Accredited Investors Can Access Private Markets and Invest in Startups to Diversify Their Portfolios

In a Nutshell: Diversified portfolios can shield investors from risk. Propel(x) provides an alternative investment platform to enable accredited investors to build diversified portfolios. The company conducts due diligence on investment opportunities and releases its findings to investors. Propel(x) employs special purpose vehicles to broaden access to startup investing.

From saving for college tuition to funding retirement, we all know life can be expensive. You probably know it’s important to invest your money so it can grow in preparation for future expenses, but opening an investment account may seem daunting if you haven’t invested before.

Investments can lose value over time. The idea of losing your hard-earned money without having anything to show for it may give you pause. And some investment companies will charge you annual fees and one-time charges, which can erode the value of your investments. 

Diversification is the practice of spreading your investment capital among different investment vehicles to limit your exposure to one particular type of asset. Diversification can help you avoid catastrophic losses in your investment portfolios.

Propel(x) is an alternative investment platform that provides capital to early, growth, and late-stage startups. The company helps investors access specialized investment opportunities.

We spoke with Swati Chaturvedi, Propel(x)’s Co-Founder and CEO, to learn more about the alternative investment landscape and Propel(x)’s efforts to provide financing to technology startups. 

Before founding Propel(x), Chaturvedi worked for venture capital and private equity firms.

Upon moving to the Bay Area, Chaturvedi told us she realized she wanted to become an angel investor, or someone who invests in early-stage startup companies. 

Chaturvedi told us she visited several groups of angel investors, but she couldn’t locate an investment group that met her needs. At the time, many angel investors were putting their money toward solving first-world problems, and Chaturvedi wanted her investments to have a broader impact.

“I have a deep passion for science and technology, and I didn’t find the opportunities that angel investors were discussing at the time to be compelling,” Chaturvedi said. “I wanted to invest in more meaningful things that could potentially change the trajectory of humankind. So, I started MIT Angels, and it took off like a rocket.”

MIT Alumni Angels focuses on investing in what Chaturvedi calls deep technology. Chaturvedi explained to us that companies involved in deep technology leverage breakthroughs in science and engineering to create commercial opportunities. 

Within a year of its launch, MIT Alumni Angels became one of the largest groups of angel investors in the Bay Area. Through her work with MIT Alumni Angels, Chaturvedi told us she realized that investors are passionate about companies that employ science and engineering to forge new technologies.

Early-stage technology startups can struggle to raise financing. Chaturvedi originally founded Propel(x) to connect deep technology startups with investors.

We’ve seen companies change their business models as they grow and adapt to market conditions. Chaturvedi said Propel(x) became more focused as it grew.

The company’s subsidiary, Hubble Investments, is a FINRA member broker-dealer. Most offerings on the Propel(x) platform are offered by Hubble. Hubble’s status as a regulated broker-dealer obligates it to follow guidelines and conduct due diligence on investment opportunities

Propel(x) enables accredited investors to invest in hedge funds in addition to startups. We found out during our conversation that the company recently repositioned itself as an alternative investment platform. Chaturvedi said alternative investments encompass many types of offerings that people can’t access through public markets, including hedge funds, private equity, venture capital, and real estate.

Alternative investments also include non-traditional assets, such as fine art, collectibles, jewelry, and rare wines.

Chaturvedi told us real estate investments are by far the most popular form of alternative investments, followed by investments centered on private equity and hedge funds. Venture capital opportunities represent the smallest segment of alternative investments. Approximately 10% of the alternative investment market concentrates on the venture capital space.

“If you look at it one way, we’re involved in the smallest area of alternative investments because we’re involved in venture capital,” Chaturvedi told us. “But if you take a look at the flip side, you’ll see there is a vast open area for us. We have room for lots of growth, and if you’re a hedge fund that’s wanting to raise some money, you should come to us.”

Dr. Frank Sortino advises Propel(x) on hedge fund investments and helps the company evaluate funds. Dr. Sortino developed the Sortino ratio, which, along with the Sharpe ratio, helps investors measure an investment’s returns against its risk. Chaturvedi told us hedge funds frequently use the Sortino ratio to measure performance.

Propel(x) democratizes access to investment markets for accredited investors. To qualify as an accredited investor, you must meet net worth or income eligibility requirements established by the Securities and Exchange Commission (SEC). You can take certain FINRA exams such as Series 7, Series 82, or Series 65, to qualify as accredited investors.

“We’re open to all accredited investors around the world,” Chaturvedi said. “We’re highly curated, but we’re also globally accessible. Investors can come to us and access online the due diligence we’ve conducted on each offering.”

The Financial Industry Regulatory Authority (FINRA) offers guidelines for how companies such as Hubble Investments (a Propel(x) subsidiary) must conduct due diligence on investment opportunities. Hubble considers many factors when determining whether a startup is a suitable investment. 

Hubble evaluates offer terms and conducts background checks on a company’s founders and executive officers. Hubble also examines a company’s bank statements to ensure that it has a minimum of six months of cash on hand to run its business in the short term

“You don’t want to invest in a company and have them go belly up immediately after they take your money,” Chaturvedi told us. “We look at material contracts, tax documents, board resolutions, financial statements, a company’s performance, and their projections for the future to determine whether they’re in good standing. We’ll review anything we can that can inform us better about the health of a company and its strategies for growth.”

Propel(x) works with venture capitalists to vet companies it may invest in. The company accesses many of its deals through its partnerships with venture capitalists. 

You may be interested in investing in hedge funds, but Chaturvedi told us obstacles can prevent investors from accessing certain types of assets. Propel(x) advertises investment opportunities on its website to allow investors like you to find investments you otherwise wouldn’t have access to.

Investment opportunities can require you to make significant minimum investments. Chaturvedi said some opportunities require initial investments of $250,000. Propel(x) allows individuals to invest in startups for as little as $5,000.

A special purpose vehicle (SPV) allows investors to pool their funds to make one investment in a company. We learned Propel(x) uses SPVs to permit investors who don’t have enough capital to meet specific minimum investment requirements to participate in more types of investments. Chaturvedi said managing SPVs is a challenge for the company, but its use of technology helps it comply with industry regulations.

“A special purpose vehicle is usually a new company registered with a state (typically Delaware), and, if it raises funds, it has to report these to the SEC,” Chaturvedi said. “We’ve automated most of that process, which has turned out to be an incredibly valuable thing to many investors. We’ll turn around and offer an SPV to everyone because we’ve already automated our processes and reduced the costs associated with it enormously.”

Propel(x)’s innovative offerings are available to more than 3,500 accredited investors worldwide. Chaturvedi shared that the company has had significant wins, including a company that went public on an international stock exchange.

Propel(x) invests in many companies that Chaturvedi is excited about, but she’s not permitted to discuss the particulars of some investments because they involve privately held companies.

“I can’t discuss in detail many of the companies where we’ve had very big write-ups, but suffice it to say that a lot of our companies have had significant write-ups,” Chaturvedi told us. “These are risky businesses, so the way to approach them is with a portfolio mindset. I advise investors that if they don’t have the money to invest in at least 20 companies, then they shouldn’t start investing in some of the opportunities we offer.”

If the average startup accepts minimum investments of $25,000, then investors seeking to invest in startups and follow Chaturvedi’s advice must have $500,000 ($25,000 multiplied by 20 investments) in investable assets to allocate to startups. Chaturvedi said the amount of money required to invest through Propel(x) is out of reach for many investors, but the SEC standards for accredited investors are designed to protect you from financial harm.

Chaturvedi manages a blog on the Propel(x) website that offers guidance if you are looking to expand your knowledge of alternative investments. The blog covers various topics, including how to use a broker-dealer to invest in private equity and a comparison of a company’s valuation to its share price.

As she looks toward the future, Chaturvedi told us she is excited about new asset types Propel(x) plans to enter. 

“The average investor is invested in a range of different types of investments, and they want to be able to use one platform to shop for all their alternative investment needs,” Chaturvedi said. “Our objective, which is different from other platforms, is to enable ordinary accredited investors to invest in top-flight opportunities alongside other investors on the same terms. And that’s what we have accomplished.”