Investing in startups has broad appeal, and this fund allows you to emulate the moves of famous billionaires.
Private equity and venture capital firms typically have access to investments that are not available to everyday investors. why? Simply put, these funds collect money from ultra-high-net-worth individuals called accredited investors.
As a result, large investment firms gain access to opportunities not normally available on public exchanges. The problem is that these opportunities are extremely risky. Therefore, these opportunities are only available to investors who reach a certain income or net worth threshold.
Nevertheless, investing in startups is very attractive. A new exchange-traded fund (ETF) called. Destiny Tech 100 (DXYZ -12.00%) This could present a unique opportunity for individual investors to imitate the activities of venture capitalists. Find out more about the fund and assess whether investing like a millionaire is right for you.
What's in the fund?
The term “unicorn” is used to describe a private company with a valuation of at least $1 billion. Unsurprisingly, unicorns are generally desirable investment opportunities. The challenge is that access to these investments is exclusive to the ultra-wealthy. The majority of investors do not have the opportunity to participate in a unicorn company until it pursues an initial public offering (IPO).
This is where the Destiny Tech100 fund comes into play. The fund's portfolio managers have a long-term goal of investing in 100 venture-backed technology companies, according to the company's filing. The fund currently invests in 23 of his businesses.
Notable positions in the portfolio include fintech startups Klarna, Revolut, Plaid, Public.com, Brex and Stripe. The fund is also an investor in Epic Games, the developer of the popular video game Fortnite. But perhaps most interesting is the fund's largest position, Elon Musk's SpaceX.
Destiny Tech100 clearly offers the world's most popular private technology investments. But before we get into it, let's explore what investing like a billionaire has become over the past few years.
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How is Destiny Tech100 performing?
2023 was a great year for the tech industry. Excitement about artificial intelligence (AI) has fueled investor activity, with high-tech investments increasing his 43%. Nasdaq Composite Index last year. surely, Invesco QQQ Trust — an ETF consisting of members of Nasdaq-100 The index — soared 54% in 2023 and is up another 5% so far this year.
In comparison, Destiny Tech100 is negative 7.3% in 2023. Despite a high-profile portfolio of technology startups, the fund significantly underperformed the broader technology sector.
It is important to note that Destiny Tech100 will no longer be traded on a public exchange in 2023. In fact, the stock wasn't listed on the New York Stock Exchange until earlier this year.
Since going public about a month ago, the stock price has increased nearly 1,000%, from $9 to nearly $100. However, trading activity has cooled in recent weeks, and the stock is now trading at a more modest price of about $43 per share.
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An important detail to point out is that Destiny Tech100 is a closed-end fund. This means that the company is “closed” to raising funds from new investors and therefore will not issue new shares. As of Dec. 31, the fund had a net asset value (NAV) of $52.6 million. Considering the fund's market capitalization is currently around $363 million, investors are paying $6.90 for every $1 of NAV. In other words, for an investor who bought at the current price to make a profit, the value of his portfolio would have to rise by a factor of 6.9. Valuations for startups can rise dramatically, but it can take a long time to realize meaningful profits.
There are several important themes to highlight here. First, while investments like Billionaire may look appealing on the surface, the volatility of the Destiny Tech100 undermines just how risky this type of investment can be. Another nuance is that just because a startup achieves unicorn status doesn't mean it's a safe investment.
Like publicly traded companies, startup company valuations can fluctuate. In fact, both Klarna and Stripe have seen significant valuation declines in recent years. Both companies operate in the fintech space and are highly sensitive to macroeconomic conditions. It's no surprise that these companies have been particularly adversely affected, given the extreme inflation and rising interest rates that have been major themes in the economy over the past few years.
A final thing to note is the management fees associated with the Destiny Tech100 fund. Destiny Tech100's fees are 2.5% per annum, which is definitely close to the fees of a typical venture capital or private equity firm. In contrast, Invesco QQQ's expense ratio is just 0.20%.
All of this is a reminder that investors need to focus on the long term. Just because you're an early investor in a high-profile startup doesn't mean you'll immediately reap the benefits once the company expands.
The Destiny Tech100 fund is interesting, but investing in startups like Billionaires may not be as rosy as it seems. Although all of the fund's holdings have achieved unicorn ratings, many of these businesses are still unproven and may be considered riskier than comparable opportunities on public exchanges.
Before investing in Destiny Tech100, we recommend that you think long and hard about your time horizon and the high fees charged for managing your funds compared to other options.
