YieldTalk news and links - 28 February 2022
This week: The end of the 5-day workweek; an "elder Zoomer's" take on FinTech; Hedge funds and startup valuations
YieldStreet (read our review) has launched their Growth & Income REIT, which will make investments in commercial real estate throughout the US. The target annual returns is 11-15%, and notably the offering is open to all investors, with a $5,000 minimum. Find out more at YieldStreet. 👈
MainVest (read our review) is offering investment in Eastcoasterdam, a cannabis cultivation and extraction business based in northern Massachusetts. Investors receive a share of the company’s revenue until they’ve earned 2X their original investment. Open to all investors, with a $100 minimum investment. Find out more at MainVest. 👈
MainVest (read our review) is also offering investment in Commongrounds Cooperative, “a community-owned mixed use cooperative real estate project co-locating workforce housing with multi-modal transport and businesses focused on food, family, arts, and wellness.” in Traverse City, Michigan. Open to all investors, with a $100 minimum investment. Find out more at MainVest. 👈
🎉 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.
There had been some indications that inflation was easing as supply chain kinks eased and demand swung back from goods toward services amid re-openings (especially in large cities), but what’s happening right now in Ukraine 🇺🇦 has just injected a massive amount of uncertainty into what was already a murky picture of the months ahead:
US inflation remains elevated and appears on track to remain so for the immediate future. There are hints in some corners that the annual pace of consumer inflation will ease, but the modest optimism for this outlook, which is based on previously published data, is complicated if not eradicated due to the fast-moving Ukraine-Russia crisis.
The conventional wisdom on when (and if!) office work would return to “normal” has shifted a lot over the past two years, but the evidence is mounting that even as more companies plan some form of return to in-person working, it’s likely the 5-day workweek as we knew it before 2020 just isn’t coming back. Ever. That has enormous implications for both commercial and residential real estate, and for a new generation of companies built to support a transformed economy:
[E]ven as they resume normal leisure activities, many Americans still aren’t going back to the office. According to data from Kastle Systems, which tracks building access across the country, office attendance is at just 33 percent of its pre-pandemic average. That’s lower than in-person attendance in just about any other industry for which we have good data. Even movie theaters—a business sometimes written off as “doomed”—have recovered almost twice as much. What once seemed like a hot take is becoming a stone-cold reality: For tens of millions of knowledge-economy workers, the office is never coming all the way back. The implications—for work, cities, and the geography of labor—will be fascinating.
It’s unwise to extrapolate one person’s perspective to an entire generation, but this column from an “elder Zoomer” (now at the ripe old age of 24) is a reminder of how transparently young people can see through marketing couched as futurism, especially when it comes to fintech and investing:
When I look at my friends, and I think, what do we want out of new tech and new products, I don’t see people getting ready to go online and put on a VR headset and pretend we’re in a video game and we’re waiting in line at a virtual bank. … When I see JP Morgan’s pdf about metaverse money, their weird lobby in Decentral Land, and the awful-looking tiger someone bought with real-world money at that company, I don’t see that as anything like the future.
If you’ve signed up for one of the alternative investment platforms we cover here at YieldTalk, you might have been surprised at just how much personal and financial information you must provide to actually invest. A lot of that is required for compliance with what’s known as “KYC/AML” which stands for “know your customer/anti-money laundering”. A new report from watchdog group FinCEN looked at the fine art market, and while overall it concluded physical art works aren’t likely vectors for much money laundering, there’s growing concern about digital art:
The emergence of the digital art market provides a new potential platform for money-launderers. Peer-to-peer transactions of NFTs, or non-fungible tokens, without the involvement of an intermediary may or may not be recorded on a public ledger; the ability to transfer NFTs via the internet without concern for geographic borders instantaneously renders certain digital art transactions susceptible to exploitation by those seeking to launder illicit funds.
A recurring theme around here is that while the vast majority of firms offering investment products are legitimate, fraud and scams are out there, and it’s important to do your homework before investing. It also helps to build a diversified portfolio, so as to avoid putting all of your eggs in one basket, lest you pick a basket like the one run by Infinity Q Capital Management’s James Velissaris, who pocketed more than $25M of investor money by fraudulently inflating asset values:
“We allege that, while Velissaris marketed the mutual fund as a way for retail investors to access investment strategies typically reserved for high net worth clients, what he actually offered them were fraudulent documents, altered performance results, and manipulated valuations,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. “This case affirms our commitment to using all our tools to root out misconduct in the $18 trillion private fund arena, a growing market attracting more and more institutional investors, including public pension funds, university endowments, and charitable foundations.”
One of the benefits of investment crowdfunding is that it’s making capital accessible to founders and firms that have historically struggled to fit the mold of the traditional venture capital model. For example, women-led companies typically received less than 5% of VC funding in a given year. Writing in Inc, Carol Sankar makes that case that backing female founders not only means a better chance at finding an underserved niches, but also leads to higher returns and faster exits:
Data from 2020 and 2021 reveals that startups with female founders are exiting one year faster than the market average while seeing the value of these exits skyrocket 144 percent – over 40 percentage points higher than the rest of the market.
Another category of company that has not been well served by the traditional VC ecosystem and is turning to investment crowdfunding is Black-owned startups, which receive even less traditional VC funding than women-led startups (usually between 1-2% in a given year). Wisconsin-based Crowd WallStreet has just launched, making it the 3rd Black-owned SEC-regulated investment crowdfunding platform. (We’ll be adding a review to our database in the coming weeks.)
Even as investment crowdfunding helps open up new sources of capital (and new investment options for investors), planned updates to the SEC’s definition of an accredited investor are raising concerns about equity – specifically that increasing the minimum assets needed to qualify as an accredited investor without also adding enough other ways to qualify (such as through certification or credentialing) will lock even more investors out of private placements:
“The inclusion of more people also pushes economic development, ingenuity, returns for a group of people who’ve been historically financially locked out of the ability to buy homes, locked out to levels of loans and access to capital,” said Shelly Bell, founder and CEO of nonprofit crowdfunding organization Black Girl Ventures, who spoke at an SEC meeting earlier this month.
Venture capitalist Tom Tonguz offers his take on the impact of hedge fund allocations to venture financing on startup valuations. A lot of hedge fund money has been flowing into later-stage financing rounds, driving up valuations; if and when that shifts to earlier stage investments, that’s likely to push up those valuations as well:
Last year, early stage prices expanded by half without the benefit of hedge-fund money. Deep stacks entering the early market will pressure valuations more because the early market is one-third the size of the Series C-E market.
New technologies almost always overpromise, and the earliest adopters can easily fall victim to the “when all you have is a hammer, all you see are nails” trap. It is perfectly OK to be excited about the potential in “web3”, crypto, and blockchains and to approach those things with a healthy degree of skepticism. The Verge has an entertaining interview with Molly White, a software engineer and veteran Wikipedia contributor who chronicles the foibles of web3:
[I]t’s concerning to me when people are trying extremely hard to get people to buy into some new idea but aren’t particularly willing (or even able) to describe what it is they’re doing. As I began to pay more attention to the space, I was seeing all of this hype for web3 with all these new projects, but so many of them were just absolutely terrible ideas when you got past the marketingspeak and veneer. Medical records on the blockchain! Fix publishing with NFTs! Build social networks on top of immutable databases!
A few weeks ago we talked about the upcoming launch of Milo, a company offering home mortgages secured by Bitcoin. Business Insider took a closer look, and highlights a just a few things to consider before signing up:
But there’s a big catch: Homebuyers don’t have full control of their asset. If they wish to sell their property, they’ll have to pay off their loan in full — in US dollars — to Milo before the company releases a lien and transfers the bitcoin back. Plus, to qualify for the mortgage, a buyer must own a value of bitcoin equal to the total sale price of the home.
Odds and Ends
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