We recently caught up with Marcus New, CEO and Founder of pre-IPO marketplace InvestX.
InvestX delivers access, liquidity, and innovation to the private equity asset class via investments in late-stage private equity on a trading platform, InvestX GEM.
InvestX aims to empower broker-dealers and advisors with a marketplace, tech, and insights for investing and trading in institutional-quality private equity without the traditional “multimillion-dollar investment minimums.”
InvestX Capital Ltd., an established private market secondaries platform and financial tech firm, revealed in September 2021 that it had acquired an investment from financial companies Jefferies Financial Group Inc. (NYSE: JEF), Virtu Financial (NASDAQ: VIRT), and Canaccord Genuity Group Inc. (TSX: CF).
Marcus New, CEO and Founder of InvestX, stated (last year):
“We are thrilled to partner with these leading financial institutions as we expand our Growth Equity Marketplace (‘InvestX GEM’), a private market secondaries platform, focused on pre-IPO giants, to sell-side firms. Their tremendous knowledge, experience and networks will accelerate our ability to expand our solutions for a broader range of broker dealers and issuers, creating higher levels of electronification and transparency while lowering costs to all participants.”
InvestX aims to leverage “decades of experience” with offering tech services and navigating the complexities of transacting in the private markets, which “suffer from opacity and inefficiency.”
Our conversation with Marcus New is shared below.
Crowdfund Insider: According to BlackRock, the size of the private equity market has tripled in the last decade, from nearly $2 trillion in 2010 to over $6 trillion in November 2021.
There continues to be a significant amount of momentum in the private markets, but what is driving this development and who are some of the key players?
Marcus New: The single most important data point here is that companies are staying private longer! Less than ten years ago, the statistic was that companies were staying private for 4-6 years and there were less than 100 private companies with a billion-dollar valuation or more. Today, there are more than 1,000 companies that have a billion-dollar valuation and on average have been private for 10-13 years.
The trends we’ve seen over the last couple of years continue to get stronger; more now than ever money is being placed into the private markets away from the public markets. There is a new set of investors who are investing in the late-stage rounds, mutual funds, crossover funds and some of the large venture capital funds which inject liquidity into these companies and encourage them to stay private longer all the while capturing exponential alpha as they grow. In addition, we’re seeing an increase in pension funds activity in the private markets as well.
Crowdfund Insider: Many companies that have gone public via multi-billion-dollar IPOs stayed off public stock exchanges for years, if not decades.
Why is that?
Marcus New: There are several reasons why private companies avoid going public with the top reason being access to private capital in a relatively quick form on typically better-negotiated terms. With increasing arduous reporting requirements of the SEC, the costly process of going public, and the loss of privacy, issuers are choosing to stay private longer.
IPOs raised a total of $6.9 billion in January, down 83% from the same period last year, further emphasizing the growing importance of investing in private companies. Furthermore, companies are worried about going public and their stock price fluctuating or declining with the broader market causing demotivation for employees and their stock options. It’s a great space right now to be private and thriving.
Crowdfund Insider: Many speak of a “democratization” of the capital markets, and financial services in general.
Would you agree, and who are some of the groups that have previously been denied access to lucrative investment opportunities?
Marcus New: The idea of democratizing the market is what InvestX is born from. Before players like us, only large venture capital funds were able to front the cash to get on the cap tables of these amazing pre-IPO companies and in turn cash in on the hyper-growth model that now happens in the private market space. It is very difficult for investors to become limited partners in these top funds since many have not accepted new investors for decades.
InvestX is opening up the private markets to non-institutional investors as the private markets are increasingly seeing more profitable returns than their public counterparts. Broker-dealers can now offer their clients access to private securities that are high-in-demand, which historically were unable to be filled through the sell-side. Through transformative technology, InvestX is enabling the sell-side community to access, invest and trade in this exciting multi-trillion-dollar asset class in a seamless and electronic process.
To that end, the groups that have been denied access are the 85% of Americans who are not accredited. They have been confined to investing in a heavily weighted bond and stock portfolio that has drastically underperformed the private markets in the last 20 years, which is the reason for the widening of the wealth gap.
Crowdfund Insider: How can investors participate in private market investment opportunities?
Marcus New: There are two main ways investors can participate in the private markets. The first one being an SPV structure, which stands for Special Purpose Vehicle, and allows an allocation of a private equity company to be distributed in small denominations to investors where average investments are usually around $50,000 or higher. The other way to get involved takes more cash on hand.
For around a $1 million investment or more, you can get on the cap table yourself with the help of experts in the space like InvestX.
Crowdfund Insider: And what are some of the typical risks involved in these transactions?
How do you alleviate them?
Marcus New: This is really our strength and service to our customers. InvestX has a world-class investment team, which analyzes a large pool of private equity names before we invest through our fund structures – single (SPV) and multi. We tackle liquidity risks by providing the state-of-the-art GEM (Growth Equity Marketplace) Trading Platform, which allows broker-dealers to easily transact in private equity through an intuitive and transparent solution.
InvestX GEM offers price discovery and helps facilitate block trading of private companies as well as a secondary market for the InvestX SPVs. The platform is a cloud-based solution that can be connected via web-based login, or a FIX and ITCH protocol, which integrates directly with the back-end systems of broker-dealers and therefore facilitates the electronic trading of private securities.
The platform also provides incredibly important market data that’s extremely helpful in an otherwise opaque market. Both are important features that differentiate us from our competitors.
Crowdfund Insider: Do you believe regulators will further relax investment rules for retail investors?
Marcus New: At InvestX, we believe the changes will most likely come from changes to the definition of who is considered an “Accredited Investor.” The SEC in the past has considered increasing the pool of people who are considered an accredited investor, and it would make sense that they would continue to do so.
They must consider the fact that the regulation in place today precedes the internet. The public has a lot more access to information than ever before and they do not need to solely rely on their brokers.