Do you want to invest in SpaceX or Stripe? There's a fund for that.

Stripe, a payments start-up, is one of the most successful companies to emerge from Silicon Valley in recent times. Last year it reached a valuation of $65 billion. But in the 15 years since its founding, most people have had no chance to invest in it.

It's a problem that has plagued retail investors for years, as startups like Stripe, SpaceX and OpenAI reach huge valuations in the private market. Only so-called high-net-worth accredited investors can invest in private technology startups. When companies go public, ten years or more after their birth, their growth is often slowed and their valuations are high.

A new fund, Destiny Tech100, is trying to change that with a new solution. It offers an exchange-traded fund that contains shares of 23 private technology companies including Stripe, SpaceX, OpenAI, Discord and Epic Games. The fund, which began trading on the New York Stock Exchange last week, plans to expand its holdings to include shares of 100 startups.

Sohail Prasad, chief executive of Destiny

“We have tens of thousands of individual investors who are now shareholders in these companies,” he said.

The fund is part of a convergence of public and private markets that has accelerated in recent years, as investments in private “alternative assets” – including private equity, hedge funds and venture capital – become part of larger than the overall investment landscape. Venture capital investments in private technology startups rose to $170 billion last year from $28 billion in 2009, according to PitchBook, which tracks startups.

The pandemic has boosted this trend as more people chased risk and growth by looking to invest small sums in startups, while marketplaces like Forge and Augment arose to allow investors to buy and sell private tech stocks.

However, start-up investing is generally not available to most people. To qualify someone as an accredited investor, the Securities and Exchange Commission requires a net worth of $1 million or an annual income of $200,000 for the past two years.

Non-accredited investors can try investing in private startups through periodic funds, which allow people to sell only a portion of their holdings each quarter, or mutual funds, which dedicate only a small portion of their overall funds to companies private.

Prasad was a founder of Forge, a marketplace for private technology stocks, in 2014. He said he started Destiny in 2020 to give people like his father, a management consultant in Texas, access to startups with high growth.

Mr. Prasad has raised $100 million in funding from investors including a number of start-up founders such as Fred Ehrsam, founder of Coinbase, a large cryptocurrency exchange; Charlie Cheever, founder of the question-and-answer site Quora; and Heather Hasson, founder of FIGS, a medical apparel supplier.

Mr Prasad and a team of five deal makers used their relationships to gain access to the initial shares that Destiny has purchased so far. Private companies can be picky about who they let own their shares. But as they remain private longer, their employees and early investors can become anxious to cash out. The most valuable companies have held regular “public offerings” that allow employees to sell their shares, which is one way Destiny Tech100 buys shares.

The fund also bought shares of Stripe and Plaid, a financial technology provider, through “forward contracts.” In these deals, start-up employees can get money by agreeing to transfer their company shares to an investor when the company goes public or sells.

The contracts are controversial. Stripe said it prohibits its current and former employees from entering into such agreements and that any fixed-term contracts are void. Mr Prasad said his fund was confident the deals were legal.

Destiny Tech100 has a market valuation of approximately $365 million. After companies invested in are sold or listed on a stock exchange, the returns from those investments can be distributed to shareholders as a dividend or reinvested in the fund. Prasad said the fund plans to hold the shares for a certain period after a company goes public. The fund charges a 2.5% annual fee.

James Seyffart, a research analyst at Bloomberg Intelligence, said such a fund is the only way for many investors to get exposure to these companies, especially with small amounts of money.

“Even if you are accredited and can access it, there are often very high minimums” needed to invest, he said.

The biggest risk for investors in the new fund is whether the share price reflects the value of the underlying assets, he added.

The SEC limits who can invest in private tech startups for a reason: Such investments can be risky. Private companies are not obligated to share information about their operations and it can be difficult to assess their valuation. Many tech startups are also unprofitable.

The Destiny Tech100 fund became available as investors pulled out of many tech investments. (Companies focused on artificial intelligence remain in high demand.) Instacart and Reddit, well-known consumer technology companies that recently went public, are trading below their latest private valuations. Destiny Tech100 owns shares of Instacart, which it purchased before the company went public.

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