DarcMatter provides transparent, institutional-level access to alternative investment opportunities. I’ve already mentioned them in a post focused on disruptions in the hedge fund asset class because they cover a full range of alternatives, including venture capital, private equity, hedge funds, and fixed-income products. They are US based, their investors are 100% US accredited and with a minimum investment requirement of 25k. Issuers are also US for now but they could include foreign issuers looking to tap into US investment pools.
The founder of DarcMatter, Sang Lee, is an investment banker baffled by the fact that due diligence, research, analysis, etc. in this business are mostly on excel spreadsheets. Kids are taught in middle school how to manipulate formulas in spreadsheets; this is part of math curriculum, along with statistics and probability. Teaching coding still remains an extra-curriculum activity and special educational NGOs are the main promoters of such skills.
DarcMatter caters to accredited investors; an estimated 8million in the US. Within that universe, only 300k are actually investing in that space. So not even 4%! Big market potential if one wants to look at the glass half full.
Accredited investors are actively seeking opportunities for private market allocations. BC Partners claimed that more than $1trillion dollars globally are seeking to be invested in the private equity space alone.
Under private market allocations, DarcMatter is broadly positioned as an online marketplace. They are not an online broker-dealer, they are not a cap intro business, they are not an investment advisor. As James Suh in charge of business development explained to me, they are a tech platform showcasing private deals. In this online marketplace, you can access directly the offerings or invest into pooled structures. Accredited investors and qualified investors such as family offices, wealth managers, and financial advisors can use the platform for free.
Four private categories are showcased:
- Venture capital (startups-high growth-mainly 100% ownership)
- Hedge funds
- Private Equity (more mature and partial ownership – no single startup deals)
- Private financing
DarcMatter is not involved in angel investing (like Angel List). DarcMatter showcases issuers or originators of the private deals. As an accredited investor you can choose to directly invest in one deal or into a fund structure that pools private equity or private finance deals . They provide all relevant information in order to help investors to make an intelligent investment decision. They screen issuers to make sure that they provide information on their platform that meets DarcMatter standards. They do not screen them with the eye of an investment advisor. The degree of privacy or openness for each deal can be determined by the issuer and the applicable regulatory framework.
DacrMatter is about transparency in the private market space. By offering fund and pooled structures they are also facilitating accessibility to those that are not wealthy enough to invest 100k in more than one single deal. They also provide logistics to issuers (like hedge fund managers) that accept individual accredited investors and don’t want to deal with the hassle of providing fact sheets, performance etc to them. They are actually playing a role of a CRM system in the private market place at a large scale since they are an aggregator.
They are also overlapping somewhat with the cap intro business which has been traditionally based on person to person networking. I see that this business is already in the beginning of the second phase of their development, in which they are starting to partner with the “adjacent” traditional businesses. Third phase is to partner with the incumbents (i.e. investment banking and private placement agents) .
DarcMatter is already in discussion with organizers of cap intro events. They foresee their tech platform used by the cap intro dating business model, as a tech tool that efficiently aggregates relevant data of their participants.
DarcMatter has a role to play in the private markets. Registered broker dealers select their issuers and deals and promote them. On the other end of the spectrum, are networking and marketing services (sales person traditional approach). DarcMatter is neither. They are an online marketplace; their motto is transparency; their vision is to become the place to shop for private investment allocations; their contribution being broadening of the market, leading towards an exponential increase of allocations in the private market space. DarcMatter wants to educate the 96% of the accredited investor market share that is not even looking at the space.
That is the reason they closely monitor all the tech metrics related to the activity on their platform. It has only been a couple of months that they have gone live and they are continuously in development.
Their business model is based on charging fees to issuers. They do not charge a success based fee but rather a subscription fee and they don’t seed startups. For investors the platform is free.