Hedgeable is a robo-advisor with a twist, offering sophisticated automated investing as well as an exceptional value for accredited investors to get exposure to a broadly diversified venture fund. This review is about that Hedgeable venture feature.
- Ultra-low minimums for venture investing ($1)
- Broad diversification into funds and companies across multiple platforms and offline investments
- No additional fees for venture or alternatives
Hedgeable is a "robo advisor" along the lines of Betterment, but with some key differences. For example, in exchange for a higher "wrap fee" than other robo advisors (starting at 0.75% compared with 0.25% for Betterment), Hedgeable claims to offer more sophisticated wealth management features, including pro-active downside protection (eg, reducing your exposure to certain asset classes to minimize losses). But this review is about one of their most interesting differentiators, which is their Alternatives feature, offering super-simple exposure to a broadly diversified seed and early-stage venture capital fund with no minimum investment amount. (They also offer an easy way to add Bitcoin to your portfolio through a partnership with Coinbase.)
Types of investments Hedgeable offers
Hedgeable has published a detailed whitepaper describing their venture investment philosophy and approach, including which platforms they tend to use, and how they allocate the money in each fund:
What do you get when investing with Hedgeable?
When you invest through Hedgeable's venture feature, as with many crowdfunding investment platforms, what you actually receive is an ownership interest in a special-purpose entity created for the investment, in this case a Delaware Limited Partnership. The partnership in turn invests in the various underlying companies or funds. Invetors receive a single K-1 each year reflecting any income or gains from the partnership.
Hedgeable fee structure
There is no additional fee for using Hedgeable's venture feature (beyond the overall "wrap fee" which is a percentage of your total portfolio amount, ranging from 0.3%-0.75% depending on the total size of your Hedgeable account. The underlying venture funds Hedgeable invests in will charge their own fees (usually at a minimum a carried interest charge, and probably an annual fee for some as well).
Potential returns and cashflow
Investments via Hedgeable's venture feature are high-risk investments in startups. Most of the investments have no explicit expectation of payments, dividends, or other cash flow. Most startup investments lose some or all of their value. While some investors achieve excellent returns from startup investing, that is a rare outcome and requires substantial diversification over time combined with very careful investment selection.
While Hedgeable's venture feature can give you broad exposure to potentially 100+ different startups as part of one fund, successful angel or venture investing also requires diversification over long periods of time.
Breadth of offerings on Hedgeable
Hedgeable's venture feature offers tremendous diversification for the money, providing exposure to up to 100 different startups across multiple platforms, sectors, and funds. Each Hedgeable venture fund is limited to 99 investors, and according to their website they expect to launch a new fund each year (or when the 99-investor limit is reached, whichever comes first).
Regulatory framework and due diligence expectations
Hedgeable's venture feature falls under a slightly different regulatory framework than most of the investment crowdfunding platforms (including most of the ones Hedgeable in turn invests in for their fund...):
The Hedgeable whitepaper describes their selection process, but ultimately investors should be aware they are turning over full control regarding which startups or funds to invest in to Hedgeable (and indeed even if/when to invest at all -- I invested $5,000 using Hedgeable's venture feature more than a year ago and a sizable chunk of that remains in cash).
While it's possible to invest directly in many of the underlying investments and funds that you get with the Hedgeable venture feature, it would require substantially more capital (probably $1M or more to replicate the full portfolio directly), and involve significantly more research and paperwork. (There are some similarities here to the value offered by AlphaFlowin providing exposure to 75-100 loans for $10,000 that would otherwise require deploying $100K or more.)
Hedgeable's venture feature has only been around since 2016, and prospective investors are putting significant trust in Hedgeable's ability to select appropriate investments, but they deserve credit for their detailed description of their investment philosophy, and for most everyday (albeit accredited...) investors, the Hedgeable venture feature offers an extraordinary value for gaining broad exposure to venture capital.