Spearheading A New Age Of Data-Driven, Early-Stage Investing
Private equity and venture capital are ripe for digital disruption
Our founders are at the juncture of big data/analytics and private equity
Asset managers need new products to address changing market conditions
New Market Demand
Interviews with hundreds of institutional and high-net-worth investors on 5 continents can be summarized with the following investment priorities.
1. Wealth preservation – minimize risk in an expected downturn
2. Improve yield with a big upside like technology to balance conservative portfolios
3. Move an average of 30% of AUM to uncorrelated alternative assets
4. Preferably include a social impact component
With global uncertainty on the rise and low interest expected to continue, we know that hundreds of billions per year will be moved from traditional assets to some form of alternative asset. Many investment managers are frustrated with the relative lack of choices and or access to high-performing funds.
Imperfect Market Supply
Fascination with unicorns and late-stage tech companies has led some investment firms to raise funds of unprecedented size. As a result, investment managers have focused on more mature technology companies to efficiently draw down limited partner commitments and capture a piece of hot deals. However, the events of 2019-2020 have called this strategy into question - best represented by stumbles at Uber and WeWork in Softbank’s $100 billion Vision Fund and the fallout from Covid-19. Although these transactions have garnered most attention, there is a systemic market dysfunction far more pervasive.
Startups continue to fail at a rate of 90 percent. In the US alone, this means that more than 40,000 companies fail per year, destroying $50 billion in wealth and at least 250,000 jobs! Meanwhile, dramatic improvements have been achieved by organizations like Founders Fund, 500 Startups and Y-combinator where intensive support and mentoring have dropped the failure rate by 30% with average returns in excess of 5x. Unfortunately, this hands-on, boot-camp model is not scalable enough to address more than a fraction of startups that need support. The aftershock of COVID-19 is likely to exacerbate this market weakness.
New Product with Unique Solution
This presents a unique opportunity for a new financial product that addresses these market dynamics. Our research concluded that more than half of the causes of failure can be mitigated in a low-cost manner using modern digital tools combined with best practices.
Early stage companies are more flexible and capable of implementing a de-risking framework along the lines of Six Sigma programs long used in fields such as aerospace. Managing the portfolio in this manner is both efficient and scalable. We employ quantitative methodologies similar to what made Jim Simons’ Medallion Fund (Renaissance) the best performing in history (60% annual returns).
Large Opportunity
Crucible acts as a strategic partner to traditional VC and PE funds that need access to a quality pipeline of post-Series B deals due to the need to quickly deploy limited partner commitments. Crucible Fund I aims to raise $1 billion dollars to invest in a large number of early-stage companies.
Market research indicates strong international interest for a financial product that offers the rigorous controls found in a private equity fund but with a low cost infrastructure to capture a large volume of early stage companies. This unique approach offers the potential both for optimal yields and a statistically higher probability of owning unicorns. Crucible provides investors, partners and governments the opportunity to participate in a venture with triple bottom line focus that increases yields, innovation and job creation.