One goal after leaving my corporate job of 11 years in 2012 was to learn more about the startup industry in Silicon Valley. I was coming from the old school finance industry where there was relatively little innomvation compared to many financial technology companies today. Life was getting a little boring and I kept watching company after company we took public grow into great successes.
One of those companies was Google. I remember being excited seeing Sergei Brin, one of Google’s founders give a lunch presentation in downtown San Francisco during their IPO roadshow back in August, 2004. It was standing room only, so I wasn’t able to eat one of the manufactured plates of rubber chicken. We were one of the lead book runners, and I was inspired at how quickly Sergei, Larry and team were able to build something so huge, so quickly.
We are living in the golden age of tech/internet innovation. Five years ago, at age 32, I told myself that if I didn’t create something internet-related on my own or join a startup while having so much access living in San Francisco, I would kick myself in the face when I’m old.
Today, Google is one of my largest sources of traffic and revenue for Financial Samurai. Maybe it’s good karma for helping them go public, even though the IPO seemed shaky at the time with the last minute price decision of $85/share. Yes, we all should have piled in back then! It’s crazy how life comes full circle.
I discovered Sliced Investing on AngelList while vacationing up in Tahoe over Christmas break. With my tag-line “Slicing Through Money’s Mysteries,” I wondered if destiny was calling once again as I shot the founders a note to say I’m interested in helping them out. They kindly responded, and here I am.
I wrote off hedge fund investing until 2015 because I didn’t have the $500,000+ minimums to invest. It was just as well since the markets have been on fire since 2009 and hedge funds have underperformed. But in a way, I have been creating my own equity hedged portfolio with my accumulation of structured products since 2012. Give me 5-10% returns every year with low volatility, and I’ll happily invest all I can.
Sliced Investing smartly crowd-sources investor capital in order to make investing in hedge funds and alternatives more accessible to more people due to their minimum investment of $20,000. With the bull market entering its sixth year, I’m beginning to wonder how much more this baby can run. I’ll take under a 10% return for the S&P 500 for 2015 if anybody wants to take the other side of the bet!
In this interview, I want to understand the mindset of an entrepreneur. We’ll talk about risk-taking, the why, and how things came to be with Mike Furlong and Akhil Lodha, founders of Sliced Investing. I’ve got to imagine many people would love to be their own bosses and create a company one day as well.
INTERVIEW WITH SLICED INVESTING
How did you guys decide to leave your companies to start Sliced Investing? Most people are happy with their jobs, or too afraid to move, so I’m curious to know whether being an entrepreneur is genetic or developed.
As former Wall Street traders, we were very content with our jobs. We both have natural fascinations with the global markets and drew energy from the fast-paced trading floor environment. With that said, we noticed inefficiencies in the way financial products are distributed. We personally wanted access to some of the same investments we saw on Wall Street, but as individuals we didn’t have access. We saw how other aspects of the investment industry were being democratized through crowdfunding (start-up investing, real estate investing, etc) and figured the same thing could be possible with hedge funds and other alternative investments.
At the end of the day, I think we both wanted to have a more meaningful impact on helping individual people rather than just institutions grow their wealth. Entrepreneurship isn’t genetic. If you are passionate about an idea and have the courage and determination to follow your passion then entrepreneurship is for you.
Were there certain preparations you took or financial goals you wanted to achieve before taking the leap of faith?
It’s definitely fair to say that although we took a calculated risk starting Sliced, the odds in the beginning make it daunting for anyone to start a company. In our case, we were both working at successful and innovative start-ups before we decided to quit our jobs. We feel those experiences combined with the mentorship of Y Combinator gave us enough confidence to start Sliced. We are very happy that we took the risk. (Note: Y Combinator is one of the premier startup accelerators that has funded companies like AirBnB).
Why do you think Y Combinator accepted your business model as one of the 3% accepted companies into their seed accelerator program? Why do you think Khosla Ventures and other VCs proceeded to invest over $2 million in your company?
It’s the market. The financial services industry is enormous and — for lack of less cliche words — ripe for disruption. Additionally, the hedge fund industry is currently $2.8 trillion large and expanding each year, but retail investors generally don’t have much access to it. It’s amazing how behind financial technology is compared to other industries. Even simple financial products like stocks or bonds are a bad user experience. It’s hard to not feel like you’re being overcharged on the trading fees with current online brokerages. Our technical ability and access to hedge funds is an added plus, but I think people get excited about Sliced because they realize the state of the current market and the massive effect of us making even a small change.
What is the Sliced Investing value proposition?
Our value proposition is access to an asset class that has historically been difficult to access and inefficient in allocation. We’re doing what the internet did for information to private funds — democratizing it. Furthermore, we charge 50-80% less than other fund of fund companies, with much lower minimums.
Do you think the definition of accredited investor is appropriate? If not, what do you think is a better definition or way to allow individuals to invest in private investments or hedge funds?
We have a strong opinion that the definition of an accredited investor should be based on an investor being knowledgeable and aware as opposed to limits based on wealth. Understanding the risks you take with an investment is a must, and riskier financial products are very much available to many investors. For example, any investor can currently go buy penny stocks on the ‘pink’ sheets without any prior qualification. That dichotomy doesn’t make sense to us.
How many fund of funds do you currently have, and how many do you plan to launch? What is the timing of these fund launches?
We currently have two, curated fund of hedge funds on the platform that gives investors exposure to broader hedge fund strategies. We will soon be launching individual funds on the platform as well as more fund of hedge fund products. If you spend a minute to sign in, you’ll see the specific investment opportunities.
Who is the typical Sliced Investing investor?
The typical Sliced Investor consists of doctors, lawyers, VPs, Managing Directors, Associates, and finance veterans who recognize the opportunity of investing in hedge funds. Our investors may be well-to-do, but many don’t have the $500,000 – $1 million minimums to invest in hedge funds to diversify their investment portfolios. We hope to expand access to as many people as possible.
Who are the companies you admire and would like Sliced Investing to emulate? Are there any partnership opportunities in the making?
Four that come to mind are AngelList, RealCrowd, Prosper Lending, and Lending Club. Each of these companies are democratizing other asset classes (venture, real estate and peer to peer loans respectively) and have experienced strong growth. We do envision future partnerships such as for example, shared blog posts.
Why do you think some hedge funds have a difficult time staying open? How does Sliced Investing help ensure that the funds they invest in are the best funds possible? What is the vetting process before selecting the proper funds?
The vast majority of funds that close have sub five million in assets under management. Generally, smaller funds aren’t necessarily managed by professional money managers with a long-term track record. Most funds close because investors pull out and there isn’t any further incentive to have a vehicle to pool outside capital.
We take steps to mitigate risk and ensure funds are high quality by leveraging a pedigreed investment committee to make investment decisions. The vetting process is detailed – extensive operational and investment due diligence is performed on the managers that are selected for the platform.
Once the fund of hedge funds business model is proven out, do you have plans to get into other asset classes such as venture capital and private equity?
Yes, absolutely. Our goal is the entire private fund universe. We will probably move to venture funds next.
Is there anything else readers should know that hasn’t been covered?
We have been fortunate enough to assemble a passionate team that combines strong technical expertise with financial industry experience. Members of our team include former traders, investment bankers, data scientists, and designers, all of whom are extremely dedicated to building a great product. Many of us are fortunate to have gained a ton of invaluable experience from other companies such as J.P. Morgan, Citigroup, Wells Fargo and FT Partners.
THE STARTUP JOURNEY
I hope this interview provides a window into what it’s like as a Silicon Valley entrepreneur. Living in San Francisco makes me totally biased towards encouraging people to take more risk. Every single company we know of today was started by someone who had an idea and got out of their comfort zone to make their business a success. The worst case scenario in your head is almost always worse than reality.
Creating the next Google is probably a one in a billion long shot. But who says you have to grow as large as Google to be a success? As someone who runs a small business that’s cash flow positive, I’m happy with the way things have turned out.
Thanks to Mike and Akhil for spending the time to answer my interview questions.
Update for 2016: Sliced Investing merged with LOGe Solutions, LLC to create StratiFi. StratiFi is a financial technology company helping wealth advisors deliver reliable and transparent investment outcomes to their clients through the use of various risk management services
RECOMMENDATIONS TO BUILD WEALTH
* Manage Your Finances In One Place: The best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.
The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! They also recently launched the best Retirement Planning Calculator around, using your real data to run thousands of algorithms to see what your probability is for retirement success. Once you register, simply click the Advisor Tolls and Investing tab on the top right and then click Retirement Planner. There’s no better free tool online to help you track your net worth, minimize investment expenses, and manage your wealth. Why gamble with your future?
* Invest Your Money Efficiently: Wealthfront, the leading digital wealth advisor, is an excellent choice for those who want the lowest fees and can’t be bothered with actively managing their money themselves once they’ve gone through the discovery process. You don’t have to be an accredited investor either, as their minimum is only $500 to get started.
In the long run, it is very hard to outperform any index, therefore, the key is to pay the lowest fees possible while being invested in the market. Wealthfront charges $0 in fees for the first $15,000 if you sign up via my link and only 0.25% for any money over $10,000. You don’t even have to fund your account to see the various ETF portfolios they’ll build for you based off your risk-tolerance. Invest your idle money cheaply, instead of letting it lose purchasing power due to inflation.
About the Author: Sam began investing his own money ever since he opened an online brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $175,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.
Updated for 2019 and beyond.