No (private) client left behind

Fuel Venture Capital hopes to bring further democratisation to the private markets, specifically venture capital, by raising its next fund via a listed, centrally cleared transferable note (Fuel Note), which can be sold and traded throughout its duration.

“The democratisation of private equity has in large part left private clients behind,” commented Jeff Ransdell, managing director and founding partner of Fuel Venture. “We have some wealth advisers on our platform, and we have seen the demand from private clients and advisers, so we simply want to continue to do our part to help.”

According to the firm, eligible investors can purchase, value and custody the Fuel Note through their brokerage arrangements. This should enable them to invest directly into the Fuel Venture Capital Flagship Fund II, which has a target of $300m, with a discounted fee structure and a 1:1 exposure to the underlying fund.

Ransdell explained how this structure will execute his vision for the private markets: “We want to facilitate actual democratisation. In addition to opening up the VC market for private investors, we will forgo any success carry until 100% of an investor’s original capital has been returned, as well as 100% of the management fees.”

While Fuel Note is not breaking new ground here – Moonfare already uses feeder vehicles to provide investors with access to private equity and venture funds in a similar way – the VC firm hopes to resolve some of the industry concerns around access to the private markets.

Operation and education
One of these concerns is the additional burden placed on firms’ operations teams when onboarding a larger number of investors.

In a first step to grapple with this, the Fuel Note will be issued via an Irish Section 110 tax status company, sponsored by Sequence Capital and structured by Lynk Capital Markets.

Alistair Evans, founder of Sequence Capital, explained how this solves the issue of investor onboarding: “We have partnered with Fuel and have set up an issuance programme with BNY Mellon fulfilling many of the key functions, which means Fuel does not have to actually onboard eligible investors.”

The Fuel Note will then be available via Bloomberg, SIX Financial and the relevant stock exchange. “The Fuel Note will be centrally cleared via Euroclear, Clearstream and DTCC, which means it can be bought and sold just like any other listed security,” added Evans. “It will therefore have a CUSIP/ISIN and this should eliminate the need for KYC/AML, bank transfers and paperwork around tax forms such as W8-BENs, further streamlining the process for investors.”

An additional concern raised in relation to wider access to the private markets is a lack of knowledge about the asset class from non-institutional investors. Ransdell shed light on what Fuel Venture’s plans are to combat this: “We have brought on additional investor relations colleagues and will be providing educational content on our website to move the people and conversation along, and doing our part to open up the private markets to the private client.”

It is not for us to say how public the private markets will become. But by outsourcing the onboarding process and doing its bit to educate the wider society on venture capital, Fuel Venture is taking a step into this direction, bringing the world of private equity closer to its private clients.

The Drawdown recently took a good, hard look at the democratisation of private equity and whether the nomenclature is truly accurate.