SPVs (Special Purpose Vehicles) are democratizing startup investing. In this interview with Jeremy Neilson, founder of Assure.co, we discussed how founders and angels can benefit from these increasingly economical platforms and what they mean for the future.
Highlights:
Sal Daher Introduces Jeremy Neilson Co-Founder of Assure.co
Sal and Jeremy Met at an Event Held by Jason Calacanis in 2019
“...the engine of a large number of groups that do angel investing.”
Use Cases for SPVs (Special Purpose Vehicles)
It Used to Be Very Pricey to Set Up and SPV – No Longer
A Way for Angels to Increase the Diversity of their Portfolio
Assure.co Is helping Democratize Investing in Private Assets
Assure.co Focuses on Accredited Investors – Does Not Do Equity Crowdfunding
The Founding Story of Assure.co
“...AngelList called my co-founder, Katie, and I and said, "Can you guys figure out how to do funds in bulk?"”
Sal Daher Advises People Not to Make the Mistake He Made in Creating His Own SPVs – A Lot of Work!
“He's the pope of angel investing podcasts. I'm just a cardinal, or perhaps a bishop.”
Biotech Too Is Being Democratized
“...we're seeing in the ecosystem is a very large shift away from thinking strictly financial.”
“No longer is it a very small niche of uberwealthy or venture funds, now it's the entire ecosystem of accredited investors now have the opportunity to participate.”
Meenta.io and Curesology
“We have seen clients come and say, "I want to donate my carry to a good cause."”
“Carta, AngelList, Assure.co were those three that got started all together back about eight, nine years ago.”
Cheaper SPVs Are Helping to Give Access to More Diverse Founders by Broadening the Reach of Investors
Sal Compares Two Robotic Glove Startups Three Decades Apart to Demonstrate How Much the Startup Ecosystem Has Developed
“Her life is going to be so much easier in starting that company than it was for Chrissy Glover’s starting Imago Rehab [today] and way, way easier than Beth Marcus’ starting EXOS back in the early '90s.”
“Assure.co is helping to lower the dead weight of a startup rocket that's trying to reach escape velocity.”
Wisdom from Waseem Daher of Pilot.com on Angels & Cap Tables
SPV Pricing at Assure.co
Assure.co Powers Jason’s Syndicates, EquityZen and Forge Among Many
ANGEL INVEST BOSTON IS SPONSORED BY:
Transcript of “The Engine of Angel Investing”
Guest: Founder, Jeremy Neilson
Episode 190 Jeremy Neilson Transcript
Sal Daher: I'm really proud to say that the Angel Invest Boston podcast is sponsored by Purdue University Entrepreneurship and Peter Fasse, patent attorney at Fish & Richardson. Purdue is exceptional in its support of its faculty, faculty of its top five engineering school, in helping them get their technology from the lab out to the market, out to industry, out to the clinic.
Peter Fasse is also a great support to entrepreneurs. He is a patent attorney specializing in microfluidics and has been tremendously helpful to some of the startups which I'm involved, including a startup that came out of Purdue, Savran Technologies. I'm proud to have these two sponsors for my podcast.
Sal Daher Introduces Jeremy Neilson Co-Founder of Assure.co
Sal Daher: Welcome to Angel Invest Boston, conversations with Boston's most interesting founders and angel investors. Today, I am delighted to have with me Jeremy Neilson of assure.co. Welcome, Jeremy.
Jeremy Neilson: Thank you. Thank you.
Sal and Jeremy Met at an Event Held by Jason Calacanis in 2019
Sal Daher: It's great that you made some time to be on the Angel Invest Boston podcast. I met Jeremy ages ago in 2019 when I attended an event sponsored by Jason Calacanis out in Silicon Valley. Jeremy's firm is the back office or the operation side of a lot of angel investing that goes on in our environment, in our ecosystem. Anyway, assure.co, tell us more what assure.co does, and why it's so important to angel investors and to founders?
“...the engine of a large number of groups that do angel investing.”
Jeremy Neilson: Yes, thank you. Assure, we do run the back office or I call it the engine of a large number of groups that do angel investing. Frankly, it's just not angel investing. We run the engine side of anybody that wants to do SPV structuring in order to invest into private assets. That is startup companies, that's secondaries, that's real estate, art, film, farm land, oil and gas, whatever it is, it doesn't necessarily matter what the asset is.
It's if you are somebody or if our clients are somebody that says, "I'm not going to raise a traditional fund. I'm going to go deal by deal. I'm going to stand up an SPV for every transaction," then they typically come to Assure. A large number of our clients are fund managers, and they're dropping down SPVs alongside their fund. We're having a lot of clients that do SPVs for a time, and then they raise a fund in the future. SPVs are very flexible, very fluid, very transparent, very affordable structure for a large number of individuals and groups to use in order to invest into private assets.
There's a whole host of value and reasons why this structure is interesting and continuing to be more and more interesting to everybody in the ecosystem from when we launched in 2013 till today. We see a doubling every year of interest in this structure in using Assure.
Sal Daher: Awesome. Listeners should also know that Jeremy is also a founder. He has founded this business that creates special purpose vehicles, SPVs. One of the reasons I'm interested is that I am the sad sponsor, the person who has to shepherd seven SPVs, and that's seven too many for me. I wish I had started with assure.co. I wish I'd met Jeremy before, water under the bridge. I'm now in good conversation with Jeremy.
Use Cases for SPVs (Special Purpose Vehicles)
Let's explore some use cases for SPVs. I can say, for me, two of my SPVs, they're LLCs, limited liability companies set up in the state of Massachusetts, the Commonwealth of Massachusetts. Two of those, they own real estate assets that generate income. I have partners and we own together some apartment buildings, and they are held by two SPVs. I also have some investment vehicles. These are SPVs, special purpose vehicles, set up to invest in particular companies in which I'm very interested in. For example, I have an SPV that has invested in Savran Technologies, a company on which I sit on the board of Savran.
Now, why is it useful to have an SPV for this? Well, if you're raising money and the minimum unit size is $50,000, if you're not writing $50,000 checks, then it makes sense for you to participate in an SPV, to form an SPV, and you have people who are writing $20,000 checks, $25,000, $15,000 checks instead of writing $50,000 checks. For the startup, what the SPV does is it makes their cap table a lot simpler.
For the investors, it also simplifies their life. You get a K-1 on time, your Scheduled K1 on time, so your accountant isn't hounding you for, "Where are your K-1s?" For the sponsor, life is made so much easier. There's a reason why Jeremy's business exists. Care to mention some other use cases?
Jeremy Neilson: Yes, absolutely. We're seeing that the SPV structure is really driving a lot of activity into the ecosystem. Prior to Assure, an SPV was very, very expensive. You would basically go to a law firm. You would then pay a law firm rate. They provide you a great service, but law firms are really about how do I provide you a very customized, very specific, very today-service? Then you need to come back again in the future for your SPV number two and get that same customized time-banded service, and they charge you by the hour.
It Used to Be Very Pricey to Set Up and SPV
Traditionally, you would spend hundreds of thousands of dollars on just legal and administration fees to do a simple SPV. Why would you do that if you were raising $100,000, or if you were raising $50,000?
Sal Daher: Yes, wouldn't work.
Jeremy Neilson: Just wouldn't work. What we did at Assure is we figured out how to do this in a way that we could provide a professional service but at an affordable price. As we flipped or created that model, then the floodgates opened where now we can find all these different reasons to use an SPV.
A Way for Angels to Increase the Diversity of their Portfolio
Like you described, one of the biggest advantages of an SPV is the smaller check size. You mentioned, Sal, that it's great to aggregate these smaller checks into an SPV for a founder. That's awesome and very, very strong use case. You also have to peel back and say, if I'm an investor of an accredited investor, always make that point that accredited investors are the ones that are participating in these offerings.
Sal Daher: Yes. I need to caveat exactly that. I said, all my SPVs are for accredited investors. I don't do Reg CF. There's just that traditional accredited investor. Please continue.
Jeremy Neilson: If you're an accredited investor, let's say you make $200,000 per year, maybe you live in Boston, your paycheck is great but it may not go as far as somebody that lives maybe in South Dakota or another location. You may not have $25,000 to do deals. Maybe you have $1,000 or $2,000. These minimums, which are appropriate and pervasive, which is the way it should be, like say, I'm only going to take $50,000 chunks or $100,000 or million-dollar chunks. You as an investor have no opportunity to get access because you're not writing $50,000 checks.
SPVs allow investors, accredited investors, to write $1,000 checks, $5,000 checks, $10,000 checks and get access to the ecosystem where, before, the expense for an SPV was so high that you still had a minimum. What's interesting that a lot of people don't understand is that the SEC puts limits of number of seats on a structured vehicle. A venture fund or an SPV only has so many seats. When I say seats, that's number of investors.
Assure.co Is helping Democratize Investing in Private Assets
If your raise is, let's say, $10 million or $1 million, you can do the math because you'll only have so many seats, you just say, "Okay, well, finally we have so many seats, everybody has to average X number of dollars." Therefore, you have to be writing very large checks.
Bringing the cost down, the administrative cost of SPVs, now allows you to raise smaller dollar amounts, which allows the seats to have a lower average. Today, accredited investors can write smaller checks, get access, and they can enter the ecosystem. I remember my first experience going into the public equity sector. I remember buying Coca-Cola because they said, "Pick something that you like."
I like to drink Coca-Cola, so I went and bought [unintelligible 00:09:38]. It immediately went down. I went through this whole experience of just investing. In the private investing ecosystem, it's the same experience. You need to write that first check. If your first check has to be a million dollars, you may never write it. What if your first check only had to be $1,000 and you learn? Maybe you lose $1,000 but you begin to learn. You begin to enter into the ecosystem.
Today, lots and lots of accredited investors are entering the ecosystem because they can write smaller checks, because people are using SPVs, and groups like Assure make that affordable.
Sal Daher: You are making investment in private companies, in private assets, not necessarily private companies, but also can be real estate and other types of assets, I don't know, artwork. Let's say, your friends want to get together and buy a painting together, you could create an SPV for that. You're democratizing. You're creating access to a whole category of assets that were previously not accessible to investors.
You're democratizing this investing, which is a very good thing, because it goes both ways. I've had on Sam Bogoch a friend of mine, who by the way, was backed by one of Jason's groups. I'm not sure which, syndicate or fund. Sam Bogoch has his company, Axle AI, has had a lot of success in the equity crowdfunding space. Do you play in that crowdfunding space, in the equity crowdfunding space, Jeremy?
Assure.co Focuses on Accredited Investors – Does Not Do Equity Crowdfunding
Jeremy Neilson: Yes. There's all these terms that are being thrown around, and people are trying to figure out what is what. If you're describing the crowdfunding space who would allows non-accredited investors to participate, the answer is no. The reason the answer is no is because the SEC made sure that there was a lot of checks and balances with regards to these offerings, and they require broker-dealers. They account like audits or financial reviews from formal accounting firms. They require law firms to do work.
They basically took the entire list of professional services, broker-dealers, accountants, lawyers, and others, and they are required to be the ones that provide the service. Assure, in order to do our service, we don't want to take on that, the law firm overhead or the accounting firm overhead. We don't participate in that ecosystem because we're not formal, licensed or regulated entity.
Sal Daher: The broker-dealer and so forth, I understand. It doesn't mean that you can't be effective, because it just means that you have to deal with larger check size and basically accredited investors which is still a massively huge population. It means someone who has a net worth outside of their main residence of a million dollars, or as an individual who makes 200,000 a year, or as a couple who makes 300,000 a year and has a prospect of continuing to do that.
That is a very large number of people who also deserve to be included in private assets. Before, you could be an accredited investor and still not have access to private assets, because you can't write $500,000 checks. If you’re a partner at a top law firm who makes $500,000, you're not able to write $500,000 checks because you've got to pay the mortgage and support your family.
Anyway, tell me a little bit about the story how assure.co came about. I know that you and your wife are co-founders. Tell us the founding story. What did you do before, Jeremy? I'm just curious. What was your business before falling into this SPV niche?
The Founding Story of Assure.co
Jeremy Neilson: I went to a lot of schooling, Brigham Young University, then onto Wake Forest Law School for law school, graduated from law school during the dotcom bust, so 2001. Jobs, they were tough to come by. My father had pity on me, gave me a job at his professional accounting firm, so did that for about a year. Then went back and got an MBA from the University of Utah.
While I was getting my MBA, the state of Utah had passed some legislation to increase the access to alternative capital for Utah-based businesses. It was called the Utah Fund of Funds, where we had to go get money from third parties guaranteed by the state of Utah, and then we went out and invested in funds. That was really my introduction to this ecosystem, much more on the legal structuring admin side.
I ran Utah Fund of Funds for 7 years, invested in 28 different funds, and then helped entrepreneurs with facilitation, a full economic development investing program, left there after seven years and wanted to do my own thing. I then put myself on a path of failure for two years of starting something, failing, starting something, failing. Then eventually got a contract with the SBA to do some due diligence on their billion-dollar early-stage venture capital program.
“...AngelList called my co-founder, Katie, and I and said, "Can you guys figure out how to do funds in bulk?"”
Then AngelList called my co-founder, Katie, and I and said, "Can you guys figure out how to do funds in bulk?" Then backstory there is the JOBS Act. The JOBS Act have been passed. Then there were some no-action letters by AngelList and others. They needed somebody to build this back-end engine. AngelList was like, "Hey, if we could do this facilitation, the JOBS Act allows us to use a platform to know your customers." A lot of things happen in the JOBS Act that allowed for private investing to happen.
The JOBS Act was very critical in what we're seeing today. Then groups like Assure came in and said, "Yes." AngelList was important, where they build that front end, that like, "Here are deals, sign up, have a profile," and that could be considered an appropriate due diligence, if you will, on somebody that could be an investor. That was now approved.
Then we were that back-end engine, how do you do the entities, the taxes, the documents, the security filings, the distributions, the post-close activities, all of that heavy lifting stuff, the hard stuff. They called us. We said, "Yes." To be honest, I didn't know quite what I was saying yes to, but I was interested. That two years of failure really heightened my ability to say yes very quickly.
I knew with, my background, my legal background, my Utah Fund of Funds experience, and the network I had, I knew I could figure out whatever it was. We figured out how to do SPVs at bulk and at speed and kind of at cost. From there, it just took off. The phone hasn't stopped ringing since and just every year it just doubles with interest.
Sal Daher: Great problem to have.
Jeremy Neilson: What's unique about Assure, and I talked about how I failed in a bunch of stuff, and I did the Utah Fund of Funds and having done 15 different companies, but what's unique at Assure is that we have tax teams. We have accounting teams. We have programmer teams. We have administration teams. We have treasury teams. It's so diverse and complex. The ecosystem many times thinks, "Oh, super easy, just click some buttons." You don't understand, there's SEC here. There's the IRS here. There is legal here.
Sal Daher Advises People Not to Make the Mistake He Made in Creating His Own SPVs – A Lot of Work!
Sal Daher: I can just disabuse anybody. Having had seven SPVs, where I rolled up my sleeves, and I put all the pieces together myself, and so forth. I don't do this for a living. I did that just as coincidental stuff in order to be able to invest in the companies I was interested in. Two of my SPVs are invested in real estate. Two of my SPVs are single-asset SPVs invested in particular companies. The other two are mini funds. They have the entire panoply of complexity that you can imagine in a fund.
For me, I'm looking at this and saying, "I wonder if Jeremy could take over some of this stuff that I just hate to do and do the stuff that I love to do, which is to help and to invest in startups." I'm on the board of a biotech. I've invested in 70 startups to this point. I want to do more of that.
I've been helped tremendously by Buildium, which is a platform that helps me with my apartment buildings. I don't get anything from Buildium for praising what they do, but they have really given me more hours in the day that just make my life easier as an owner-operator of apartment buildings.
I'm very eager to find that kind of help on the side of my SPVs. That's one of the reasons I'm talking to Jeremy, other than the fact that I know him and Katie from back at that event, and Jason. Have you been back to any of Jason's events? Are they back to in-person events?
Jeremy Neilson: No, they've been virtual. I've been on or at most of his virtual ones, but not to any of-- I don't think he's done any in-person. I talk to him. He's an investor in Assure. We talk about us being entrepreneurs, a founder. We've raised money. Jason's through an SPV invested in Assure. I talk to him occasionally, and they are not yet going back in-person.
“He's the pope of angel investing podcasts. I'm just a cardinal, or perhaps a bishop.”
Sal Daher: Oh, that's too bad. Eventually, we will. I should start doing some in-person stuff. By the way, Jason is Jason Calacanis. He's been on the podcast. He's the pope of angel investing podcasts. I'm just a cardinal, or perhaps a bishop. [chuckles]
Jeremy, I want to pick your brains here a little bit, and just ask you some questions pertaining to my particular interest. One of the reasons that I'm looking for help, the kind of help you can provide on the operational side, on the engine side, as you say, I want to drive the car. I don't want to have to look at the engine.
I have discovered that the opportunity for me, the most impressive opportunity that exists that I can see, because I sit in Cambridge, Massachusetts, which is the world's capital of biotech, is a gazillion little biotech startups, that they are made possible by the democratization of startups that's occurring.
Biotech Too Is Being Democratized
What you're doing, the process that you have with democratizing SPVs, it's going on with biotech startups. It doesn't take $5 million to launch a biotech startup anymore. There are shared lab spaces, there're all kinds of-- There's a company I'm invested in, Meenta.com-- Meenta.io, pardon me, sorry Stephan, sorry Gabor. They make it easy for you to have any-- if you're a scientist and you're looking to do an experiment, any test, any time, any reagent, you can go book it for you. All these things are making the life sciences easier.
Also, there is an explosion in the number of very brilliant academic founders. Academics are always brilliant but some of them are coachable, some of them are business-minded, and they want to create their own startups. A model for me is Savran Technologies, a company I'm on the board of. The founder, Çağrı Savran, is a professor at Purdue University, which is a super entrepreneur-friendly university. He's a faculty member. He's also the CEO of this startup, of Savran.
It's really congenial for an academic founder to be doing so, because a lot of what they're doing is lab work. It's scheduling lab work, which is stuff that academicians are good at doing. I want to be able to support, I want to help create funds that are going to support more startups like that because that is going to do an awful lot of good in the world.
I have seen too many people die of cancer, too many people with all kinds of horrible diseases, with heart disease, which is the biggest killer. All these things, there's always a startup working on one of these things. I want to spend the rest of my energy, my working life, focusing on these early-stage companies.
The problem is very few angels are interested in venturing in biotech because biotech is hard. Biotech is hard to understand. I just wanted to have your perspective, from what you see. You see a lot of startups, and you see a lot of angel investors. What thoughts do you have about this? What advice can you give me in helping increase the flow of angel investors to the life science?
“...we're seeing in the ecosystem is a very large shift away from thinking strictly financial.”
Jeremy Neilson: Yes. What we're seeing in the ecosystem is a very large shift away from thinking strictly financial. When I say strictly financial, it's let me put it in a model, let me hear the metrics, what's the fastest exit, what are the risk profiles? The shift is to, will this change the world? Is this something I'm passionate about?
Communities are popping up all over the place. When I say community, it's like-minded individuals doing stuff together. Technology, and with Slack and Zoom and all these other things out there, these ecosystems, these sub-ecosystems, and these communities are getting extremely large. They're starting up very quickly.
When I talk to our clients, I do a podcast similar to this one, and when I talk to them, each of them have a different approach. Each of them have a different asset that they're going after. I just spoke to somebody, one of our clients that is doing aging. As people get older, there's certain things about their life and the changes and what they want and the technology. She's saying, a few years ago, not a whole lot of individuals' interested. She's like, today, there's a lot of people that are calling her just word of mouth saying, "Hey, you should go talk to so and so about what he or she is doing."
“No longer is it a very small niche of uberwealthy or venture funds, now it's the entire ecosystem of accredited investors now have the opportunity to participate.”
Sal, I would say that because SPVs, because of the technology, because of all these things, you're now opening up that world of accredited investors. No longer is it a very small niche of uberwealthy or venture funds, now it's the entire ecosystem of accredited investors now have the opportunity to participate.
If you have passion, there's a large number of individuals that have a similar passion. It's really just about you, you stepping out and saying, "This is what I'm going to do. This is what I'm passionate about." From what I've seen, that is working nearly every time when someone steps out and just says, "I know what I'm doing. I'm very passionate about this, and I'm going to be leading transactions, SPVs, into these types of companies." There's a large number of people who say, "I'm interested as well."
Sal Daher: Excellent. Do you guys do not-for-profit SPVs?
Jeremy Neilson: As in the structure is a 506, what is it, 50[1](c)(3)?
Sal Daher: Yes, I mean for donations. The reason I'm thinking about that is that-- I'm an investor. The company I mentioned, meenta.io, they also have an initiative called Curesology. Curesology, I don't know. It's term that they have trademarked. What it is, is they match scientists with people who have a particular interest in supporting the work of those scientists. They facilitate scientists using expensive machinery they don't have, getting the right reagents, just making a life of a scientist easier in doing their experiments.
They talk to a lot of people who are also investors, who have particular problems, people with certain types of cancer in their family, and they want to support them. They're creating a platform to help connect scientists with people who are interested in supporting that particular... Research into this particular variant of a gene that causes the problem that affected their family member, something like that. It's called Curesology. I'm just wondering if this is something where you probably need to set up some kind of a vehicle for that.
Jeremy Neilson: 50[1](c)(3), I think that's the name of the code. I've done one of those when I was at the Utah Fund of Funds. It takes time. It takes applications, and you can get approval for that. There's nothing wrong from the Assure side about assisting and helping with a structure like that. It's just no longer in that speed structure. It's not like click a button and get a set up, and off we are to the races.
“We have seen clients come and say, "I want to donate my carry to a good cause."”
It would be something very thoughtful, probably much slower, and so you're really outside of the core service that Assure provides with regards to why most people come to us, but there's nothing wrong with that. We have seen clients come and say, "I want to donate my carry to a good cause." There's different approaches people take.
Sal Daher: Let's unpack that. Carry means, you set up an SPV, you sponsor it. You put a really attractive investment in it. A bunch of people invest, and then if it's successful, the carry is the percentage of the upside that the sponsor receives. That percentage then, you're saying, can be assigned to support a charitable work.
Jeremy Neilson: Yes.
Sal Daher: Okay. That's very interesting. Tremendous. Let's survey a little bit the landscape that exists. We're talking here about special purpose vehicles for accredited investors. We touched on the Reg CF, which is crowdfund. It has like a $5 million limit, most can be raised. It has a lot of restrictions on who has to sign off on the deals. What else is there? For example, what does somebody like AngelList do?
Jeremy Neilson: The private asset investing's ecosystem, but basically all investing, is pretty simple. If you really boil it down, you either go direct, which means you pull money out of your pocket, and you write a check to the asset of the company or whatever you're going to buy, or you go through a structured vehicle. Those are your only two options. You go direct, you structure vehicle. When you go to the structured-vehicle world, SPVs are a structured vehicle. A venture capital fund is a structured vehicle. AngelList does something called rolling funds, which I term them as multi-asset SPVs, so you got to call it a mini fund, all the same description.
I've got an SPV. Instead of putting one asset, I want to put five or three or eight. A full venture fund is I'm going to put in 20, and I'm going to have a management fee. I'm going to build a team. I'm going to have an office. Rolling fund, mini fund or multi-asset SPV is like, "I don't to want all that stuff. I just want to package three or four or five deals into one structure." Then you got your single-asset SPV.
“Carta, AngelList, Assure.co were those three that got started all together back about eight, nine years ago.”
If you're going to invest into private asset, you're going to go direct, or you're going to go through a vehicle. If you go through that vehicle, entity creation, document signing, security filings, tax filings, and ongoing administration. There's groups like Assure and others that are making that simpler, which is growing that ecosystem of access and democratization. Carta, AngelList, Assure.co were those three that got started all together back about eight, nine years ago. Each one of us are attacking this ecosystem a little bit differently, but each of us are providing democratization of the ecosystem for simpler cap tables or simpler investing or simpler structuring, so that more and more and more people can invest.
Cheaper SPVs Are Helping to Give Access to More Diverse Founders by Broadening the Reach of Investors
What's great about that, kind of you described it, Sal, but you see the diversification of the founders, diversification of the investors. Because you're opening this up, no longer do you have to go to Harvard or Stanford and then work on Wall Street and make a million dollars a year. You can be anybody anywhere. In our SPVs, our numbers show that a large number of our organizers are doing deals in Middle America and have a diverse background, a much higher number than you'd see in traditional venture capitalist.
Sal Daher: That is tremendous, because broadening the access of this asset class to more participants, people with different backgrounds geographically, social background and so forth, is going to contribute tremendously to the creation of better and better and better companies.
Sal Compares Two Robotic Glove Startups Three Decades Apart to Demonstrate How Much the Startup Ecosystem Has Developed
Jeremy, in my lifetime, my investing lifetime, I remember when I invested in my first startup in the beginning of the 1990s, the ecosystem was so primitive then. That to do a very, very basic medical equipment startup, you had to come up with $5 million.
I invested in a company which had this mechanical glove to help figure out how much impairment there was in a hand, founded by a classmate of my brother-in-law at MIT, Beth Marcus. They raised so much money to do something. Today, I'm involved in a startup that has a robotic glove. I'm getting like déjà vu. One of the reasons that this company ended up being sold-- their robotic glove was never really used for medical purposes that was intended, because the computers were so slow then. It ran on Apple computers and they kept crashing. This is early '90s.
Now, the computers have progressed so much. I have invested in a company called Imago Rehab that has a robotic glove that helps stroke patients do therapy with their hands, remote therapy. The difference between the glove of EXOS Inc. circa early 1990s and what Imago Rehab is doing in 2022 is unbelievable, the infrastructure didn't exist then that exists now... shared workspaces, lawyers who work basically on a come. They say, "We'll get paid out of your Series A money," or something, that kind of thing. All sorts of innovations.
“Her life is going to be so much easier in starting that company than it was for Chrissy Glover’s starting Imago Rehab [today] and way, way easier than Beth Marcus’ starting EXOS back in the early '90s.”
Startups have gotten so much better that the whole ecosystem has gotten so much better at building startups. I cannot imagine what's going to happen in the next 10 years, how much easier it's going to be. I think you're part of that process. There's some 12-year-old kid who's just about to start grappling with acne who is going to take on and build some killer startup in 10 years. Her life is going to be so much easier in starting that company than it was for Chrissy Glover’s starting Imago Rehab [today] and way, way easier than Beth Marcus’ starting EXOS back in the early '90s. What you're doing is extremely, extremely important. It's just like earth-shaking.
Jeremy Neilson: I agree that every year it's accelerating. When we first started Assure, we did nearly everything by hand. We had people mailing us, in some cases, their subscription agreements filled out by hand. We were trying to read their handwriting, checks coming in. Now today, our system allows you to do it on your phone. It's mobile phone.
Sal Daher: I laugh because, when I'm done with this interview, I have to collect all the details of a bunch of new investors that I have in one of my SPVs. [laughs] I'm doing it the hard way. Just no fun. I'm going to have people faxing me stuff, stone age. I imagine that, if I could set it up with assure.co, I wouldn't have to be hassling with that. I could be playing with my grandkids upstairs.
Jeremy Neilson: That's right.
Sal Daher: By the way, do you have kids?
Jeremy Neilson: Yes. My wife and I have four children. Our oldest is married and our youngest is 11, still going to [inaudible 00:34:57] [crosstalk]
Sal Daher: Great range. Do you have grandkids yet? Jeremy Neilson: No grandkids yet. Marriage was this summer, so we'll see. We're kind of in that phase of like, do we want grandkids or do we want to tell them to get a little bit further in school? Whenever it happens, I'm sure it'll be amazing.
Sal Daher: Let me tell you, if you look at me and you look at Jeremy, Jeremy is, I think, is in far better shape to be a grandfather than I am. [laughs] It's a very taxing thing, but it's a wonderful thing. It's a lot of fun.
Anyway, this sounds like a mundane kind of thing, but it's extremely important. It's like, for rockets to escape gravity of Earth, every pound on that rocket matters. If you're light enough for the fuel load that you have, if you can take off enough pounds off of that of the rocket, of the dead weight of the rocket, for the fuel load that you have, you can reach escape velocity, otherwise you don't.
“Assure.co is helping to lower the dead weight of a startup rocket that's trying to reach escape velocity.”
Assure.co is helping to lower the dead weight of a startup rocket that's trying to reach escape velocity. It sounds not important, but it is hugely important. It's really important.
Jeremy, as we think about closing out this interview, what thoughts do you want to leave our audience with? These are founders, people who are considering founding companies and angel investors. Maybe what we could say is, let's split it out, how can assure.co help a startup?
Jeremy Neilson: Yes. As you mentioned it at the beginning, a clean cap table for founders. When I say for founders, is having a clean cap table equals a number of things. One of them is sophistication, preparation for future financing rounds, and professionalism. It also gives you a lot of optionality to have smaller investors sitting inside an SPV. If you go out to fundraise future financing rounds, B round, C rounds, many times those institutional investors are going to be looking at that cap table. If it's messy, many times they're going to have you clean that up or sometimes they pass on a deal.
Many times it's just burden on you, as the founder. Putting everybody into a structured vehicle that is under a certain kind of check amount can make your life easier now in the future and in the long-term future for you, and just administering all your investors for third parties that are evaluating your company for future investors you want to put in and future acquirers you want to put in money.
Flip the tables. If you're going to walk in, say, I'm going to acquire this business and you pull up a cap table and there's 45 people sitting there, that wrote $5,000 checks, versus one SPV that just says, "My network SPV," there you go, that's pretty clean. Think through that. We've also seen from our data that founders that use SPVs raise more money than founders that don't. Not sure exactly the correlation there but--
Sal Daher: Yes. Is it causality or is it multicollinearity? Have you ever heard of pilot.com? Have you run across them?
Jeremy Neilson: No.
Wisdom from Waseem Daher of Pilot.com on Angels & Cap Tables
Sal Daher: It's a startup from Silicon Valley. One of the founders is Waseem Daher. No relation. As they say in Lebanon, "The Daher family is a big family," which means that Daher is a common name [chuckles] in Lebanon. Waseem has written a lot. He writes very thoughtful things. He wrote precisely about this one, a cap table. He says, "You should never turn down an angel investor, because you think your cap table is going to be complicated." He says, [paraphrasing] “Consider creating an SPV and putting all these angels in the SPV, and having sort of like a lead angel be the person who manages the SPV, and maintains all the communications of the company. Then you kind of have the best of both worlds as a founder." You can't have too many angels by Waseem Daher
You have access to the early money that you need for those people who are going to write the $10,000 checks, and get you on the map. You also have a clean cap table. Think of it like this. VCs are like fancy characters in designer clothes, and they don't want to get in the backseat of a van with a 12-year-old, a 15-year-old and a 2-year-old screaming. It's not their thing. They're going to get their designer suit spattered or something. It's kind of like that.
It's not that they're bad people. I mean, I'm sure they're great people, but it's not their thing. It's much easier if you have a separate vehicle. You have a separate van. You have a van, where the kids ride and then you have a van where the VCs ride. That's what the SPV is, a special purpose vehicle. It creates the possibility of having a cleaner capitalization table, meaning the list of investors of who's invested in the company and how much. Now, for an angel investor, how can SPVs help?
Jeremy Neilson: Angel investors, similarly, if you are an angel investor and you either can't make minimums or don't want to make minimums, maybe you have lots of money, but you want to spread your money over lots of investments.
Sal Daher: It's a way to diversify your risk.
Jeremy Neilson: Right. Let's say, just for numbers, you have a $100,000. You can either go into one or two deals, or you can cut that up into $5,000 checks and go into a large number of deals. You're pooling other people alongside your money so that you can stretch your money over a diversified portfolio. Also, if you're an angel investor who maybe sources deals, does due diligence, finds that deal and then you're sharing that due diligence with your friends and others in your network, if you [crosstalk]--
Sal Daher: Like me, I do that. Yes.
Jeremy Neilson: If you don't do an SPV per se, you can't take carry, which is a great service. If that's what you want to do, great. If you say, "Hey, I'm doing all this work. I would love to maybe take a little carry on that work," so if you put them into an SPV and say, "Hey, I've got another company, done the due diligence. I'm putting in 5k, who's in?" rather than, "Here's their name. Here's their address. Here's their phone number, make the phone call," you bring them into an SPV. You get the chance to charge a little carry, whatever you and your network decide. You can get a little upside for the work that you're putting into it.
Then also, you get the chance to then allow other people that have smaller check-writing capability to participate. If you just tell people, "Hey, call the CEO," and the CEO says $25,000 are minimums, then your network needs to write $25,000 minimums. If you put that SPV together and you reach out to your network, then your network can possibly-- It's up to you what your minimum is, maybe it's a 1,000, maybe it's 5,000. You're allowing angel investors in your network, in your ecosystem to participate in the investments as well.
Sal Daher: Jeremy, do you want to get a little bit of detail in terms of just say the economics? Care to talk about how much it costs to set up an SPV?
Jeremy Neilson: Yes.
SPV Pricing at Assure.co
Sal Daher: Let's say you're an angel and you got a bunch of people who had put together a $100,000. How much of that $100,000 is going to get eaten up by the SPV?
Jeremy Neilson: At Assure, we have two products. We have what we call Assure Labs, which we say are SPVs on rails, which means we have a great product, professional product. You have everything you need and nothing you don't. For a $100,000 SPV, we have tiered pricing. It starts at $4,000 plus any Blue Sky filing fees at a $50,000 SPV. Then we go up $50,000 raises. The price goes up a little bit more, a little bit more. At $100,000 SPV that you raise, you're going to be paying about $6,000, give or take a little bit. That's one time. That's not annual, that's one time.
We provide a seven-year service for that SPV. It includes the platform that we've built. It allows people to sign, to put in their money, allows you to log in and see what's going on. We do the security filings. We'll do the taxes when needed. We'll help with post-close activities. We'll help with distribution, so that full everything in a box for that one price one time. 99% of the time, the investors pay for it. Typically, you don't go into your pocket to pay the $6,000. You just take it off the top.
You either take $6,000 off and you send $94,000 to the company, or you raise $106,000, if you will. Then you take it off the top, and you send a $100,000 onto the company. That tiers up until $10,000 to $12,000. We max out around $12,000-$13,000 where you could raise a $10-million SPV, and that would be the price. It maxes out.
Sal Daher: I can tell people that don't do it yourself, SPV, like I've done. Don't commit the mistakes that I've made. A Massachusetts LLC that you set up is $520 every year. The accounting fees on that, easily $300, $400 every year. First year is 1,000 bucks. The legal advice and all that stuff, $2,000 to $5,000 to set something up. You go through that $6,000 very quickly. Now, that $520 plus something, it's basically $1,000 every year. Then you have all this stuff you got to do, is running around keeping track of paperwork and all this stuff, so I think it's a lot easier.
The thing is that, at the time that I met you, Jeremy, you were not as efficient and as affordable as you are now. You guys have made a lot of headway. Somewhere along we met, at the time, for the size of funding of SPV that I set up is just wasn't economical. I think it was like a $14,000 price point at that time. That's come down quite a bit. What happens in seven years? Let's say the SPV goes beyond seven years, the assets don't liquidate.
Jeremy Neilson: We have a couple of options. One, you can pay more and we can stay on, or you can take it over yourself. Because we do that flat fee, one time, we've got to put a line somewhere in the sand so there's not this infinite service that we provide. We've provided the extra service if needed towards the backside. Also, there's lots of decisions that our clients want to make at that time like, do they want to take it on? Do they want to back out of it? Do they want to sell it, or do they want to pass the hat and put in another $1,000 for a little more time?
Sal Daher: The reason I ask is that life science in 10 years is not unusual. A lot of the software companies that you're involved with, let’s say are at five or six years, I'm sure if you did a study. How many SPVs have you created to date?
Jeremy Neilson: We have over 8,000.
Sal Daher: Have you done calculations on the typical life of an SPV?
Jeremy Neilson: Yes. That's always a moving target, and it would go also by asset class and by stage. A very large number of our SPVs are secondaries. A large number are real estate and a large number are startup companies. On the startup company side, when we first got started, it was around six years, was an average.
Sal Daher: The seven-year horizon takes most-- The median startup will exit within six years, is what you're saying.
Jeremy Neilson: Yes. We're living in this world that's constantly shifting. Meaning startup company life cycles go from 4 years to 12 years. There's this wave that goes through the ecosystem, so you can't ever really know like, "Is this the moment where we do 5-year pricing or is this the moment you do 10-year pricing?" It's very difficult for us to come to that middle ground. We're really committed to allowing anybody anywhere, regardless of who you are, background, to be able to use an SPV.
I would love to see the price come down even further over time. I would like that the decision to invest is never the reason that you say yes or no is because of admin fees. The decision only is, "Do I believe this company will be something that I believe in or that I want in my portfolio?" Far too often people have said, "I'm not investing or I'm not putting something together because the admin fees are too expensive." I believe we've got it to a pretty healthy spot. It would be great if we could continue to innovate and even see those costs come down further so that you never have to worry about that admin fee in making your investing decisions.
Sal Daher: Tremendous. I predict this cost will come down, because you're going to have so many efficiencies that your process-- With 8,000 SPVs, you've learned a few things. You're probably going to make it more efficient. Anyway, any other thoughts that you want to leave our audience with?
Jeremy Neilson: Everything you can find is on our website. We do a quarterly conference. If you really want to dig in and get smart very quickly on SPVs, every quarter, we do a virtual no-cost conference, a two-day conference with about 18 different sessions. Just go to our website. You can sign up for free. It's coming up at the 1st of March. Whenever you listen to this podcast, we have one every quarter throughout the year. If you really want to dig in further, come to that free conference and reach out when you want to do your first SPV.
Assure.co Powers Jason’s Syndicates, EquityZen and Forge Among Many
Sal Daher: Tremendous. This is great. Jeremy Neilson, co-founder of assure.co, the SPV engine behind so many angel investments. Before we go, I should mention that you guys do Jason's Syndicate, right?
Jeremy Neilson: Yes.
Sal Daher: EquityZen and you do Forge.
Jeremy Neilson: Yes, and a thousand other people.
Sal Daher: These guys are big time. Anyway, thanks a lot, Jeremy. Coming to you live from Salt Lake City, I'm grateful again that you made time to be on the Angel Invest Boston podcast.
Jeremy Neilson: Thanks for having me.
Sal Daher: I'm Sal Daher.
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Sal Daher: I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McKusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.
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Sal Daher: This podcast is brought to you by Purdue University Entrepreneurship and by Peter Fasse, patent attorney at Fish & Richardson.
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