April 21st, 2017
InvestX Brings Crowdfunding to Private Equity Deals
The rush to tap individual investors’ money for venture and private equity deals has taken on a new twist.
InvestX Capital Ltd., founded last year with offices in Dallas and Vancouver, has established a crowdfunding platform for so-called accredited investors to back venture and growth equity deals, similar to what Kickstarter does for individual projects.
The operating model—made possible by the April 2012 passage of the Jumpstart Our Business Startups, or JOBS Act, which relaxed rules governing how companies can raise capital—is a 180 degree shift from the traditional fundraising practice that private equity firms employ, where a select group of investors commit to a blind pool of capital for investing.
InvestX partners up with financial sponsors who slice out a part of their deals for small investors, according to founder and Chief Executive Marcus New.
Many of the biggest names in private equity have been pursuing retail investors’ money in a bid to diversify their investor bases.
Blackstone Group said late last month that it had launched a first-generation retail vehicle, Blackstone Total Alternative Solutions Fund. That follows a move by Carlyle Group, which established a platform to bring individual, accredited investors into its buyout funds.
The minimum investment to get into Carlyle’s platform is $50,000. Blackstone’s is $250,000.
InvestX, on the other hand, allows accredited investors to participate with a minimum of just $2,500. For an individual to qualify as an accredited investor, they must have annual income of more than $200,000 or a net worth of more than $1 million, excluding a primary residence.
On the InvestX platform, investors take part on a deal-by-deal basis, which means they can choose deals they like and skip those they don’t. That differs from a traditional co-mingled fund structure in which investors commit to every deal a private equity firm makes.
Mr. New said InvestX investors are getting the same deal terms as other co-investors in each deal. In exchange, InvestX investors pay the platform a 2% management fee and a 20% cut of profit, just as they would in a private equity fund.
InvestX is bringing investors two new deals this week: touch screen display technology developer and manufacturer Baanto International Ltd., in which InvestX has a $500,000 allocation out of a $1.5 million add-on to a Series C funding round; and $2 million out of a $150 million fundraise for SineWave Venture Partners, a newly established venture fund that seeks to back early stage technology companies.
The deals follow InvestX’s debut transaction: participation in a $6.5 million Series C round of funding for Cleveland HeartLabInc., a clinical reference laboratory involved in cardiovascular risk assessment.
In that deal—slated to close Feb. 14—InvestX teamed up with lead investor Mutual Capital Partners, a Westlake, Ohio-based venture capital firm. The Cleveland Clinicand life sciences venture capital firms HealthCare Venturesand Excel Venture Management also participated in the round.
InvestX has so far raised $600,000 for the Cleveland HeartLabdeal, said Mr. New.
Mr. New expects to bring altogether 20 to 30 deals to the InvestX platform this year, ranging from Series A to growth equity, and from deals involving an individual company to fund of funds. He said the wide variety, particularly in the initial phase of the platform, is aimed at taking out the risks of just having deals on, say, the venture end of the investment spectrum, and to find out retail investors’ risk appetite.
The firm is still determining what it will do if fundraising on the platform falls short of the target.
“We expect some deals won’t be funded properly, we understand that. It is a process to learn what investors want in deals,” he said.