A few years back, the term ‘crowdfunding’ was pretty popular in fintech circles. We don’t really use that jargon anymore and many of the biggest players have naturally matured into digital wealth management platforms. Yieldstreet is one of those platforms — since inception, investors have deployed over $1 billion in asset classes like real estate, art and legal finance, and commercial loans.
Founder and president Michael Weisz joins me on the podcast to discuss broadly the impact COVID-19 is having on the adoption of fintech and which sectors are positioned to emerge successfully from this crisis. We talk about the evolution of digital wealth management firms in a Zoom world.
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The following excerpts were edited for clarity.
Building Yieldstreet
My past has been largely in private credit. I spent about a decade investing in multiple asset classes in the private credit space. Over time, I became frustrated by a few things. Capital markets are a mess. Good managers spend a significant amount of time raising capital, but where our primary function and where we thrive is on the investment side. At the same time, I felt that individual investors are also frustrated with their inability to source and invest alongside these strategies.
When you look at the market, there’s trillions of dollars in private credit being traded primarily by the largest institutions in the world. So, in 2015, I set out to focus on building a digitally native platform that would help investors and originators leverage technology’s capabilities.
Differentiation
Most of the other digital investment platforms focus on one strategy, like real estate. It doesn’t work if you solve for just one strategy. No one should responsibly put all their capital in one strategy. We had a vision of building a centralized platform with a variety of investment strategies across different strategies, risk, duration, yield and manager.
We also chose an originator model. One of the attractive things for investors is to invest alongside the pros. You don’t necessarily want to go to a platform that’s creating new investments. We source what we hope are leading experts in each of these strategies and make these investments available to our clients. If you want to be investor-first, then this is the way to go. I think we were right — since 2015, investors have invested over $1 billion through Yieldstreet.
KPIs
There are different ways to measure success. First, we look at how much value we’re providing to our investors. A number that’s more important than dollars raised is dollars returned. We’ve returned over $600 million since 2015. Over $100 million of that is interest — that’s profits and earnings that many of our investors wouldn’t have accessed outside of Yieldstreet. We also look at success metrics like dollars raised, investor growth, investor demographics, adoption, and cross selling opportunities.
The impact of COVID-19
We’ve learned a lot. There have been great things and challenges during this year. To have COVID show up when you’re coming off your best growth year with huge plans isn’t something I’d wish on anyone. Successful entrepreneurs know that these days come and you have to deal with them and plan for them.
The adoption of technology and growth of fintech has just moved five years ahead. I frequently ask people when the last time they used cash was. That sparked a realization that even late adopters are being forced to adopt technology around financial management and investing. That’s an exciting tidbit not just for Yieldstreet but for fintech. We can measure that by new user signups and activity by current users — both have spiked outside the norm and continue to sit at those levels.
Any time there’s a dislocation in the market with traditional capital providers, non bank lenders win. We end up getting access to better quality borrowers at more attractive terms than we have over the past few years. Now, traditional banks and capital markets have tightened. We’re seeing a lot of leading fund managers trying to raise capital now to take advantage of this dynamic.
New product
We’ve just launched a new business unit at Yieldstreet called private business credit. Private business credit is a strategy that focuses on rebuilding America’s small business. We brought on two people to run that strategy — they’ve been doing this for over 30 years now. We’ve been talking to them for quite awhile.
We’re focusing on receivable finance, purchase order funding, and consumer and commercial credit strategies in excess of $3 million. We’re excited about this because Yieldstreet has done about $100 million along this strategy since our inception. There’s been good success and investor appetite — we’ve been looking for ways to scale this.