail facing asset managers investing in unicorns, and crowdfunders may follow
Technology companies are choosing to go public later, and attracting investment from traditional asset managers such as Blackrock and Fidelity, at around the same valuation level where companies have typically gone public in the past. The Information recently posted details of investments in Uber by larger mutual funds. This trend coincides with equity crowdfunding opening up to retail investors, which the linked Finance Magnates article suggests, could be influenced by the performance of private shares within mutual fund portfolios.
Last week, The Information posted about the evolving of late stage funding of billion dollar and higher valued startups. Once dominated by venture capital, hedge funds and private equity firms, these later stage deals are now including retail facing asset managers like Fidelity and BlackRock. Among their analysis is that shares of Uber are being held by five Fidelity mutual funds. The result is that retail exposure to private technology deals, which had been reserved for institutional investors, is increasing.

Beyond just shares of Uber, further analysis of several of Fidelity’s funds, such as the OTC Portfolio Fund, shows a who’s who of Startup Startup A company operating within its first stage of investing is known as a startup. While startups may give the impression that the company must be new, that is not always the case.Many companies can have this designation after nearly three years of existence. Typically, a company exits the startup status after a period between 3 to 5 years or after successful funding rounds where capital is acquired. Startups tend to derive out of the belief that there is a demand for a service or product which is c A company operating within its first stage of investing is known as a startup. While startups may give the impression that the company must be new, that is not always the case.Many companies can have this designation after nearly three years of existence. Typically, a company exits the startup status after a period between 3 to 5 years or after successful funding rounds where capital is acquired. Startups tend to derive out of the belief that there is a demand for a service or product which is c Read this Term names counted in their portfolio. Shares of private firms include Snapchat, Taboola, Twilio, WeWork, Pinterest, AppNexus, DataMinr, Redfin, Roku and many more. While overall percentage ownership of all these shares composes less than 1.5% of the total portfolio, they are becoming a greater part of the mutual fund’s investments.

From Public to Private

The evolving nature of technology funding takes place as growing startups are taking longer to go public. As a result, mutual fund managers who have been active in taking positions of IPOs, are now grabbing shares in funding rounds of private companies that are valued around the same level as to where firms typically go public.

According to data from venture capital fund Andreesen Horowitz, there are currently 61 ‘tech unicorns’ of private US firms that are valued above $1 billion. For firms, the advantage of going public in the past has been access to capital. However, with funding flowing easily, it has made for a stronger argument to stay private longer and reduce the regulatory and increased accounting requirements of being a public firm.

Effects on Crowdfunding Crowdfunding Crowdfunding is defined as funding of a project via raising smaller denominations of money across a large body of number of people.New businesses that need access to more capital may also conduct crowdfunding. Generally, crowdfunding is performed through an online community, social media, or crowdfunding websites such as Kickstarter, GoFundMe, and RocketHub. Depending upon which jurisdiction an investor resides within will dictate the sort of restrictions that are applied to the crowdfunding pro Crowdfunding is defined as funding of a project via raising smaller denominations of money across a large body of number of people.New businesses that need access to more capital may also conduct crowdfunding. Generally, crowdfunding is performed through an online community, social media, or crowdfunding websites such as Kickstarter, GoFundMe, and RocketHub. Depending upon which jurisdiction an investor resides within will dictate the sort of restrictions that are applied to the crowdfunding pro Read this Term

The flow of mutual fund capital is also occurring at a time when investing in startups has opened up to a greater range of investors. In the UK and Europe, and more recently in the US, equity crowdfunding platforms are allowing retail investors to acquire shares in the fundraising of private companies. As such, more than just gaining exposure to startup shares through mutual funds, retail investors are able to purchase stakes directly through crowdfunding platforms.

For the overall equity crowdfunding market, the sector’s future could ultimately be tied to the performance of private shares within mutual fund portfolios. As an example, the Fidelity Blue Chip Growth fund currently counts two separate positions in Uber, with an aggregated value of about $175 million. Based on their portfolio from June 30th, 2015, depending on the calculation used for the positions, the valuation may rise well above $200 million and over 1% of the fund’s holdings, following reports that Uber closed another round of funding in July at a $50 billion valuation. An eventual successful IPO or further exits of private stakes, could be expected to increase the profile of investing in startups. For crowdfunding platforms, such a scenario bodes well with providing positive residual effects on the industry.

On the other hand, there is a risk that if mutual fund exposure to private shares backfires, it may create pressure against other firms from taking similar risks. In addition, even though retail exposure to private technology firms is minimal, potential losses come with increased likelihood of rising headline risks which would be expected to be a negative overhang on equity crowdfunding.

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Ultimately, like private investments by mutual funds, equity crowdfunding will be graded by the types of returns they provide. However, as an emerging sector, both positive and negative headline risk connected to investing in private deals, has the potential to amplify the public’s view of equity crowdfunding.