DarcMatter Democratizes Access To Alternatives For Individual Investors
DarcMatter is an online platform designed to democratize access to alternative investments.
Benzinga spoke with DarcMatter CEO and founder Sang H. Lee to learn about the company and the opportunities it provides investors.
Benzinga: What's the history of the company?
Sang Lee: DarcMatter as a platform launched the fourth quarter of last year.
Prior to that, it was actually a sister platform for a startup crowdfunding company that existed about a year and a half before that.
BZ: How does the platform work for investors?
SL: From the investor's perspective, the main points we're trying to deal with are transparency, access and a sustainable pipeline.
When an investor comes to DarcMatter, they're able to use our various filters to hone in on the types of investments that are appropriate for them.
They can either invest into the transaction directly or they can also follow an investment as they're performing due diligence.
Some of the documents are behind firewalls so they would have to request access from the issuers themselves.
BZ: Speaking of issuers, what’s in it for them?
SL: The whole interaction process is nearly 100 percent automated with regard to many of the friction points that come from issuers.
For example: "Do we know who this investor is? Do we know if this investor is accredited?"
It's kind of a headache from the issuer's perspective when dealing with a large universe of investors.
Through the DarcMatter platform, every investor goes through an identical process of accreditation, so issuers are able to know that every investor has gone through a certain amount of screening.
BZ: How does technology fit into the DarcMatter platform?
SL: From a top down perspective, the industry of alternatives is opaque and fragmented due to regulations.
It's a $7 trillion+ industry with many backroom deals, handshakes and one-on-one interactions.
Through technology, we created an infrastructure for seamless information flow for investors to make smart decisions.
At the same time, issuers can use the technology to interact with hundreds of investors and tens of billions of dollars in capital without having to fly around.
Finally, the technology that we're building is smart investing. We can predict with a meaningful amount of significance which investors are appropriate for a specific offering.
BZ: You say you don’t provide investment advice. How is this use of technology not advice?
SL: Great question. The technology is not governed by human guidance.
An analogy would be if you're on Amazon, it tells you what's similar to your purchase.
An investor who never invests in a hedge fund, for example, would never (receive) recommendations for a hedge fund.
As the technology becomes increasingly more robust, the technology will be able to become much more granular on the types of things that work with the investor.
BZ: What’s the difference between Feeder LP structures and standalone offerings?
SL: The feeder component is really a core problem that DarcMatter is seeking to solve – acceptability to the accredited investor.
If you look at investor minimums, two things occur. One is obviously a physical restriction on the number of investors a company or fund can have.
At the same time, it's a logistical argument on "Is a check for $50,000 a headache that I add to my roster?"
A feeder fund is a self-administered vehicle by DarcMatter that effectively aggregates the pool of capital and smaller minimums, and we're able to offer a single check to an underlying issuer.
The direct (standalone) offerings are exactly what they sound like. They are primary direct offerings of the underlying security of a fund or a company with which a qualified investor can engage.
BZ: What factors make alternative investments difficult to access for investors and how does DarcMatter address them?
SL: I think there are various forces at work here. Alternatives constitute an exempt registration space on how you raise capital for a very low level of compliance and regulatory cost.
What you're actually dealing with is an industry governed by the requirement that you cannot speak to people about the fact that you are raising money unless you have a pre-existing relationship with them.
DarcMatter, as an infrastructure technology provider, (is designed to) shine light into it to create market dynamics and accessibility.
BZ: Finally, in addition to qualifying investors, what else does DarcMatter do for issuers?
SL: If you're looking at the cost of actually trying to raise capital, it's easily in the six digits.
In addition, you're looking at traveling trying to meet with tens to hundreds of investors, and being able to control that process in a meaningful way.
What we're able to do is consolidate that activity to a single link that has all of the information (investors are looking for).
Finally, for issuers, there’s a new and very exciting capital market of qualified investors that are not institutional.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
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