Simplifying Private and Alternative Asset Transactions

by Ross Andrews

Public equity markets have a strongly defined structure to them. Buying a stock is in most cases a simple and straightforward process these days given the number of brokers and on-line platforms that follow standards and formats set by exchanges so that if I buy a share of Apple at $75 and you do too at the same time, we follow the exact same steps and get the same result, a single share of Apple at $75.

Private and alternative asset investing however has remained a largely bespoke and manual world. 

There are very few platforms that allow for the efficient buying and selling of alternative assets unless you happen to be a large institution with enough size and scale to influence the way things are done.

But largely still, managers and deal makers in private and alternative markets find themselves dealing with a rapidly changing set of variables and structures from deal to deal which leads to inefficient capital markets. So how can we address this?

For most private and alternative market transactions, the parts of the deal that are interesting are the details of the asset and the price that it is currently being sold for. 

Access to deal flow and the ability to run a process to compare the economics of one deal against another are two of the key functions that take time and human capital in venture and PE settings yet a lot of time is wasted on deal mechanics rather than negotiation and diligence. 

One way to look at this through the lens of a public stock exchange is to provide the infrastructure for the actual transaction to take place in a simple and repeatable format. There are thee core components to any private/alternative transaction (if you exclude the sourcing and diligence of the asset itself), identity, banking/flow of funds, and tax.

Identity involves establishing the identity of the buyers and sellers of assets and sufficing KYC or Know Your Customer so that banking partners feel safe transfer the funds as part of this transaction. Identity involves capturing and securely verifying things such as a social or EIN number, address date of birth and names.

One identity has been ascertained and verified, the next step is the banking/flow of funds. Parties need to be able to declare which sources they will use to fund a transaction or to receive the proceeds of that transaction. Once identity and KYC has been sufficed banking tends to be a simple setup step but the important part comes into how it plays into the last category, taxes.

Investing, just like income earned, has tax consequences to it so properly documenting and capturing the tax status of an investor is important and linking it to their banking and flow of funds helps streamline the tax treatment. Knowing if you are investing as an individual or through and entity/trust you control has important implications when the investment pays out a dividend or return.

Tax treatment is also important for investors as no two investors will have the same tax setup and preferences. Being able to allow investors to deploy using the mechanisms that work best for them individually while capturing accurate tax details and keeping the overall cadence of the deal in sync is massively important when creating a repeatable deal process.

If we can work to provide a more standardized set of rails and workflows for those three components of the deal execution, it will free up the folks who curate these deals to spend more time sourcing and doing due diligence on them and also allow a greater range of investors who want access to this asset class but don’t have the resources to manage these bespoke transaction dynamics.

At Syndicately, via our our portal and also now via our API, we provide a set of tools to help with each of those three components of the deal. Our mission is to help provide managers, deal makers, and platforms with a consistent and salable process that is data-driven to increase the velocity of capital by bringing best practices from the public markets to the private ones.

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