Fintech is changing the way investors source their dealflow and identify investment opportunities. Recently, we covered 5 common misconceptions about online investing in alternative investments. Today we’ll share some investor tips and best practices for online investing in alternative investments.
1. Trust your source: In order to invest online, particularly in the alternative investment space, the source from which you acquire investment materials should be reliable and verifiable. Whether it’s a broker dealer, placement agent, or investment platform, certain structures and review protocols conducted by the channel will ensure that the opportunities you are viewing are legitimate, accurate, and open for investment.
2. Understand if you are qualified to invest: Typically, only accredited investors can participate in illiquid alternatives such as venture capital, private equity, hedge funds, and private companies. Before taking the time to find deals, you need to confirm that you are eligible to invest. Also, most funds have minimum investment amounts – be aware of these minimums and whether or not you can deploy that type of allocation.
3. Transparency in communication: Is there an opportunity to talk to the fund managers and perform proper due diligence? Can you easily contact the investment platform that offers the investment? This is important to understand the validity and attractiveness of the opportunity, as well as the competence and customer service quality of the platform.
4. Know your target asset types: In order to understand where and how to invest in alternative investments online, you should know what types of assets you’re seeking. Some platforms deal primarily with startup equity opportunities, while others feature a full range of asset classes. Having a preference for certain assets may influence which platform is most helpful in your search for relevant investment opportunities.
5. Know your target sector focus: Like asset types, some platforms focus exclusively on certain sectors like consumer products or technology. In order to get the most out investing online, your sector focus should be clearly understood and targeted.
6. Be aware of the investment horizon and risk factors: How long will your money be locked up as a result of investing in illiquid alternatives? An investment in a private equity fund could extend over a decade. Different assets present different risk/return profiles. You should have a clear understanding of your risk appetite to guide your selection of investment opportunities to review.
7. Recognize the tools at your disposal: As a qualified investor you should have access to proper due diligence information. Most platforms will have minimum disclosure standards in place to ensure that investors will be able to make well-informed decisions. To make a proper investment decision, you should be able to review offering materials, diligence any third party service providers connected to the offering, as well as communicate with the general partners.
8. Understand what an investment commitment really means: If you intend on investing in alternative investments, you should be aware of how your capital commitment is treated and what kind of redemption rights you have. What happens if you default on the capital call? What happens if you need an early redemption?
9. Assess and understand different types of fees: Some alternative investment platforms charge fees to the investor while others charge issuers. Be aware of the value that’s being created to warrant these fees, and the compliance and legal considerations behind the fee structures. Additionally, being aware and well-versed on fee structures of funds is essential for participating and understanding how these investments behave.
10. What types of activities happen post-investment: Post-investment communication is an essential part of the investment process. The long-tail nature of these investments requires an ongoing understanding of asset performance and ongoing communication with the general partners. You should make sure that all investments, online or offline, necessitate continuous and regular communications post-closing.
DarcMatter is a technology platform providing enhanced capital connectivity between issuers and investors in the alternative investment space. Visit DarcMatter.com to start raising capital or get transparent access to alternative investment opportunities.Visit DarcMatter