My startup: investment diversification platform Darksquare

‍Hi Daniel! What is Darksquare?

We’re an alternative investment platform for individuals. We let our users invest in assets that were historically reserved for hedge funds, the ultra-wealthy and other institutional investors.

Via our platform, customers can invest directly in assets such as wind and solar farms, distressed and special situations credit, forestry and more.

We also provide investment research on every asset listed on our site, making these investments both accessible and understandable.

Why does the market need it?

Right now, it’s so difficult to diversify your portfolio as an individual investor.

You’re basically limited to investing in stocks, ETFs and cryptocurrencies, and there are so many platforms focussed on these asset classes. Our main aim is to allow individuals to better diversify their portfolios whilst generating decent risk adjusted returns at the same time.

Individuals are more interested in investing than ever (over 4m people in the UK invested in the stock market for the first time in 2020) but there’s a distinct lack of options when it comes to investing outside of stocks.

‍Where is the business today? 

Darksquare is still in early stages, expecting to launch in late February.

We’re on the FCA register which was a huge step for us

We’ve closed out our first fundraising round and are excited to launch! We’ve had our waitlist live since late 2022 and will launch to approximately 150 customers to begin with, feel free to sign up.

‍What made you think there was money in this?

We decided to start the company partly out of frustration at the lack of investment offerings for the ‘average investor’ compared to what hedge funds and the ultra-wealthy are able to access.

We charge upfront fees as well as annual management fees on top. Uniquely we charge our annual fees in ‘PIK’ (payment in kind) so instead of charging cash fees, we take a portion of asset ownership for ourselves, meaning our incentives are aligned with those of our customers. As far as I know we’re the only company that does this.

‍What's your biggest strength?

I think our biggest strength, or differentiating factor, is in the types of assets we offer our customers.

We’re also aiming to improve financial literacy across the board by providing objective, factual research on every single asset listed on our site, as well as a more general guide to investing in alternatives (which will be completely free to access). Our goal really is to be a ‘one stop shop’ for alternative investing, where users can browse curated investment products, do research and learn more about them, and then invest and monitor their previous investments all in one place.

We’re not saying we want to replace stock investing, but we think individuals should be able to diversify their portfolios in the same way hedge funds and the ultra wealthy do.

We’re also very focussed on ESG friendly products, many of our offerings, such as wind or solar farms, forestry and timberland and so on, will be carbon negative. This allows our users to protect their portfolios and the planet at the same time!

‍What is the secret to making the business work?

Providing our customers with interesting, high yielding assets that were previously out of reach is our main goal. We’ve done research on lots of interesting investment opportunities. Our small size (launching to only 150 customers) lets us be much more selective to begin with, which I think will drive better results for both us and our customers.

‍How do you market the company?‍

We’re not going for thousands of users, so we can be more targeted in our approach. Although we’re B2C we’re targeting wealthy and sophisticated investors, so a lot of our marketing has been through direct outreach. I’m hoping that if we focus most of our attention on making a great product we’ll grow organically and through word of mouth.

‍What funding do you have? Is it enough?

We’ve just raised a small angel round of £260k. Our business model allows us to be profitable early, so I don’t think we’re going to go down the standard ‘startup’ route of burning through cash and continuing to raise financing rounds whilst being loss making for years.

Our cash burn is low so we’ve got over 12 months of runway even if we get zero revenue this year.

‍Tell us about the business model‍

Our fee structure is somewhat unique. We charge upfront cash fees of 1% and then annual management fees of 1%. However instead of taking cash annually, we take an additional 1% asset ownership, aligning our incentives with those of our customers.

Further down the line we want to launch a secondary market functionality, where users can buy into or sell out of previously funded investments, we’d then charge small trading fees on these transactions.

‍What were you doing before?

I used to trade distressed and special situations credit where we invested in bonds, loans, unlisted equity and CDS. Before that I worked in Investment Banking, originating bonds for investment grade European corporates- so all of my experience is in the fixed income space.

Alex is more software focussed, having worked in software engineering for over 12 years. He’s worked at a few hedge funds writing trading systems, and most recently worked at a boutique investment bank writing algorithms to value non-performing portfolios of debt.

‍What is the future vision?

Longer term we’d love to target larger investment products. Since we’re focussed on individuals, to begin with our sweet spot will be anything ranging from £500k to approx £5m at a push, but as we grow our user base I think it would be interesting to target investments larger than that.

We could even pivot to encompass more of a B2B model where we target asset/wealth managers with lower AUMs who maybe have decent capital behind them, but not enough to take a direct stake in a £500m offshore wind farm, for example.

There’s been so much growth in interest in investing amongst retail customers but most of the investment is going into stocks and crypto. Globally, $13.3 trillion is invested in alternative assets, and this number is forecast to grow to $23.2 trillion by 2026. We’re hoping individual investors play a role in fuelling that growth.