In Partners We Trust (or How to Solve a Chicken and Egg Challenge)

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If you missed it, check out the article on Venovate by Deborah Gage that appeared the other day in the Wall Street Journal.

In the article, Deborah mentions two of our key partners – Provident Trust Group and Kingdom Trust Company. In addition to these great firms, we will soon be announcing partnerships with other trust companies that will total over 340,000 accounts and over $17 billion in custody. I want to expand a little on why trust companies are an important strategic fit for Venovate, and vice versa.

Chicken and EggIn creating any marketplace, there is a chicken and egg challenge: you need buyers to attract sellers and buyers won’t show up until there is something for sale.

Soon, when Venovate Marketplace goes live, we plan to have deals from some of the top sponsors in America. The WSJ article for instance mentions Draper Associates for venture capital, but we’ll also have real estate, natural resources and energy deals from sponsors of a similar caliber.

Distribution partnerships with trust companies are the other side of the deal. They are helping Venovate create a market by giving businesses on the platform access to a large pool of accredited investors, family offices, and institutions, many of whom are actively looking for private investments.

Unlike most IRA account providers, trustees like Provident and Kingdom don’t sell investments – they provide a self-directed retirement account and safeguard your assets. Self-directed IRAs are favored by individuals who do not wish to be constrained by the investment choices available in an IRA with a financial institution. At a bank they would be limited to bank products, at a brokerage firm to stocks, bonds, and mutual funds. However, in a self-directed account they can invest in private companies, real estate, gold, and many other types of legal investments that financial institutions don’t offer.

What’s in it for trust companies who partner with us?

Until now, it has been very hard to find a decent choice of alternative investments. There were plenty of opportunities out there, but it was illegal to advertise them. Until the JOBS Act passed in 2012, you had to hear about private investment opportunities from someone who already knew you and had verified that you were an accredited investor.

Under Title II of the JOBS Act, Venovate Marketplace is able to offer “crowdfinancing” opportunities to accredited investors – including most people with self-directed IRA accounts. The crowdfinancing concept is similar (yet different) to “crowdfunding” sites like Kickstarter or Indiegogo. The difference is that with crowdfinancing funders get a financial interest in the company. Depending on the deal, this could be equity ownership, a private bond, or even shares in a private fund that invests in alternative investments.

By partnering with Venovate, the trust companies give their clients access to a deep pool of investment opportunities and an easy way to invest in them. In return, Venovate provides access to a large group of people who understand alternative investments, are qualified to invest in them, and are looking for more choices. Which will attract even more quality deals.

So, our partnerships represent liquidity and a path to a vibrant primary and secondary market place, at Venovate Marketplace. Chicken and egg challenge, solved.