One of the newest Registered Investment Advisors (RIAs) hitting the street as the tail-end of the US JOBS Act kicks in is YieldStreet, an online marketplace that connects investors to asset-based investments in specialty finance including alternative fixed-income products, and which today announced that it has raised a seed funding round of $3.7m from a group of investors, as the company is on the cusp of growth.
The $3.7m seed round of funding into YieldStreet was led by Expansion Venture Capital, Saturn Venture Partners and other strategic fintech angel investors, according to the company’s official press release that came out earlier this Wednesday.
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New York-based YieldStreet connects investors to asset managers for structured products that have low correlation with the stock market, and which offer short-to-medium term investments with a specific range of potential yield returns – among other criteria within the alternative fixed-income and loan-based investments available through its online platform.
There are a number of online platforms emerging in the P2P lending and crowdfunding as well as traditional lending space with startups that leverage new fintech approaches, yet many have unsecured debt instruments and cater to other parts of the industry such as within student loans or short term finance, including microfinance, while YieldStreet follows a unique approach.
Trio of Founders
One of the company co-founders and current CEO, Milind Mehere, whose prior company Yodle was recently acquired for $342million, had started YieldStreet in 2015 along with Dennis Shields – founder of Esquire Bank, and Michael Weisz who was previously the chief investment officer of the speciality finance company Soli Capital.
The trio of founders have been able to combine their diverse expertise and staff to help complete 20 investments and fund $35m in loans while returning $7m in principal to investors with zero loss thus far, and are now targeting $100m in loans for 2016 on YieldStreet’s platform.
Finance Magnates spoke with two of the company’s founders earlier today, during an exclusive call to discuss some of the developments underway at YieldStreet as the company just became a Registered Investment Adviser (RIA) after crossing the $25m level in deals done.
YieldStreet’s products range from as disparate as loans secured by real estate portfolios to litigation finance investments and even a loan to an NBA basketball player secured by his contract, according to the company’s press release this Wednesday, among other arrays of structured products.
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$35m across 20 deals closed
During the call with Mr. Mehere and Mr. Weisz, they explained how the platform had launched in April of last year online and during the first six months operated with an invitation-only model where clients would need to request access, and since last October the company opened the doors to the public so anyone can signup to see if they qualify as an accredited investor in order to access YieldStreet’s products.
Mr. Mehere, explained that each of the 20 deals represent the types of loans that the company completed across the platform – together of which made up the $35m in funded investments – and included anywhere from 5-10 to as many as 30-40 investors per opportunity.
RIA Status and 506C
Traditionally, such alternative finance investments – within the fixed income space – were only available to ultra-high-net-worth and institutional investors, including hedge funds, but thanks to reforms from the 2012 JOBS Act, company’s like YieldStreet can offer the types of products that were previously only available to specific investors for as little as a $5K investment for qualified clients.
In addition, the 506c status that the company uses allows it to offer its products out to clients in terms of soliciting, whereas other related exemptions such as the 506b does not.
Mr. Mehere added in the company’s press release today, “As an investor myself, I was frustrated with the lack of investment opportunities outside of the stock market. We started YieldStreet to meet the needs of investors today who want to gain access to investments with high yields like hedge funds and institutions do, but have limited options with existing financial advisors and wealth management platforms. Most require high minimums and long holding periods that have historically shut out most investors. We are changing that.”
Five point system
During the call with Finance Magnates today, Mr. Weisz explained that the company differentiates itself from other firms by using a five point system where deals must meet each of the five criteria in order to past YieldStreet’s vetting process before it creates the structured opportunity for investors.
The five key points include that the investment must be asset-based and have underlying collateral, there needs to be low correlation with the asset and the underlying stock market, and the asset-managers or partners that lead the deals along with YieldStreet must have extensive experience in their related business and a proven background. The fourth and fifth point include how the structured deal must have a term of anywhere between 12-36 months, and lastly, the potential target yield needs to be between 8-20% and all of these five points must be met in order for the deal to be reviewed.
Because of this selective approach, the company had rejected nearly $300m across nearly a hundred potential deals that it turned down in order to continue to uphold its standards to help reach its client-focused objectives. This unique approach the firm takes helped it attract the seed capital and as underlying investors believe in the firm’s ability to scale.
Mr. Weisz followed adding how stock market volatility and low bank yields in savings accounts, coupled with an economy that is highly dependent on debt, has made opportunities such as those brought to investors on YieldStreet to become a key part in their client’s investment portfolios as the deals are highly selective and vetted. This approach helps reduce the risk in the investment while increasing the potential return for investors in these specialty finance products and helps add appeal as alternative finance products aim to become more mainstream.