Velvet’s fund manager ‘marketplace’ streamlines the private investment process
JTo enter the world of private equity, it seems like you need to know a guy who knows a girl who can give you details. It also requires a face-to-face meeting to start the conversation. It is a laborious, time-consuming, relationship-dependent process that can often take months.
Velvet is determined to change all that, bringing the streamlined efficiency of fintech to the labyrinthine ecosystem of private investment.
Rethinking the world of private investment
“We help funds that are a venture capital fund, hedge fund or private equity fund to raise funds online from large institutional investors,” says Alex Johnson, co-founder of Velvet and CRO. “On the other hand, we help investors find funds, compare them to each other and actually invest.”
To find the funds, says the co-founder and CEO Andre Pignanelli, “We are everywhere… We find them, we put them on the platform and we standardize the information on these funds like never really before in order to be able to compare one manager to another. You can imagine how the [traditional] process and how difficult it is to make those decisions objectively. All the asset managers who try to invest in these funds – we call them the dispatchers – waste a lot of time, money and efficiency because of the system.
Johnson agrees that the private investment process is extremely slow. He says Velvet changes the whole equation by putting months of information up front in the process. “We use our aggregated data on the platform to start the conversation with, ‘Hello, I’m interested in investing in you’ rather than, ‘Hello, what are you doing?'” Johnson says. “When you write a check $10 million to an institution, you have to make sure they don’t screw it up. That’s a big deal.
In the street and the data
To aggregate this critical data, Velvet combines face-to-face relationships, research, and diligence with data science and AI. The co-founders travel the country, meeting fund managers to connect with them and vet them for Velvet’s services. Fund managers are motivated to partner with Velvet because they want to raise capital, and Velvet provides them with a credible stage.
“So let’s say they need to raise a fund of $100 million. They say, “Okay, we’ll pay Velvet’s fee,” which is success-based. Listing on our marketplace is free,” says Johnson. “They sign up and put in all their information and give up their data to raise money, and we create a list for them. It’s no different from Airbnb, except instead of listing a hot tub and an ocean view, these are their metrics: how they work, who they are, what they do, where they went, what they invested in and why you should give them your money.
This software allows both the fund to offer information at scale and the Velvet team to evaluate it at scale. “We have a team of brokers – a compliance team – that reviews the fund manually to make sure they can take the money from the investor,” Johnson explains.
Velvet is not the first fund market. But as Pignanelli explains, there are key differences in Velvet’s approach. Other databases, such as Pitch bookfor example – collect fund data, but they do so via web-scraping and other methods without directly involving funds.
“It doesn’t really align the incentives with the funds to continually update their information and make sure it’s the most thorough,” Pignanelli says. “We work with the funds and say, ‘If you keep your data, you’re probably more likely to raise funds from investors on the other side.’ It’s like job seekers are always updating their LinkedIn. It’s the same with funds.
Velvet works with partners who use AI to rate fund managers and review the deals they’ve made, Pignanelli says. “It allows us to collect more data on these funds and keep them up to date than anyone else in the world, even investment banks that have emerging management programs. They work with hundreds of managers and have thousands employees, but they don’t have data as detailed as we do. We have someone who’s a full-time data scientist who does analysis on that, and the rest of our team does the graphs and stuff of back end.
Velvet launched the fund side of its platform in November 2021, and the company already has $120 billion in investor assets represented. With the soft launch of the recipient side of the platform last month, the Velvet co-founders are excited for the momentum, especially since they are in their early twenties and the youngest couple. to receive a broker’s license. They spent six months last year working with their team to acquire the license, which is officially owned by Velvet subsidiary Decheque Securities, LLC.
A stranger’s perspective
Velvet is shaking up the otherwise entrenched world of private investment finance, and the co-founders are thrilled. “Velvet operates at the highest level of private finance,” Johnson says. “We work with institutions, billionaire families, endowments and funds of funds so large that they buy portfolios of funds. They look for unique strategies. Average funds are 40% per year; some do three-digit numbers.
Johnson entered this space because he launched a bitcoin fund in 2018 that is on track to hit four figures this year, he says. “I asked myself: ‘What if we built a market where fund managers could raise funds?’ He has come a long way since. Andrew and I are complete strangers. We are fintech; we don’t come from the highest levels of finance. We come from outside and we discover it. It has allowed us to solve problems that others cannot see.
This kind of acumen is exactly what can spark a revolution. So, to all accredited investors and fund managers looking to score the next gazillion—long live fintech!