Democratizing Private Investing in Companies like SpaceX & Stripe - Sohail Prasad, CEO of Destiny
TLDRIn this engaging interview, Soel Pradhan, CEO and co-founder of Destiny, discusses the inception and development of Destiny Tech 100, an innovative exchange-traded product offering public investment in private tech companies. Pradhan shares insights on the importance of democratizing access to private company investments, the challenges of creating a liquid, transparent product, and the lessons learned from building Forge, a marketplace for private tech stock. The conversation highlights the evolution of capital efficiency in companies and the potential for Destiny Tech 100 to bridge global capital markets with the tech industry.
Takeaways
- 🚀 The vision behind Destiny was to create an investment product similar to the S&P 500 or QQQ, but focused on private tech companies, enabling broader access to the growth of these firms.
- 🌐 Destiny aims to democratize private company investing by building a family of exchange-traded products that allow anyone with a brokerage account to invest in portfolios of private tech companies.
- 📈 The Destiny Tech 100, their flagship product, will be listed on the New York Stock Exchange in March 2024, featuring top VC-backed private companies like SpaceX, Stripe, and others.
- 💡 The concept of capital efficiency was crucial in the creation of Destiny, emphasizing the importance of not just raising capital but also using it wisely to build sustainable business models.
- 🔍 Inclusion criteria for the Destiny Tech 100 involves a set of rules and metrics to ensure that only high-growth, venture-backed startups are part of the portfolio.
- 🛠️ The process of building Destiny involved significant technological and market infrastructure advancements that were not possible 5-10 years ago due to fragmented markets and lack of liquidity.
- 🌟 The goal of Destiny is to provide access to the top private tech companies, ensuring transparency, lower fees, and protection from adverse selection.
- 📊 Destiny Tech 100's companies are selected based on a mix of quantitative metrics and qualitative assessment by an investment committee, aiming for a balance between passive and active fund management.
- 🔄 Companies in the Destiny Tech 100 that go public will be held for two to three years post-IPO, providing stability and long-term investment alignment.
- 🤝 Destiny's platform also offers an opportunity for private companies to engage with a large potential investor base, allowing them to share more information about their growth and journey.
- 🌱 The vision for Destiny extends beyond the Tech 100, with plans to create exchange-traded portfolios for various sectors and stages, providing further investment opportunities in the private market.
Q & A
What is the main goal behind the creation of Destiny?
-The main goal behind the creation of Destiny is to democratize private company investing by enabling anyone with a brokerage account to invest in publicly traded portfolios of private tech companies, similar to products like SPY or QQQ but for private tech.
What is the significance of the Destiny Tech 100 index?
-The Destiny Tech 100 index is significant as it represents a diversified portfolio of top venture-backed private tech companies, allowing investors to gain exposure to the growth and success of these companies before they go public.
How does Destiny select the companies to be included in the Destiny Tech 100 index?
-Destiny uses a set of five inclusion and eligibility criteria to filter out non-high growth venture-backed startups. If a company meets these criteria, it can be included in the index. There is also a manual review by the investment committee for companies that may not meet the initial criteria but are still relevant.
What happens when a company in the Destiny Tech 100 goes public?
-When a company in the Destiny Tech 100 goes public, Destiny continues to hold the shares and systematically divests between years two and three of the company's public existence, ensuring long-term alignment with the company.
How does Destiny ensure capital efficiency among the companies in its portfolio?
-Destiny ensures capital efficiency by focusing on companies that have reached a certain scale in terms of valuation and growth. These companies have proven their product-market fit and have strong fundamentals, making them efficient in their use of capital.
What technological advancements made the creation of Destiny possible?
-The creation of Destiny was made possible by advancements in market infrastructure and increased liquidity in the private markets. The growth in awareness and activity in the secondary market also played a crucial role in enabling the platform.
How does Destiny's approach to capital efficiency differ from the trend observed in the 2010s?
-In contrast to the 2010s trend of raising larger seed rounds and spending aggressively, Destiny emphasizes the importance of finding product-market fit before pouring significant resources into a business, thus building a more sustainable foundation for growth.
What is the minimum valuation for a company to be considered for inclusion in the Destiny Tech 100 index?
-The minimum valuation for a company to be considered for inclusion in the Destiny Tech 100 index is $750 million, allowing for a diverse range of late-stage private tech companies to be part of the portfolio.
How does Destiny provide access to investors who are not traditionally able to invest in private tech companies?
-Destiny provides access to these investors by allowing them to invest in a publicly traded vehicle that holds portfolios of private tech companies. This structure enables everyday investors to participate in the growth of these companies before they go public.
What is the long-term vision for Destiny beyond the Destiny Tech 100 index?
-The long-term vision for Destiny is to extend the model to provide access to various sectors and stages through publicly listed vehicles, allowing investors to express their views on different areas of the private market.
What lessons did the founder of Destiny learn from building Forge that were applied to Destiny?
-The founder learned the importance of building not just a product or technology, but understanding all aspects of bringing a product to market successfully, including legal, regulatory, operational, product design, branding, and marketing communications.
Outlines
🚀 Capital Efficiency and the Birth of Destiny
The paragraph discusses the importance of capital efficiency in the current business environment, where companies can choose to be capital efficient or be forced into it due to the lack of available capital. The founder of Destiny shares his vision for creating a product similar to spy or QQQ for private tech companies. He talks about the genesis of Destiny, which aimed to democratize access to private tech investments. The founder reflects on the challenges of market liquidity and infrastructure that existed 5 to 10 years ago, emphasizing that the concept of Destiny was not feasible back then due to these limitations.
🌐 Building the Destiny Tech 100
This section delves into the process of creating the Destiny Tech 100, an exchange-traded product that allows investors to access a portfolio of top private tech companies. The founder explains the selection criteria for the companies included in the index, highlighting a balance between passive, rules-based indexing and active management to avoid adverse selection. The discussion also touches on the challenges of building a liquid, transparent product with lower fees than traditional models. The founder shares the journey of raising funds, building the portfolio, and receiving SEC approval for the Destiny Tech 100, which is set to be listed on the NYSE in March 2024.
📈 The Dynamics of the Destiny Tech 100 Portfolio
The paragraph focuses on the dynamics of the Destiny Tech 100 portfolio, detailing how the company decides which companies to include. The founder discusses the set of inclusion and eligibility criteria designed to filter out non-high growth venture-backed startups. He also talks about the metrics used to evaluate companies, such as growth rate, market size, business models, and executive turnover. The founder further explains the company's approach to participating in primary and secondary rounds and purchasing on the open market to ensure the best execution for the fund and its investors.
🛣️ Public Transitions and Long-Term Commitment
This part of the script addresses what happens when a company in the Destiny Tech 100 goes public. The founder clarifies that while the index focuses on private companies, there is a policy in place for publicly listed companies that balances the interests of both the companies and investors. The policy involves holding onto the shares and systematically divesting them between the second and third year of the company's public life. The founder also talks about the transparency of the process, the publication of the net asset value, and the potential for companies to share more information with a broader audience while still private.
🌟 Lessons from Forge and the Evolution of Venture Capital
The founder reflects on the lessons learned from building Forge and Destiny, emphasizing the importance of capital efficiency and the evolution of venture capital. He notes a shift in focus from growth at all costs to building strong fundamentals. The founder also discusses the team assembled for Destiny, highlighting the expertise and experience of its members. He shares his personal journey of entrepreneurship, starting from a young age and learning various aspects of business building. The founder stresses the importance of having a broad understanding of different industries and the ability to adapt and learn continuously.
🌱 Navigating Market Conditions and the Future of Destiny
In the final paragraph, the founder discusses the timing of Destiny's launch, noting that the process started before the COVID-19 pandemic and has been influenced by market conditions. Despite the challenges, the founder remains committed to the vision of providing access to private tech investments. He talks about the recovery and growth opportunities in the market and the excitement around companies like SpaceX and OpenAI. The founder expresses optimism about the future, believing that the current market conditions present a unique opportunity for Destiny Tech 100 to bridge global capital markets with tech and provide access to a broader range of investors.
Mindmap
Keywords
💡Capital Efficiency
💡Private Tech
💡Exchange Traded Products (ETPs)
💡Venture Capital
💡Market Liquidity
💡Democratizing Investment
💡Secondary Market
💡Net Asset Value (NAV)
💡Index Construction
💡Regulatory Compliance
Highlights
The importance of being capital efficient in the current business environment is emphasized, highlighting the need for companies to manage their resources wisely.
The concept of capital efficiency can be achieved both by choice and by force, depending on the availability of capital in the market.
The goal behind Destiny's inception was to create a dream product akin tospy or QQQ, but for private tech companies, aiming to democratize access to these investments.
Destiny's flagship product, the Destiny Tech 100, is set to be listed on the New York Stock Exchange in March 2024, featuring a portfolio of top VC-backed private tech companies.
The importance of democratizing private company investing is discussed, as it allows a broader range of investors to participate in the growth of these companies.
The process of building Forge, a marketplace for late-stage private tech stock, and its journey to becoming public is shared, highlighting the evolution of market infrastructure.
The challenge of creating a liquid, exchange-traded product invested in top private companies while avoiding adverse selection and maintaining transparency is addressed.
The inclusion criteria for companies in the Destiny Tech 100 is based on a set of five rules aimed at vetting out non-high growth venture-backed startups.
The strategy for deciding which companies to include in the Destiny Tech 100 involves a combination of quantitative metrics and participation in the secondary markets.
The policy for companies that go public from the Destiny Tech 100 index is to hold onto the shares and systematically divest between years two and three of the company's public existence.
The technology and market infrastructure that has evolved over the past 5 to 10 years has enabled the creation of products like the Destiny Tech 100, which would not have been possible earlier due to fragmented markets.
The team behind Destiny includes experienced professionals from various fields, such as legal, regulatory compliance, product development, and marketing.
The long-term vision for Destiny extends beyond the Destiny Tech 100 to potentially provide access to various sectors and stages through publicly listed vehicles.
The founder's strength lies in his ability to understand and manage all aspects of building a company, from product development to legal and marketing.
The founder's early interest in technology and entrepreneurship began at a young age, leading to a lifelong passion for building companies.
The importance of product-market fit is highlighted, as it forms the basis for building a strong and sustainable business.
The Destiny Tech 100 aims to provide access to late-stage private tech companies, which have reached a certain scale but still offer diverse risks and growth opportunities.
The timing for Destiny's public listing is influenced by the completion of the SEC registration process and the current market focus on recovery and growth.