Crypto Funds, RIAs, Regulations in a Box

The cost of launching a startup has fallen from a few million to a few thousand dollars. Why? Amazon and its cloud have collapsed the needed IT infrastructure to a cheap off-the-shelf subscription. Stripe Atlas has made corporate and payments gateway setup a breeze. But what if you're starting a financial entity, and not a software company? What if you're starting a Registered Investment Advisor, and not a wealth tech platform, or if you're starting a hedge fund offering a crypto index, and not a blockchain of blockchains? For that, let's take a look at compliance in a box. 

One of our favorite companies in the independent wealth management space is RIA in a Box. It does what it sounds like -- it sets up a Registered Investment Advisor entity, registers it with the SEC and the appropriate States, and manages ongoing compliance requirements as an affordable service. So if your advisory practice manages $5 million or $500 million, this solution can get you started. In fact, out of 12,000 RIA firms in the US, RIA in a Box has 3,000 as clients. Not surprisingly, Aqualine Capital Partners just acquired the firm through an LBO at an undisclosed price, which tells us that the firm is a cash cow -- an LBO requires a slug of debt that can be serviced by reliable, steady cashflow. And if you control the compliance reporting aspect of a financial entity, it's a very short reach to start selling regulatory, administrative and value-add software.


Now think about crypto funds. It's the same problem -- nobody has any idea how to structure them, which regulatory jurisdiction to pick, what bank to use, or how crypto assets are treated. Traditional counsel could easily cost over $100,000 to go through the motions. Enter the Crypto Fund-in-a-box companies! Take Vauban, which provides an interface to select a type of investment fund, its jurisdiction, target size at launch, while a real-time entity structure is built on screen indicating the cost of setup. Other similar plays include Fundplatform, Otonomous, and Bluemeg (note: we don't know or endorse any of these). Could the ease of solving this international puzzle lead to a similar growth outcome for crypto fund entities? Looking at the data, the first 5 months of 2017 saw 40 new crypto funds; there were 45 new entrants over the same period in 2018. Market volatility has not deterred fund formation. That doesn't mean funds won't fail (e.g., Apex Token Fund shutting down after failing to raise $25mm), but it does mean more will keep trying if it's as easy as clicking a button.


Source: RIABiz (RIA in a box), Crypto Fund in a Box (VaubanFundplatformOtonomousBlueMeg), Financial Planning (RIA totals), Autonomous NEXT (Crypto Fund totals), Stripe Atlas