The bets are no longer just on Wall Street — they’re in your group chats, book clubs and that awkward shuffle that happens when everyone’s trying to get out of the door at the same time at the end of class.
Community investment clubs are nothing new, but a renewed interest in decentralization and the glittering — albeit now hungover — allure of getting in at the ground level of a rocket-ship venture has created a new wave of efforts around group investing.
Individualism is out. Collectivism is in vogue.
The game (doesn’t) stop
The meme stock craze of 2021 highlighted a crucial trend — people want to invest with the conviction of a community behind them. It’s tough to assess exactly how many retail investors (aka regular people) started investing for the first time during the height of the COVID-19 pandemic, but one Schwab study estimates that 15% of investors who were participating in the market in 2021 got started for the first time in 2020.
Outperforming the market requires differentiated thinking, often a solitary pursuit. But humans are social creatures, and money and investing can be scary.
A few trends converged to create this perfect moment for the retail investing boom – increased knowledge-sharing through the rise of new social media platforms, particularly TikTok, and a heightened focus from those of us who aren’t billionaires on overcoming income inequality by generating long-term wealth.
Regarding the second point, Nobel Prize winner Eugene Fama might call it hubris, as his research backs the idea that the best investment strategy for most individuals is just to buy a randomly selected, diversified basket of stocks (or an ETF). But it’s easier to generate wealth through investing than keeping one’s money in a savings account with paltry interest rates, and the idea of banding together with some of the smartest people you know to build wealth on your own terms is undeniably appealing compared to going it alone.
All that is to say, the rise of group investing is just as much about culture as it is about cash. Reddit’s r/wallstreetbets forum fostered such a strong community that it gave rise to a new language altogether – “aping” into an investment, holding an investment through a downturn with “diamond hands,” reaping “tendies” as profits and other such cringey terms.
Robinhood is the 800-pound-gorilla in the room here, but it’s not just the brash Wall Street bros hopping on the group investing bandwagon. Y Combinator-backed fintech startup Alinea, for example, was founded by two Gen Z women and creates “playlists,” or baskets of assets arranged around core values such as fighting climate change or LGBTQ+ empowerment that users of its app can share with their friends.
Social investment network EToro’s main claim to fame is its “CopyTrader” feature that allows people to, well, copy-paste the portfolios of well-known traders. The platform also just acquired a Robinhood competitor, Gatsby, for $50 million. Public.com is another example of a community-focused investing service.
While all of these platforms seek to harness the power of community to attract users, they still ultimately only enable individuals to make trades on their own. Investing in stocks with your friends’ input may be good enough, but if you want to invest in higher-priced assets, pooling money with friends can make all the difference. Unfortunately for those looking to band together to invest in alternative assets, there is no shortage of red tape — ahem, SEC — and legal hurdles in making group investing a reality.
That’s precisely what motivated entrepreneur Travis Smith to found group investing platform Tribevest — he realized how logistically difficult it was for him to invest in a real estate property alongside his brothers. The Columbus, Ohio-based startup now allows anyone to form an investor group with their friends by helping them create an LLC and providing in-app voting mechanisms to foster collective decision-making. Smith told TechCrunch in January that the app had over 570 investment groups actively transacting on it, most of which were investing in private markets.
Tribevest’s efforts underscore the recent push to expand the boundaries and definition of a community-oriented investment club while still operating within the constraints of the traditional financial system. But of course, crypto looms large in the background of this conversation.
DAO, dun, dun
Decentralized autonomous organizations (DAOs) have breathed new life into the idea of collective governance. They’re nebulously defined these days, but the original idea behind the DAO structure was to give members crypto tokens that entitle them to voting rights on key decisions. Then, all their votes are recorded on the transparent, immutable ledger that is a blockchain.
That’s why Orange DAO, a group of over 1,000 Y Combinator alumni, decided to use the structure for its venture capital fund, according to the fund’s general partner, Ben Huh. The YC alumni, who earlier this month raised $80 million to invest in web3 startups, had originally set out to leverage their collective knowledge and experience as founders through their investments.
But a DAO with 1,000+ members is legally barred from investing directly, per U.S. Securities and Exchange Commission rules regulating investment clubs, so Orange DAO instead serves as a decision-making platform for the group while the money is formally invested through a separate fund managed by Huh and a few other GPs. The two-tiered structure requires trust, though, because it relies on those GPs to actually uphold the will of the DAO when executing deals.
“Currently, from a compliance and regulatory perspective in the United States, you can’t really have a venture firm with lots of general partners that change all the time. So what we really wanted to solve is that a lot of the investment club formats for DAOs out there limit you to 100 people who can invest directly without a manager,” Huh explained.
Whether DAOs become mainstream is still up for discussion, but the conversation around them has been groundbreaking. Even for startups that have nothing to do with crypto.
Three years ago, a group of Stanford students began working with Fenwick & West law firm to find a legal structure that met their needs: no accreditation requirement or hard limit on the number of people involved. The effort eventually turned into Stanford 2020, an investment club that raised $1.5 million for its debut fund. Fast-forward to today, the leader of that club, Steph Mui, is trying to replicate that playbook in the form of a venture-backed startup. PIN, which stands for “power in numbers,” recently raised a $5.6 million seed funding round led by Initialized Capital, with investments from GSR, NEA, Industry and Canaan.
Mui credited the growing mindshare around crypto-native DAOs as part of the reason that investment clubs are of more interest these days.
“We started before DAOs became really cool,” Mui said. “When we started, the kind of DAO-like structure that we set up around voting was more of a necessity from a regulatory standpoint … now it’s actually a huge bonus. People really love voting, and this is now a cool new opportunity we have.”
PIN wants to replicate the Stanford 2020 story for other community-based ventures. The company said that it provides interested clubs with back-office frameworks, legal and tax support, and has a platform where leaders can look for capital raise opportunities, meet other members and manage portfolios. It makes money through a SaaS fee, which Mui said she hopes stays below 2% of a club’s total assets under management.
“Anyone who has started an investing vehicle, whether it’s an investment club to a traditional fund, knows how difficult it is because of all the administrative obligations there are to make sure the fund is set up properly and is compliant,” Mui explained in an interview with TechCrunch. “Community investment clubs are even more difficult because of the number of investors (a club can commonly have hundreds of members), which introduces even more friction during the fundraising process and ongoing operations.”
While PIN’s launch has certainly benefited from the growing mindshare around crypto, another narrative could hinder its rise: the downturn.
Oh yeah, remember that?
Mui said that PIN is attracting lots of interest from traditional groups like other schools, early-stage tech companies and accelerators, but that it’s a “much bigger uphill battle in getting more nontraditional investors [involved], which is something we care about … [but] has taken a little bit of a backseat.”
Mui’s argument is a common one: It’s easier to break into venture if you speak the language, have the network and can, to put it bluntly, afford to make some mistakes. For those who are impacted by the downturn, either through a lost job or a painful drop in the value of public market assets, experimental bets may be “less of a priority.”
Bringing a diverse group of investors to the table isn’t the only challenge on the horizon. As founders across all stages enter a period of uncertainty, the appeal of having a group of investors with small individual stakes may not be as high as having a dedicated firm that will be available on speed dial. VSC Ventures’ Jay Kapoor talked to TechCrunch about this dynamic happening with party rounds last week: “The problem with those party rounds was when it came time for somebody to step up and really support the company, they weren’t there,” he said. The party may have confetti, but it doesn’t have appetizers that cater to your allergies.
Fragmentation often happens in pursuit of democratization and the unbundling of a service — but it also can create confusion that negatively impacts interest in the more accessible end product.
Investment clubs have gone from an idea to a nuanced reality. And as with any idealistic dream that gets materialized in the form of a tangible business model, it will likely face plenty of stumbling blocks before reaching widespread adoption.