YieldTalk news and links - 07 February 2022

Notable offerings

FranShares (read our review ) is scheduled to launch this month, and will offer low-cost fractional investments in US-based business franchises, providing passive income and appreciation potential open to any investor, with a $500 minimum. Sign up for the waitlist at FranShares. 👈

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YieldStreet (read our review) has launched StepStone Venture Capital Fund I. According to YieldStreet, “The Fund’s primary strategy, the Venture Capital Strategy, will seek to directly invest in ~25 growth/expansion stage equity investments, focusing on high-growth, high-margin IT and healthcare businesses with at least $10 million in revenue.” Open only to accredited investors. Find out more at YieldStreet. 👈

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Sports News Corp, a “digital media platform providing in-depth content for dedicated sports fans” is raising $2M in a side-by-side offering on Seedinvest (read our review). Open to all investors, with a minimum investment of $1,000. Find out more at SeedInvest. 👈

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🎉 As a reminder, Hedonova is still offering YieldTalk readers a $50 sign-up bonus for new investments in their alternatives hedge fund, which is effectively an immediate 5% return on a $1,000 investment 📈. Click here to claim your $50 bonus 👈

Worth Reading this Week

A roundup of insights and interesting links from around the investment crowdfunding ecosystem.

Led by heavy outlays for equipment like new computers and shipping containers, capital investment has rebounded to within 5% of pre-pandemic levels, a far faster recovery than what followed the Great Financial Crisis. That kind of investment should mean good news for investors in a wide range of industry ecosystems (for example, warehouse owners or startups working on autonomous freight systems):

For years after the global financial crisis the world economy was starved of investment. The aftermath of the covid-19 downturn has been drastically different. In America private non-residential investment is only about 5% below its pre-pandemic trend, compared with a shortfall of nearly 25% in mid-2010, the equivalent point in the previous economic cycle (see chart). The country has enjoyed the fastest rebound in business investment in any recovery since the 1940s, according to Morgan Stanley, a bank. In the rich world as a whole, predicts the World Bank, total investment will have overtaken its pre-pandemic trend by 2023.

Crypto

Even if you’re bullish on Bitcoin (and crypto in general), some healthy skepticism is always in order, and Stephen Diehl’s “Case Against Crypto” is well worth a read:

These days so much of my free time is booked with calls to explain to people outside the software industry why crypto assets are such a destructive force and why I support forceful regulation to halt this financially corrosive enterprise from spreading further into markets. I basically have to repeat myself on the basic arguments for every call covering the same basic monetary theory, American history and technical limitations. Thus I’m going to summarize the basic argument so we have a reference and I don’t have to keep repeating myself all day.

Startups/Venture

Analysis by AngelList (read our review) of thousands of startups funded over the past 7 years shows that in the long run, for seed-stage investing, it’s best to put a small amount into as many credible deals as possible:

Conventional investing wisdom tells us that VCs should pass on most deals they see. But our research indicates otherwise: At the seed stage, investors would increase their expected return by broadly indexing into every credible deal.

Ranjan Roy, writing in the excellent Margins newsletter, offers a cautionary tale about Robinhood’s IPO access program – whereby retail investors can buy into certain IPOs, as opposed to the traditional model of first issuing the new equity to institutional investors. He makes the case that Robinhood’s incessant emails about new IPO opportunities are in effect stealth marketing messages, and led to a much larger wave of buyers than usual for these IPOs. Often that meant very big early “pops” in the stock price, but then a consistent painful downward trend in the weeks and month following the IPO:

[T]his effort gave people a ticket to a process with specific mechanics that made it much more likely to result in a quick rush followed by intense pain. Sending an email to millions of users with no additional analysis or context is probably correct from a regulatory perspective (it’s not a recommendation), but it is a nudge to buy. This is another situation where the SEC should’ve looked a bit deeper at how things were done.

There are signs that the recent market selloff (which has hit several former pandemic tech darlings especially hard) is causing a wider pullback in capital as investors grow nervous about valuations:

Dampened enthusiasm by investors is spreading, likely to trigger a reduction in IPOs, which in turn will dry up funding for some startups and hamper valuations, venture capitalists said, per the WSJ. VC companies are advising their firms to hang on to cash in what is portending to be a chilly funding landscape.

Real Estate

Research from Zillow suggests that as a result of a cresting wave of Millennials hitting peak home-buying age, the next few years will see even greater demand for houses in family-friendly neighborhoods, many of which are already at record low inventories:

Home values are growing fastest in areas with the highest share of children,1 reflecting the impact millennial house hunters are having on family-friendly neighborhoods with a shortage of homes for sale. A record number of millennials will reach key age milestones for buying homes over the next two years, which may accelerate price gains even further.

However, for one longtime staple of “family-friendly” neighborhoods – the shopping mall – the future isn’t quite as bright, as more distressed mall properties are ending up in the hands of creditors:

Most of the regional mall assets that are going back to lenders were previous owned by publicly-traded mall REITs or former mall REITs that have been taken private. “Institutional owners are still committed to the space, but they’re not committed to all their assets at the same level,” [JLL’s Senior Managing Director David] Monahan notes. “Mall REITs are going to reinvest in the assets that they see as better prospects for a better return on that reinvestment.”

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JD Supra has published a helpful list of red flags to look for when evaluating real estate investments, and most of the advice holds up just as well for other kinds of private placement investments. Lots of common sense stuff, but still worth the reminder:

Investors should realize that red flags don’t necessarily indicate an investment is fraudulent. Legitimate investments may display one or two of these red flags. But red flags indicate that investors should conduct careful due diligence and verify the sponsor’s claims before investing.

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According to analysis from Goldman Sachs, the fourth quarter of 2021 was likely the high-water mark for rent increases, with growth expected to slow (slowly) through 2024:

Persistently strong rent inflation is potentially a bigger problem for the economy than more temporary price increases for things like gasoline or food, as it could spark a new inflation crisis and the need for large-scale intervention. Goldman’s outlook, then, assuages some concerns that the rent boom of 2021 would keep inflation stuck at its four-decade highs.

Odds & Ends

• Farmland investment platform FarmTogether (read our review) announced that 100% of their 40-property portfolio has been certified as “sustainable”
• Real Estate investing app HappyNest announced their “Loose Change” program, where investors can choose to round up everyday purchases and automatically invest the remainder
• The SEC has announced their judgments for several parties involved with a fraudulent hemp company offering on TruCrowd
• It’s almost that time of year again! A new offer from TurboTax: File FREE: On your own, with expert help, or when an expert does your taxes. For simple tax returns only - Must file by 2/15