Pension Funds & Crowdfunding - The Future of Retirement Investing by Samson Williams
(Originally published Oct 8th, 2019 in the Irish Tech News)
Investing in JOBS Act equity crowdfunding campaigns for Pension Funds costs less than the administrative fees paid to their fund managers.
Pension Funds are ideally suited to make long-term (10-15 year) seed investments ($10k-$50k) in startups and growing businesses.
Early, patient capital yields greater returns. How former eBay and Paypal executive Sean Aggarwal turned a $30k investment into Lyft into $120M in 12 years.
The beauty of JOBS Act equity crowdfunding is that it spreads investment risk. Having 200-2000 “micro-investors” spreads the individual risk incurred by any one investor. Micro-investors also tend to be customers of the businesses they have invested in. Having customer-investors lends credibility to the company’s valuation, as customers help build a company’s worth by purchasing the company’s goods, products or services with both loyalty and self-interest guiding their decisions. In the end, especially for startups, sales and revenues are the main drivers of valuation and sustainability. Having customer-investors should ensure robust sales and steady revenue streams, thereby freeing up the company to focus on streamlining operations and organic growth into new markets.
Steady, long term, organic growth of businesses should be ideal investment traits for Pension Funds. Too, the potential for Pension Funds and JOBS Act equity crowdfunding investments is vast.
Pension funds can afford to make many micro-investments ($10k - $50k).
The 10-12 year period to realize gains is in line with their other investment strategies.
Only with micro-investments can Pension Funds realize 10,000x returns.
The administrative cost of making micro-investments is substantially lower than their current investment cost.
Pension Funds could also enable retirees to direct investment into startups and local businesses that they have a personal interest in, thereby laying the foundation for a closed loop of sustainable, client-favored investments.
Case Study - How Sean Aggarwal turned $30k into $120M
Sean Aggarwal, a former executive at eBay and Paypal, invested $30,000 in Lyft in 2007. At the time he was the company’s largest individual stakeholder of Class A shares (1.41 million shares). At the time of the IPO Sean’s shares were valued at over $120M.
The Future of Pension Fund Investing
Yes, Aggarwal’s is the short explanation of a 12-year journey fraught with unknowns. Investing comes with risk--not all investments will be successful. In the VC and Hedge Fund space, 96% of investments are failures. However, those 4% that do yield hockey stick returns of 3x, 100x, or more, make up for the 96% losses. A clear path to Pension Funds transforming their investment strategies is by taking a more active role in the equity crowdfunding micro-investing realm. By entering into investment opportunities, along with micro/customer-investors, Pension Funds could also position themselves to reap the benefits of 10,000x returns over the course of a decade.
As more JOBS Act, Title III equity crowdfunding platforms come online, we can expect more “traditional” investing organizations to take a harder look at the opportunities presented by micro-investments into early stage companies. Yes, there will be losses on par with VC and hedge funds. However, there will also be 10,000x returns. Pension Funds are uniquely situated to provide the patient capital needed to help bring startups and emerging businesses to mature profitability. We may not know who yet, but unicorns of the 2030s are being born on equity crowdfunding platforms today.
Note - This is not investor advice. Do your own research. All investing comes with risk. And investing in early stage startups is a great way to lose all your money and get a divorce. So be smart and commit to extensive due diligence; don’t put all your eggs in one basket and explain to your partner the long-term vision of an equity crowdfunding strategy. A conversation over a cup of coffee is a far better investment than a divorce.
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Thank you for reading my article. On LinkedIn, for the Blockchain Business Magazine, and the Crowdfunding Professionals Association I regularly write about technology, cannabis, crowdfunding, real estate, health and compliance investing trends. To read my future posts simply join my network here or click 'Follow'. Also feel free to join me on Twitter, Facebook, Instagram, or YouTube.
About Samson Williams
Samson is an internationally recognized anthropologist and expert in Operations & Technology, Blockchain, Cannabis, cryptocurrencies, mobile payments, mortgage finance and organizational change management in FinTech.
Samson is ranked among the globe’s top innovative technology professionals for his cutting-edge research and applications in crowdfunding, tokenomics and digital securities. Samson is an adjunct professor at the University of New Hampshire School of Law, Columbia University, a Board Member of the Crowdfunding Professional Association and Principal consultant at Axes and Eggs. For business inquiries Samson can be reached at samson@axesandeggs.com