Equity Crowdfunding Research & Education

What if you could invest in the world’s top venture-backed startups — while they were still on the ground floor?

I’m talking about explosive private companies like SpaceX, Open AI, and Stripe.

Thanks to a new fund, now you can. It’s easy. And you can get started with less than $100.

Just log into your online broker and click “buy.”

But don’t do it. Don’t even consider doing it.

Today I’ll explain why.

The Destiny Tech 100

A few weeks ago, a new fund launched on the New York Stock Exchange.

Essentially, it offers public access to private tech startups.

It’s called the Destiny Tech 100 (DXYZ).

DXYZ holds stakes in nearly two dozen explosive private startups including Open AI, the company behind ChatGPT; Elon Musk’s SpaceX; and groundbreaking FinTech companies including Chime, Stripe, and Klarna.

Just like SPY is an exchange-listed portfolio of 500 of the largest publicly-traded companies, and QQQ is an exchange-traded fund of 100 of the largest non-financial companies on the Nasdaq, Destiny Tech100 aims to be a portfolio of the top 100 venture-backed private tech startups.

Here’s a full list of its current holdings:

SpaceX, Axiom Space, Boom Supersonic, Epic Games, Brex, Superhuman, OpenAI, Revolut, ClassDojo, Relatively Space, Stripe, AtoB, Instacart, Chime, Public, Jeeves, Impossible Foods, Discord, Klarna, Automation Anywhere, Plaid, Bolt Financial, and Flexport.

It eventually aims to own stakes in 100 such startups. And since its fund is publicly traded, anyone with a brokerage account — regardless of income or net worth — can get access to it.

Sounds amazing, right?

This is right up Crowdability’s alley. It aligns with our mission to democratize startup investing so everyone can get access to this exciting and profitable asset class.

Furthermore, the company behind Destiny Tech 100 is solid…

Deep Domain Experience and Solid Backers

The company’s founder, Sohail Prasad, was previously the Founder and CEO of Forge (NYSE: FRGE), a marketplace for trading shares of privately-held tech startups. Forge transacts billions of dollars in pre-IPO stock annually. The company has $14 billion in assets under custody.

Prior to starting Forge in 2014, Sohail was among the youngest founders to go through the prestigious Y Combinator tech incubator. He was eighteen years old. Over the years, Sohail has advised and invested in over 150 startups, including as a seed investor in over a dozen unicorns such as Rappi, Rippling, Notion, Superhuman, and Mercury.

He previously managed mobile product at Zynga, joined mobile-advertising firm Chartboost as its second engineering hire, and has held roles at Google and the MIT Media Lab. He previously attended Carnegie Mellon University where he studied Electrical & Computer Engineering before dropping out to become a Thiel Fellow.

In creating Destiny, Prasad is building on his past experience to change who can access private startup opportunities, and how they can access them — in other words, enabling virtually everyone to invest in high-growth startups from their brokerage account.

Early backers of Destiny include the founders of Dropbox and Coinbase; current and former Partners at Sequoia Capital, Greylock Partners, and Y Combinator; and cultural icons such as Nas and Keisuke Honda.

It all sounds great, right?

So why am I banging on the table, telling you to avoid it?

Three Reasons to Avoid this ETF

DXYZ went public in late March.

Since then, its share price has gone from $8.25 to $105 — and now it’s back to about $40.

There are three main reasons I’m insisting you avoid DXYZ at this price level.

Reason 1: A Huge Premium

Destiny’s Net Asset Value (NAV) is $54 million. In other words, if you liquidated the fund and sold all the startup shares inside it, you’d get $54 million.

But given where the company is currently trading — about $40 per share — its market cap is about $500 million. In other words, the company is trading at about 10x where it should be. That’s a huge premium.

What’s this mean for investors who buy in at $40? It means the value of Destiny’s portfolio would ultimately have to increase by about 10x just for you to break even.

And if you wanted to make 10x your money (10x is our target return for all of our startup investments), the value of its portfolio would have to increase by about 100x.

As Destiny writes on its website, “For many companies at the pre-IPO stage, there may be the potential to yield a 10-50x return.”

We agree. But if you’re buying in at 10x premium, investors like you won’t make a dime.

Sorry folks, this math doesn’t work.

Reason 2: Legal Concerns

To build its portfolio, Destiny needs startup shares. But startup shares for soaring companies like Open AI are hard to come by. Remember, these companies are still private; their shares don’t trade on a public stock market.

But you know who has shares? The employees of these startups. And many of them would love to sell their shares so they can put some cash in their pocket before the company IPOs.

The thing is, startup companies don’t want their employees to sell their shares. They want their employees to be incentivized to work hard, and they want to control who owns their stock. That’s why they put legal restrictions in place so employees can’t sell their stock.

But enterprising investors have come up with a workaround: they pay an employee for their stock today, but don’t take delivery of it until the company goes public. It’s like an IOU. It’s called a “forward contract.”

There’s just one problem: such contracts are likely illegal.

What happens if an enforcement agency such as the SEC comes knocking on Destiny’s door about this? We’re not sure — but certainly nothing good.

Reason 3: Volatility

Clearly, there’s a lot of pent-up demand for shares of prominent pre-IPO companies like SpaceX and Open AI. And meanwhile, there’s very little supply.

And that explains why Destiny’s share price has been so volatile. It’s caught in what seems to be never-ending price discovery.

As Bloomberg’s Matt Levine wrote when Destiny’s market cap was about $875 million:

“One way to model this is that there is $875 million of demand from regular public investors to own shares in hot private startups, and so far only about $54 million of supply.”

This disconnect between supply and demand leads to the huge premium I mentioned above, and it also leads to massive price volatility. I want neither of those things in my portfolio.

An Alternative

These three reasons — the huge premium, the legal concerns, the volatility — explain why I’m so adamant that you avoid Destiny’s stock.

Again, it’s not that I don’t support the company’s mission. I do.

It’s just that I’m here to help you make money. And from what I can tell, DXYZ can’t help you do so — at least, not at its current level.

That being said, I hope you’ll explore a very good alternative…