NexusCrowd takes crowdfunding to a higher caliber; NexusCrowd is a highly unique crowdfunding platform that allows individuals (accredited investors) to co-invest in private deals typically limited to private equity and venture capital institutions. KITE Invest and Hitesh Rathod, the Co-Founder and CEO of NexusCrowd, discuss this intriguing and new way of crowdfunding and private equity.
KITE Invest: Please shed light on the origin of the concept for NexusCrowd and its path up to this point.
Hitesh Rathod: The NexusCrowd concept was born a year and a half ago after observing challenges in the private capital markets and the securities crowdfunding industries.
In private capital markets, individual investors’ access to investment opportunities is limited by their relationships/networks and a prohibitively high minimum investment threshold.
The challenges faced in the securities crowdfunding industry include relying on an online platform operators’ ability to perform investment due diligence (not their domain of expertise), offer investors fair terms and provide ongoing investment management.
NexusCrowd solves these problems by harnessing the power of crowdfunding to provide accredited investors the opportunity to invest alongside established private equity and venture capital partners in exclusive deals that interest them, on the same terms, for a minimum investment of $10,000.
Our deals are sourced, vetted and structured by our private equity and venture capital partners where our partners invest at least 50% of the capital and then manage and report on the investments over time. To ensure that investors are getting access to the highest quality investment opportunities and investment managers, NexusCrowd only partners with private equity and venture capital partners with strong track records. By lowering the cost of entry into the exclusive private equity and venture capital marketplace while providing quality investment opportunities, our model solves the current pain-points in both the private capital markets and the securities crowdfunding industries.
Our transparent, easy to use platform allows investors to not only access investment opportunities, but to also monitor the progress of their investments. To date, NexusCrowd has drawn a significant amount of interest both from partners who are looking to access additional capital and investors who want better access to deal flow.
KITE: What have been some milestones achieved by NexusCrowd and some remaining goals?
HR: NexusCrowd received seed funding from a venture capital fund in July 2014. Since then, our team has been hard at work developing the platform, designing the infrastructure for the deal execution process and building relationships with both partners and potential platform users.
We are proud to say that we have already established partnerships with three private equity and venture capital firms across a variety of sectors. This was a deliberate decision because we know that not all investors are interested in the same sector, security type or investment stage. We are currently in discussions with several other potential partners across a variety of sectors and look forward to announcing new partnerships in the near future.
Upon receiving the necessary securities license, NexusCrowd will launch the first institutionally-led and managed securities crowdfunding deal in Canada.
KITE: Currently NexusCrowd has established partnerships with venture capital and private equity firms that invest in real estate, technology, energy infrastructure and advanced materials.What other sectors do you foresee in the future being a part of the investment wheel?
HR: Our goal at NexusCrowd is to be the premier source of exclusive institutionally-led private investment opportunities without restrictions on sectors or securities. Based on feedback from many potential investors, we are considering partnerships in the agriculture, industrial, renewable energy and life sciences sectors in addition to the partnerships we have already established. We are also considering partnerships with institutional private debt investors to expand our offerings to accredited investors who are interested in fixed income products.
KITE: Is there a geographical restriction of who can partner with and invest in the deals offered by NexusCrowd?
HR: We are currently focused on partnerships with Canadian venture capital and private equity firms. However, there is no restriction on who we could partner with if we believe the potential partner has a strong track record and can provide investors with access to attractive and exclusive deal flow. NexusCrowd currently limits investor access to Canadian individuals and institutions who reside in the jurisdictions where we are licensed by securities regulators. We do, however, expect to provide access to the US and international investors over time and welcome any interested investors to contact us.
KITE: What measures does NexusCrowd take to mitigate the risk connected to individuals investing in these larger-sized deals?
HR: NexusCrowd will only present investment opportunities that our partners also invest in. In addition, we require our partners to invest at least as much capital and on the same financial terms as our investors. This ensures that interests are aligned with the goal of maximizing value for both parties. Our unique business model aggregates individual investors, therefore providing each individual investor with advantages typically reserved for institutional investors. Our investors will also gain peace-of-mind knowing their investments will be managed and reported on by sophisticated partners that have invested alongside them with the same goals.
KITE: You co-founded NexusCrowd after observing the evolution of crowdfunding around the world and brought the concept of crowdfunding to larger scale investment opportunities. As NexusCrowd develops what are some of the challenges facing this unique crowdfunding method?
HR: The primary challenge facing securities crowdfunding today in Canada, and many other jurisdictions, is the pace at which financial institutions and regulators are embracing technology. A decade ago, very few individuals had online discount brokerage accounts where they could place trades and pick and choose investments. This has changed dramatically. Now, investors are demanding more choice, more control and increased transparency over their investment opportunities. Private capital markets are undergoing the same shift towards individuals selecting their own investments using an online platform, however, we are still at the very early stages of this change, which is delaying the adoption rate by financial institutions and regulators. NexusCrowd is therefore uniquely positioned to be a leader in this movement.
The second challenge facing the securities crowdfunding industry is the ability for platforms to suitably due diligence, structure and value investment opportunities. Regulators remain concerned about the potential of fraud and fair dealing – all valid concerns. By partnering with established venture capital and private equity institutions who hold themselves to the highest standard of due diligence, we ensure that our investors only access professionally vetted and structured investment opportunities.
KITE: What has been the most interesting aspect of bringing the two types of investors (individual and institutional) together in this way?
HR: We are at the forefront of charting new territory for our individual investors as well as our institutional partners. Individual investors have long sought after deals exclusive to venture capital and private equity institutions. They could only access these deals through investment funds that require a significant investment and have no say in what companies the fund invests in. Venture capital and private equity institutions have tended to avoid raising capital from individuals because their fragmented nature increases marketing costs and creates an administrative nightmare. The introduction of securities crowdfunding and our unique value proposition benefits both parties where individuals gain access to exclusive deal flow and institutions gain access to additional capital without incurring additional costs.