It’s no secret that private startups have a potential for wealth generation that public companies simply can’t match:

• Historically, investors who participated in a venture round of an company that IPO'd have received avg annualized returns from ​50-100%​.

• But for investors who purchased shares on the first public trading day, the average return ​shrinks to almost nothing​ (and often goes negative)

In years gone by, world-changing companies like ​SpaceX​, ​Stripe​, and ​OpenAI​ would already be public by now.

(Remember, Google's massive IPO took place just ​six years​ after its founding, younger than all three companies listed.)

But with companies staying ​private for longer​, everyday investors have basically lost access to venture-backed startups. Only wealthy, well-connected individuals and platforms can get access.

You could argue the best solution here its to create a publicly-traded fund for pre-IPO shares. Shares that you can buy through your brokerage account. Shares that anyone can invest in...

And there's only one company doing this: They're called ​Destiny​, and they're the subject of today's issue.

Let’s go 👇

Why private stock markets don't cut it

Traditionally, investing in ​secondaries​ through private stock markets has been one way to bridge this gap. But there are a few reasons to think this isn’t really the best solution for investing in private companies.

On the surface, building a "stock market for secondaries" seems like an excellent way to let investors access late-stage, venture-backed companies.

But this approach doesn’t solve some of the fundamental problems with investing in private companies.

Accreditation restrictions are a huge issue

A private stock market might make it easier to trade secondaries, but these platforms can only be used by accredited investors (typically those with an income of $200k+ or net worth of $1m+)

Since qualification as an accredited investor is the ​fundamental legal restriction​ barring most people from purchasing private investments, secondaries markets can never be a universal solution.

Private companies aren’t easy to vet

Vetting promising startups and deciding which ones to invest in is literally a full-time job.

Despite this, everyday investors are pretty much expected to fend for themselves in private markets — and often with almost no financial statements or company material to actually analyze. (After all, private companies don’t have the same disclosure and reporting requirements as public ones)

Diversification is very challenging

In private markets, you usually need to invest ​$10,000​ or more.

Some platforms focusing exclusively on transactions in the range of $50,000 - $100,000+.

What’s more, some high-demand investments (like say, SpaceX) can be assigned custom minimums, often reaching up to $1 million. And brokerage commissions to close these deals can be ​5% or more​.

That makes assembling a suitably diverse portfolio of secondaries an expensive task. Most investors don't do this, and end up over-concentrated in just a few companies.

Liquidity is still pretty rough

Finally, even though private markets improve liquidity for startup shares, secondary shares still don’t trade very often. This means it's hard to track their current value, let alone cash out.

Clearly, private secondaries markets are far from perfect. Using them only makes sense for a specific kind of investor: one who is: active, rich, and ultra-hands-on.

Thankfully, in a few short months, investors are getting access to a better option — ​DXYZ​.

D/XYZ (Destiny): A breakthrough company

DXYZ will be the first public, exchange-listed portfolio of hand-picked venture-backed private technology companies (!)

For the first time, investors can get access to the late-stage startups like SpaceX, Stripe, and OpenAI on the public markets.

D/XYZ (pronounced Destiny, the actual team behind this) is planning to list this offering on the New York Stock Exchange in March 2024 under the ticker ​DXYZ​.

And considering that founder Sohail Prasad literally founded and led a private secondaries market (​Forge​), DXYZ is clearly informed by the shortcomings of that model.

Destiny's approach

No accreditation restrictions

It’s a public product, after all.

Everyone can participate — no wealth barriers. (Huge!)

No minimums

Unlike the restrictive minimums of private secondaries markets, you can invest pretty much whatever you want in ​DXYZ​

This is basically the only way to invest in SpaceX with your spare cash.

Plus, making automated investments through a brokerage account is way easier than through a secondaries market, allowing you to make private investing a recurring part of your strategy.

Strictly vetted companies

DXYZ has some specific eligibility criteria for companies to be included in the portfolio, including:

• Venture-backed

• At least $50 million in investment by reputable US institutions.

• Sound financial structure, including healthy liquidity and no burdensome debt.

• No unusually high executive turnover or other cultural red flags.

• And no risky foreign legal structures. (Looking at you, ​Chinese VIEs​...)

Broad portfolio construction

Instead of needing to assemble a broad portfolio piece-by-piece, DXYZ investors can get access to a mix of venture-backed startups with just one purchase.

The current portfolio includes 23 late-stage companies from a range of industries (although the team eventually hopes to build that up to 100)

This approach is closer to the passive, index-oriented style of investing that many investors prefer, especially as active stock picking has fallen out of favor (although DXYZ isn’t actually designed to follow an underlying index).

Strong liquidity (finally!)

By virtue of listing on a centralized public market like the NYSE, ​DXYZ​ will have vastly increased liquidity when compared to the underlying companies.

Not only does this make it relatively easier to liquidate your position than in private markets, but it allows you to better track the market value of your shares over time — meaning you actually know how much your investment is worth.

Does DXYZ have competition?

Here’s the thing: the whole fund-based approach has actually been tried before, with a number of investment funds promising access to a portfolio of private companies or startups in some form.

These include ​The Private Shares Fund​, the ​Fundrise Innovation Fund​, and the ​ARK Venture Fund​).

How does DXYZ stack up to these direct competitors?

DXYZ is truly public

DXYZ is the first of these fund offerings to actually be a publicly listed fund — as opposed to industry-standard interval funds, which have investment minimums and only allow quarterly, partial cash-outs (usually only 5% of your shares can be redeemed per quarter.)

The Private Shares Fund, for instance, has a ​$2,500 minimum investment​ and only offers liquidity on a ​quarterly basis​.

In contrast, the minimum investment in ​DXYZ​ is just the cost of a single share (launching at a nominal price of $8, not including any brokerage fees) and you can sell shares daily on the exchange (assuming, of course, that there’s sufficient demand).

Having the choice to liquidate by selling shares isn’t just good for investment optionality, but also for peace of mind.

Only private & proven companies are included

Pretty much all of DXYZ’s competitors hold "private" shares in their funds. But there’s no consistency regarding what that means, nor what portion of the fund is actually private.

DXYZ is clear that their fund is only interested in the "top 100 venture-backed private technology companies" on the market.

Other funds vary, with portfolios including everything from public to private companies and early-stage to late-stage startups.

If you’re interested in either ultra-early-stage or public companies, DXYZ probably isn’t for you.

But just understand that by focusing on a curated subset of private companies, the DXYZ portfolio is far more tailored than other approaches.

We’re out of space! Read the rest of this issue on the web.

Disclosures

• This issue was sponsored by Destiny​

• The ALTS 1 Fund holds no interest in any companies mentioned in this issue.

• This issue contains no affiliate links

This issue is a sponsored deep dive, meaning Alts has been paid to write an independent analysis of Destiny and their associated markets. Destiny has agreed to offer an unconstrained look at its business, offerings, and operations. Destiny is also a sponsor of Alts, but our research is neutral and unbiased. This should not be considered financial, legal, tax, or investment advice, but rather an independent analysis to help readers make their own investment decisions. All opinions expressed here are ours, and ours alone. We hope you find it informative and fair.