Exposure: The investment channel of the upper decile

Whether we like it or not, we all invest in the stock exchange. We do this even without knowing, through our pension funds and insurance companies. However, investment in the capital market, and especially in recent times, where the market is suffering from high volatility, does not yield attractive returns. The market is efficient and complex, and the entry of trade-bots has made it even more difficult for investors. This situation brings large institutional investors and private equity holders to look for alternative investment avenues.

So, where do the capital owners invest?

The answer is that in recent years we have seen a significant increase in capital flowing towards investments in private entrepreneurial companies, private equity funds ("private equity"), civil infrastructure development funds, real estate funds and credit funds. The advantage of these investments, is that they are less exposed to market volatility, and sometimes even inversely correlate with the stock market, so that when the market declines and public stockholders and bonds lose money - the return on private investment does not decrease, but the opposite. Therefore, incorporating these types of investments into the investment portfolio reduces the overall risk in the portfolio and adds an excess return, beyond what can be purchased in the stock market.

However, investments in private companies have so far had two significant drawbacks, at least for private investors. First, the entry level step for these investments is very high. That is, in order to enter as a shareholder investor into a private company in its initiation stages, it requires a great deal of capital, often several million dollars of commitment to invest from one investor. For those with a few tens or hundreds of millions of dollars in investment portfolio, it doesn't seem like a particularly high threshold, but for the common woman or man, the ordinary investor, this makes the investment inaccessible.

The second disadvantage is the large information gap. In order for investment in private companies to yield a high return, it is important to enter into investment in its early stage, in their entrepreneurial stage. At this stage you can buy a quantity of low priced shares and in the meantime the company is gradually building up its value. Then, when the company is already introducing a product and launching its market, its share price has soared and as a result, the investor can find herself/himself on one of two sides: If bought the stock early, at a low price, now they hold a higher value stock and can sell it at a profit, or hold it and wait for dividends or increase in value. Conversely, those who did not buy the stock at its early and inexpensive stage may now not be able to afford it when the value of the company has risen and with which the share price has risen.

So, obviously, we want to get in the early and entrepreneurial stage, to get a high return. The problem is that at this stage, information about the company and the potential investment is the property of only but a few, given that the company wants to keep its product confidential from competitors and guard against attacks. Generally knowledgeable are those who are close to entrepreneurs and people of the top decile, and only they succeed in enjoying the high returns inherent in investing in an entrepreneurial company. Whether we like it or not, it is reality and especially in Israel, where our culture is very prone to the "friend bring friend" method.

Nonetheless, today's crowd funding platforms allow the general public access to investing in shares of private companies that have not yet been exposed to the public’s attention, and with investments that are tailored to each person’s pocket, and not necessarily in amounts that are only suitable for the top decile or alpine. Thus, the barriers that private investors have so far faced become irrelevant, and non-tycoon investors can enjoy high returns and a multitude of investment options and risk diversification.

Smart Funding offers exactly this service to investors and individuals looking to invest small amounts in companies with high chances of success.
The raising companies undergo professional checks and rigorous screening to create the best investment options. The return on investment is expected to come from the increase in company value, profit distribution and the sale of the company.

Game rules are changing, economy is changing, new investment options are opening. Join the next Exit.