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Part 2: Most of what is sold as Democratization of Wall Street is one of these 3 lies

Before looking at what real democratization of Wall Street could look like, today’s Part 2 looks at how purely profit oriented ventures that dress up the pitch in one of 3 democratization of Wall Street lies.

Lie 1 = smaller units access. This pitch typically touts the investment returns of an asset class that requires a big minimum entry fee from the wealthy and then offers retail investors access for a much lower minimum entry fee. Asset classes of this type include commercial real estate,  private equity including venture capital and hedge funds. The smaller units pitch is something along the lines of access for $10k not $1m. This usually packaging an asset that intermediaries representing the wealthy want to sell you.

Lie 2= free is good for you. Free is the perfect way for a venture to get to scale, but if that venture is sold to investors as a profit oriented venture, always remember that you the user are the product being sold. You might consider that trade (your data for a free service) is a good one for you but this is NOT democratizing of Wall Street, it is packaging punters on behalf of Wall Street.

Lie 3 =  $ billions of market cap means $billions of value. This is typically the private equity/venture capital unicorn pitch “look we just did a round valuing the company at $x billions of market cap, now you get the opportunity to buy in at $x billion++ valuation.”Before your succumb to being flattered as an insider, check small print such as preference rights.

These ventures are often very successful judged purely on their profit generation. It is their impact investing democratization of Wall Street pitch that is a lie.

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Part 1

Part 2

Part 3

Part 4

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