Adam Hardej

Sep 29, 2022·Newsletter

Cathie Wood Goes VC

Cathie Wood Goes VC

ARK Invest, the famous (infamous?) asset manager focused solely on "disruptive innovation" has partnered with Titan, the VC backed investment management platform, to offer the ARK Venture Fund - a cross-over fund open to unaccredited and accredited investors alike.

Quick disclaimer: Big fan of Cathie Wood as a person. Met her daughter once (weird brag?) and have nothing but very nice things to say about her and her family. Hi if you're reading! (unlikely)

That being said, I have mixed feelings about this fund.

At a bit of a loss as to how this doesn't turn out horribly for retail investors. Every time the word "democratization" gets thrown around this much with the words "disruption" and "innovation" in the same breath my spidey-sense for investors getting fleeced are on high alert.

Here's my issue: Late-stage investing is very hard and very competitive. It's not an index game. It's a stock-picking game, but with the added strain of actually winning access to the best and brightest. We just came out of a cycle where some people thought that wasn't true and we all know how that turned out. Tiger got burned. Even Sequoia, who shifted their whole structure to play cross-over, is feeling the pain of the recent slump. Meanwhile, Union Square Ventures has made a killing by decidedly staying away from holding through stages that they don't feel they have expertise in.

Everything I've seen points towards a "stick to what you're good at" approach being what's best for returns. The ugly truth here is that staying small and focused doesn't always maximize management fees or the business of running a fund.

The ARK Venture Fund accepts checks as small as $500 on with 2.75% management fee and 0% carry. The pessimist in me sees a future where ARK and Titan clip fees and investors receive regrettable returns. Given the lack of carry, it wouldn't even matter to ARK if they knocked it out of the park - they're getting paid the same either way. The incentives are just plain funky.

The reason my feelings are "mixed" and not just purely negative is that broadening access to private markets is important. It's something we strive to do here at Stonks and this fund is likely a step in the right direction.

It's only when I look past the access to the incentives and expected returns that I get worried.

Other stonky stuff to be aware of:

(After this was first posted I learned that they actually cannot legally charge carry to non-accredited investors. So the fee structure makes a lot more sense.)

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