Client spotlight: Sprout
Top tier venture capital (VC) funds have traditionally been the domain of institutional and ultra high net worth investors. Sprout is disrupting this approach by enabling a wider audience of investors to access some of the best performing asset classes through hand-picked, high quality VC funds without the need to deploy millions of pounds of capital.
Delio spoke to CEO and co-founder Jonny Blausten, about his vision for Sprout.
Jonny, how would you describe Sprout in your own words?
Sprout is making top tier VC funds accessible to serious investors who are motivated to invest into the best funds but haven’t been able to for various reasons; normally due to a lack of access and understanding.
Venture capital has been the best performing asset class for the last 10-15 years and has outperformed the FTSE for the last 20 years. The top performing funds have been delivering 30% IRR on average and the largest and most sophisticated investors have been deploying between 20-30% of their portfolios to these funds for a number of years.
However, these funds remain inaccessible for many people, including professionals, high net worth individuals and founders due to minimum ticket sizes that are often in excess of £1m. Even if they have that sort of capital to deploy, they often don’t have the knowledge or experience of knowing which VC funds they should invest in.
This is what Sprout is aiming to change; we’re curating the best performing funds and making them accessible via the Sprout platform. This means that we can enable a new breed of investors to benefit from this returns profile but at a much more accessible level.
Democratisation of private markets is a term that we see talked about a lot. However, you’ve decided to distance yourself from this term – why is this?
When we started Sprout, we referred to what we were doing as ‘democratisation’, but we felt it only told part of the story. Yes, we can work with individual investors on small ticket investments, but we’re also providing access to exclusive funds for the likes of family offices who deploy hundreds of thousands, or even millions in capital.
Rather than democratisation, our focus is on access and quality. While we are creating better access for smaller investors and collating these together to save funds the legwork, that is just one part of our offering.
Expanding on this point a little more, do you think private markets will be accessible to everyone at some point?
I think it’s important to remember that we’re dealing with considered, illiquid, long-term investments here. Sprout is improving access to these types of investment for hundreds of thousands of people, but they’re not suitable for everyone. These are opportunities for investors who understand and are motivated to invest in this type of asset class.
We believe that empowering investors through education is vitally important. Ultimately, people should have the freedom to choose how to deploy their capital, but regulation has a vital role to play in ensuring that investors understand what they’re doing and the risk profile that comes with these decisions.
You’ve mentioned the importance of educating investors. What’s Sprout’s aim in that respect?
Education is central to our approach at Sprout. We don’t want to be a platform where clients come to invest and then disappear; we want the platform to be a hub of information that brings together like-minded individuals that can expand their knowledge and share their experiences. It’s so important to me that everyone on Sprout understands what they’re doing and how they’re deploying their money, as that will build a valuable community of investors that can learn from one another.
Looking at the most sophisticated investors, anyone can see that they are deploying around 20%+ of their portfolio to private markets; that’s not to say that everyone should do the same, but it should give an indication to other investors that they should be considering alternative assets.
The challenge is that many investors seeking alternative assets can’t access venture capital funds and are then forced to look at crowdfunding, crypto or very early-stage startups; all of which are more speculative in their nature. At Sprout, we’re offering these investors the opportunity to deepen their knowledge, understand the options available to them, and deploy their capital to funds that are managed by experienced professionals.
How are the funds available via the Sprout platform selected?
All of the funds available on the platform are selected on a number of factors, including prior performance, realised exits rather than paper valuations, and having a clear strategy that we can articulate to investors.
We also want to offer investors choice. If you think of a matrix, they should have options to invest based on stage, fund focus, and geographical location. This gives investors the opportunity to tailor their approach; that could be taking a generalist approach early on as they build their experience, through to selecting a fund that specialises in Series A investments in European-based fintechs, for example.
We don’t want to be an ‘investment supermarket’ where investors have so much choice that they don’t know where to turn. However, we do want them to be able to filter investments based on their interests or preferences and still have a small but high quality selection of funds to choose from.
Why did you choose to work with Delio?
The functionality of Delio’s technology was a clear differentiator, as was its ability to scale which is really important to us given Sprout’s ambitions.
The support that we’ve had working with Delio has also been first class and they are very much an extension of the Sprout team. For a business of our size, the ability to draw on the expertise of Delio’s technology, commercial and structuring specialists has been key to how we’re growing Sprout.
Our Delio-powered platform is better and more established than anything we could have built ourselves. There is also a transparent commitment from Delio to invest and develop the platform, which is both encouraging and exciting to be part of.