It can be a boon for startups and their backers, but what if you want to invest in a more established company for less risk and a higher return? Here, investors have historically turned to the private equity (PE) market, which sees companies bought and taken private, grown, and then typically sold for a healthy profit a decade down the line.
The main barrier for high-net-worth individuals wanting to get in on the action has been access to funds. PE, which has long been the domain of large institutional investors whose assets add up to billions of dollars, is still waiting for a Hargreaves Lansdown equivalent to change the game.
Playing the long game
Enter Truffle Invest. Founded by a team of PE market experts, the London-based FinTech startup has launched a platform that lets high-net-worth individuals invest in PE funds alongside deep-pocketed institutional investors. Developed by Leeds-based software company Calls9, it hooks into third-party systems to securely provide services to its members.
The Truffle Invest platform allows anybody who meets the qualifying criteria (pending an application) with patience and a healthy chunk of change to invest in an externally managed fund and potentially reap the higher returns associated with locking away money for longer periods. For would-be investors looking in from the outside, such funds have previously been harder to find than, well, truffles.
“The private equity market is a very relationship-driven space and has been a completely closed shop for more than 40 years,” says Truffle co-founder Jason Proctor. “Getting access to high quality funds is as much about who you know, as how much money you’re representing.
“We’re doing our bit to redress that balance slightly and provide a greater range of individuals access to what we think is a really great market.
The idea came to Proctor when working at private markets specialist StepStone. Despite helping to shape his clients’ portfolios, he couldn’t contribute toward PE funds as an individual investor due to minimum investment amounts of $10m per fund.
“I’d spent most of my career working in and around the industry, so the inability to participate was a big frustration,” he says. “We knew that we would not be the only investors with this problem.”
Proctor says that the need for a PE platform is even more vital due to a “paucity of high-quality options” that exist for individual investors outside of the market. He views crowdfunding and peer-to-peer as “potentially quite risky”, buy-to-let property “expensive and tax-inefficient” and says that public equities and government bonds hold little appeal.
“Part of the rationale for starting Truffle is that I’ve felt pretty restricted in terms of what is on offer,” he says. “And, even if people aren’t familiar yet with private equity, we think there’s a really compelling case for it.”
How it works
The Truffle Invest platform uses a four-step process that allows members to invest in multiple PE funds, with stakes starting at £5,000 (or Euros, depending on the fund in question). After signing up (for free), qualifying users can browse funds that are available for a finite amount of time.
With the success of a PE fund dependent on the team behind it implementing value-creation strategies to improve its value over time, it’s vital for investors to have a clear picture of who they are investing in from the outset.
The platform includes detailed information on funds including a profile of the team behind it, how it’s organised and who key individuals are. There’s also information on other investors backing the fund and what they’ve previously backed.
Once the user has gone through the Truffle application process to verify that they meet the FCA defined criteria of ‘high-net-worth’ investor, they can invest in a fund in just a few minutes. Truffle makes money by charging its members fees for operating the platform and providing access to funds that vary depending on how much is invested.
“Historically, investing into private markets funds has been an incredibly complex process,” says Proctor. “You are dealing with paperwork that will stretch into hundreds of pages that have to be reviewed by lawyers.
“It costs a small fortune both in time and money to get that done, whereas we are removing a whole layer of bureaucracy and legal paperwork, and it’s all done through the tech that Calls9 has built for us.”
Proctor anticipates that interest in the platform will initially come from people working in private equity or elsewhere in the finance world, followed by those in accountancies, law or tech firms who interact with private equity funds.
“We think there’s a lot of potential to work with other financial firms – be it their wealth managers, IFAs, other kind of investment platforms or even banks,” Proctor says. “We could essentially whitelabel our technology and our access and work with other firms to provide their clients with access to new markets.”
With an ambition to scale and add high-net-worth individuals to the platform, Truffle is set on convincing a new wave of investors that patience isn’t just a virtue – it can make you rich too.