Coming soon: ETF on SGX for venture capital investing

In venture capital investing, typically you'd put money directly into either start-ups or funds that invest in them.

While VC investing offers prospects of huge gains, it comes with challenges such as long lock-up periods. And it's difficult for investors, save the sophisticated and accredited ones, to access.

Coming soon: A disruptive VC investing fund with a promise to "democratise" the field.

Pending approval by the Singapore Exchange, the fund will be accessible through an ETF-like structure listed on the SGX.

John Sharp3.18 John Sharp, based in Singapore: A technologist (data/software/cybersecurity) who has over the past five years led numerous venture investments in early-stage companies. Photo by Leong Chan Teik"We are targeting listing the H2 fund on the SGX within 2Q. It's the same fund that has just listed in Amsterdam and Vienna. We will list it over the counter in Singapore," says John Sharp, a co-founding partner of Hatcher+, a data-driven, globally-focused venture investment platform based in Singapore.

"We're not expecting we'll have daily liquidity but we're expecting that it will be possible for people to get in and out as we intend to make a market for this security."

Lock-up periods for VC funds usually stretch into many years. "Only 7% of funds liquidate in 10 years or less," says Mr Sharp, citing data from a study by NVCA and Adams Street Partners.

The ETF has a global focus and, most importantly, as Mr Sharp highlights, invests in a relatively large number of start-ups at very early stages -- two features that Hatcher's studies have shown offer high probabilities of high returns.

"We have a really good selection process that no one else has implemented. We have a worldwide partnership that no one else has implemented and we have an investment strategy that we think is possible to return above Nasdaq returns with a high 90% probability. These are the things that distinguish us.”

-- John Sharp

Hatcher+ plans to raise and invest US$125 million in over 1,000 ventures out of over 130,000 early stage deals.

To filter them, Hatcher+ has developed artificial intelligence and machine-learning technologies which it makes available to a worldwide network of leading accelerators and investor groups.

Earlier, Hatcher+ had a successful experience with its H1 fund investing US$20 million in 13 start-ups.

It has so far achieved a very high "distributed to paid in" (DVPI) ratio of 0.4, ie through successful exits of its investments, it has been able to return 40% of the money so far to investors.

That places it in the top 10% of all VC funds launched globally since 2012.

Encouraged by the result, yet unimpressed with the traditional VC approach to investing, Hatcher+ sought to find a more scalable and data--driven methodology.

Through various means, it garnered information on 400,000 venture investment deals from the 1990s.

With the data, Hatcher+ created almost 3 billion virtual venture portfolios, ranging from ten companies through to 2,000 companies.

Hatcher+ Core Strategies
Larger Portfolio	=	Better returns
Massive deal network	=	Quality portfolio
Earlier investments	=	Larger multiples
Traded units	=	Flexible liquidity
All these strategies require SCALE and scale requires partnerships with leading expert investor groups worldwide

"What we discovered is that if you really want to make fantastic money out of venture capital, you need to go in at the earliest possible point in a business.

"People say, well, isn't that risky? I would answer that yes, the risk of failure is much greater at formation stage than it is at Series C but the discounting that occurs on valuations more than compensates for the level of risk. In our analysis, we found that the discounting can be up to 80%."

And the portfolio size matters?

"The venture funds that have achieved really solid returns, the guys above the 2.5x line, like Sequoia, NEA, and Y Combinator, all have large portfolios.

"In venture, you get these massive spikes -- when you hit a home run, it may return 200x or 300x your investment. The probability of achieving this kind of this return increases, the more you widen your portfolio."

Comparative analysis:

Strategy	Hatcher+	Traditional VC
Deal flow	Top accelerators & expert groups	Referrals
Geographic focus	Global	Local
Selection strategy	Data-driven (AI/ML + external experts)	Manual / in-house
Portfolio Size	100 investees / 1OMN AUM	1-3 investees / 10Mn AUM
Performance monitoring	Real-time APIs	Ad-hoc / board seat
Reporting	Automated	Manual
LP admin mgmt dashboard	Comprehensive	Limited
LP follow-on investment	Assumed / included	Ad-hoc / non-prioritized
Resource utilization	400 Companies / partner	4 companies / partner
Follow-on strategy	Seed to Series A	Double down on winners
Currency	Multiple	Single
Jurisdiction	Multiple	Single
GP economics	2 + 20	2 + 20
Liquidity	ETF structure*	15 years**C
Depending on LP preference, jurisdiction and applicable regulations, investment strategy, and willing seller/buyer. 93% of VCs extend fund life beyond 10 years; 50% extend beyond 15 years - Source: NVCA, Adams Street Partners (2015) Source: Hatcher+*

Coming soon: ETF on SGX for venture capital investing

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