With the stock market soaring to new highs, you may be thinking about diversifying your portfolio. However, there are not that many options that are uncorrelated to the stock market that are readily available and easy to access. Introducing YieldStreet, the investment platform that lets you invest in alternative investment opportunities across multiple asset classes that are fully backed by collateral. With current returns of 8-20% you can build a diverse portfolio investing in real estate, legal settlements, and other instruments. Traditionally only available to sophisticated investors like hedge funds, Yield Street is democratizing these investments and the investments typically have a 1-3 year investment span.
AlleyWatch sat down with Milind Mehere, CEO and cofounder of YieldStreet to discuss its origin, future plans and most recent funding rounds which included a significant credit facility in addition to an equity funding.
Who were your investors and how much did you raise?
We closed a $113 million financing round. The round included $12.8 million of Series A equity financing co-led by Greycroft Partners and Raine Ventures, as well as a revolving credit facility of $100 million from a large New York-based family office. Additional equity investors included Saturn Ventures, Expansion Venture Capital, the Family Office and FJ Labs.
Tell us about your product or service.
We are changing the way wealth is created, and offering investment products beyond the traditional options such as stocks, ETFs, Bonds etc.
YieldStreet allows you to participate in alternative investment opportunities that are all backed by collateral with low stock market correlation. We offer target yields of 8-20%, across multiple asset classes such as litigation finance, real estate, and other alternative asset classes.
Our technology platform creates a unique experience for investors at every level and provides valuable diversification to most portfolios.
What inspired you to start the company?
As I became successful in my career, I was fortunate to have more capital to invest, but I was overexposed to the stock market. I wanted to diversify away and invest in asset classes like real estate or commercial businesses with strong cash flow to create a passive income stream. But there wasn’t an easy and trustworthy way to participate in such investments, typically made by PE firms or Hedge funds. So, I was locked out and stuck.
I knew that there had to be a better way. Soon, I was introduced to my cofounders Michael Weisz and Dennis Shields. As veterans of the specialty finance industry, they saw several inefficiencies in the fragmented hedge fund and PE space.
Together we founded YieldStreet to provide accredited investors access to asset based investments that were previously unavailable. By allowing investors to participate at minimums as low as $5K and earn target yields of 8-20%, we are changing the way wealth is created.
How is it different?
We are the only fintech platform that:
- Offers opportunities across multiple alternative asset classes.
- Most of our investments are debt based, senior secured and backed by collateral. This means our investors are first in line to be repaid in the event of a default.
- We have a fully automated investment platform with a computation engine for loan management and administration.
- Data driven underwriting models.
- Relatively shorter investment durations (typically <36 months) compared to the rest of the industry
What market you are targeting and how big is it?
Our TAM is about $850B across hard money real estate, commercial loans, litigation finance, small business loans ecosystem.
What’s your business model?
We charge a management fee on amount invested through our platform. Sometimes we may also charge originators listing fees.
How is the role of crowdfunding changing?
You can call crowdfunding almost a precursor to the blockchain world, where a distributed group of people came together to enable a new product launch (Kickstarter), loans (YieldStreet), donations (GoFundMe) or a digital currency (Bitcoin).
Crowdfunding has evolved into many branches. In a networked and more distributed world where people can band together to give voice to a commercial or social cause will continue to evolve. In our shared economy, such models will continue to take advantage of scale that crowdfunding provides. Take for instance, YieldStreet investments. As an individual it would be hard for someone to invest $6M in a hotel, but for 100 people, some putting in $10K while others $500K (with the same terms) it is possible today where the benefit of the crowd (to invest the capital) and for a technology platform (like YieldStreet) to make that connection. Everyone in the value chain wins.
What was the funding process like?
The business reached a tipping point in 2017. We were very capital efficient with 300% YOY revenue growth and ~500% user base growth, so there was strong interest. Given that we are proven founders (my previous company Yodle exited at $342M) and our chairman just took a federally chartered bank public on Nasdaq (ESQ), the process was relatively smooth.
What are the biggest challenges that you faced while raising capital?
On the equity side, we got questions on our multi asset class strategy and on maintaining our unit economics for retail investors over time, which are currently very strong.
On the debt side, we had a very specific structure in mind. We had a lot of options so it was important for us to pick the right partners. In the end, a lot of our time was spent evaluating who would be the right partners for us.
What factors about your business led your investors to write the check?
Business success and proven product market fit, massive TAM, and a successful team. We are changing the way our investors generate wealth.
What are the milestones you plan to achieve in the next six months?
Double our investor base and origination volume, we are also working on launching 2 new products. A stretch goal is to launch a product that will be available to all investors.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
Be frugal and focus on revenue generation
Where is your favorite bar in the city for an after work drink?