The world of venture capital investing is a relatively small one, and relationship-based to boot. Family offices and accredited investors are eager to get involved in high-quality funds, but face hurdles like access to fund managers.
Enter Allocate. The company, founded by Samir Kaji and Hana Yang in February 2021, is developing an approach to venture capital fund investing that provides a way for investors of any size to participate.
On Thursday, the San Francisco-based company announced it raised $5 million in seed funding from a group of backers including Urban Innovation Fund, Tusk Venture Partners, Basis Set Ventures, Liquid2 Ventures, Fika Ventures, Ulu Ventures and Anthemis Group.
The pair met as Kauffman Fellows, both with backgrounds in financial services. By the time they met, Yang was working in the nonprofit world, and said they began talking about the friction between the nonprofit and venture capital worlds. Then Yang joined Kaji at First Republic Bank to work together and continue the conversation.
Kaji, citing a Boston Consulting Group report, estimated there are between 8,000 and 11,000 global family offices and nearly 17 million accredited investors that currently control some $42 trillion in assets.
They saw the issue as it related to supply and demand: On the supply side, there are a finite number of institutional investors, “all with their dance cards full,” Kaji told TechCrunch. Fund managers want to get at that nontraditional endowment money and are looking at family offices, but finding those individuals is a challenge.
Meanwhile, on the demand side, family offices have trouble accessing venture capital firms — they don’t know where to look to find managers, don’t have time to cultivate those relationships or can’t make the traditional $1 million commitments.
As a result, Kaji and Yang decided to start Allocate as a way to usher in the next era of venture capital by creating a way for retail investors of any size or background to invest in funds and for managers to find family offices.
Allocate’s platform curates venture fund products for wealth advisors, family offices and qualified individual investors based on their investment objectives, and any pre- and post-investment transactions and reporting activities are completed on the platform.
The company sets up its own feeder vehicles that aggregate investor capital so that there are lower minimum investments and that capital can easily be managed by fund managers. It then charges a fee, on an annual basis, on investments made.
Currently, investors can choose the funds they want to invest in, but Kaji said Allocate will eventually also offer products that will be like funds of funds, where investments go into a pot that will be invested by a fund manager.
The company is pre-revenue and said it will use the new funding to build out its product and make some key hires over the next year as it gears up for a formal software product launch at the end of the year. It is already attracting a waitlist of several hundred fund managers and investors.
“With the market the way it is, the number of accredited investors is expected to grow by 50% by 2025,” Raji said. “There is a huge opportunity to unlock the market and have people participate.”
Jordan Nof, co-founder and managing partner at Tusk Ventures, agrees. He sees a lot of economic growth taking place outside the public market, and opportunities present themselves for someone to capitalize on.
Due to the access issue between fund managers and potential investors, there are trillions of dollars sitting on the sidelines, he told TechCrunch. With Allocate, Nof saw a way to bridge the two parties with tools for both sides to make sound decisions and further evolve venture capital.
“I have known Samir for quite some time, and he and his team understand this problem set and they have a vision of what the venture capital future looks like,” he added. “This is a cottage industry even though VC is responsible for impacting the largest of technology companies, which have taken VC, yet it is a still super fragmented industry that has no transparency. Allocate is the next transition of a true platform that enables family offices and high-net worth individuals access.”