Ovenly’s announcement of its equity launch is pitch perfect on these themes we’ve noticed. This includes the ideas of buying small and how that has been shaped by the Pandemic…. how the pandemic impacted small neighborhood businesses as well as the growing reverence for social justice issues around economics. It also brings in new platforms for investing.
Adults tell kids to share their cookies often. But how often do adults buy shares of cookies? Buying small shares of companies was once impossible, but recently several trends have been mixed, and thanks to the heat of the pandemic may have baked this trend to perfection. Financial advisors who are concerned their clients may stray off their investment plans may want to pay attention to new crowdfunding platforms and pitches which could be tempting, like the one we spotted for the bakery Ovenly.
All kidding aside, alternative investments can be a two headed coin: an option for investors who need to diversify their holdings, or a worrisome temptation for investors who need to maintain a low risk portfolio. And yet, they offer something more too. We cover alternative investment news for financial advisors not only as an option for their clients, but also as a way of monitoring trends. Alt Investing often shows how people feel about asset classes, or their level of insecurity about volatility in the stock market. Ovenly’s pitch is a great canvas to explore some of these trends. Also, we’d never miss a moment to discuss cake. In fact, we’ve talked about cake before when thinking about the science of splurges. Diets and retirement saving aren’t that different, and the behavior behind temptation to spend or to indulge is the same. And that means alternative investments may be something emotional investors, and their advisors, have to monitor. “Over the long run, those too on restrictive budgets end up bugging out and making poor money decisions. It’s not too dissimilar from those on restrictive diets being left alone in a room with free cake: sooner or later, there’s a sticky mess everywhere.”[1]
Ovenly’s announcement of its equity launch is pitch perfect on these themes we’ve noticed. This includes the ideas of buying small and how that has been shaped by the Pandemic. As their pitch stated “Since 2020, our team has overcome impossible odds-- we made it through the Pandemic, rebuilt after Hurricane Ida destroyed our commissary kitchen, and stayed the course despite inflation. During this time, we have continued to provide good jobs, serve our communities, make awesome cookies, and open new bakeshops.” This pitch shows how the pandemic impacted small neighborhood businesses as well as the growing reverence for social justice issues around economics. It also brings in new platforms for investing. These three themes, the pandemic, economic social justice, and recent technology aren’t new to you – we’ve been talking about them again and again.
The swiftness of the economic impact of the pandemic brought several issues to the forefront. Suddenly, the economics of main street wasn’t solely about the cost of goods, but about the companies making the goods, the supply chain to get them to you and the people selling them. Small businesses like restaurants were the most visibly impacted, but many Americans began to learn details of the real estate market they may have overlooked in the past. ““The pandemic has also led to a widespread reconsideration of buying habits and of how and where people want to live and work—all of which have wide-ranging implications for the future of real estate.” This increased focus on the economics of day to day living also increased after the shooting of George Floyd, when funding for minority businesses and start ups also became part of the cultural conversation over social justice.
Most recently we discussed how alt investing has been involved in social justice issues when we covered real estate investing. In that October 2022 article, we stated: “Investors want alt investments for a variety of reasons – one is to diversify. But social justice reasons are another…. One of the interesting elements of alternative investments is that they have an impact on communities…. Social impact has driven changes to stock market investing, so it might make sense that it may be spilling into alternative investments as well. There may be a real impact to communities if there is a lack of investing in real estate rentals.”[2]
It's true that social justice economics isn’t new. It’s that this kind of direct investing is novel. IN the past, social justice economics included funding abroad, or even funding at home. But that funding often took the form of lending. As we discussed in 2019, microlending had jumped ship from investing abroad and made its way into more mundane domestic topics, like home equity and consumer credit. It’s possible that crowdsourcing equity is the next logical step from microlending to individuals. “The second thing to know about microloans, and here’s where it gets interesting, is the flip side: microloans in the U.S. work for the lenders. Sites like Prosper.com can match investors with borrowers – assuming state laws allow – and lenders can choose from traditional investments (aka rainy day funds) and retirement accounts, like IRAs…. while most folks talk about microloans for lifting the very very poor out of poverty… microloans could be the solution for the debt swamped and very very behind on retirement investing American middle class.”[3] The key to microlending was the platform that matched banks who would support the uncommon self-directed IRA option along with people that needed funding so that potential microlenders had all of those options at their fingertips. The new microequity may be a similar innovation merely by creating the platform for organizing willing investors with businesses in need.
You can see that similarity in how Ovenly’s pitch differentiates its request from a fundraising one. In an email sent to their newsletter subscribers they said: “The investment you make with us is not a donation, it is regulation crowdfunding with a legal framework. So your dollars would go to a real investment in a real business with the hope you will earn a real return.”[4] More specifically, Ovenly is using WeFunder, an equity raiser that explains itself as a crowdfunding platform. WeFunder says that it’s similar to Kickstarter. That might be an affinity marketing move that allows people to feel that it is investing in a way that isn’t unusual or, importantly, likely to lose them a pantsload of money. WeFunder explains the change in regulation that allowed them to create their platform. “From 1933 to 2016, it was illegal to make an investment in a private company unless you were an “accredited investor”. Starting in May of 2016, thanks to a new law called Regulation Crowdfunding, it became legal for everyone to invest small amounts of money in the startups they believed in.”[5] WeFunder is among the smaller of the crowdfunding platforms to emerge. Others include Fundrise, Sweater, and Equitybee and the incredibly interesting, dizraptor which works on microequity for pre-IPO companies like SpaceX and Canva.[6]
This isn’t unlike the new tech we mentioned in discussing changes in real estate investing. “Despite real estate, as an asset class, occupying the head of the class spot (it’s the largest asset class in the world), it has been slow to innovate…. New options for investing in real estate include one drive by Gen Z. “I]nstead of one property owner holding all the profits, they are leveraging crowdfunding to allow more stakeholders to invest in their communities.” These investments usually don’t fall into that concept of commodity pools we mentioned above as alternative investments.”[7]
“Our opinion is that investing should not be solely about earning a return. To invest in something as risky as a startup, you should feel something extra, beyond just the business model. For us, that “something extra” is the fulfillment we feel helping a founder take "their shot" at making our world a slightly better place.” WeFunder’s website breaks the kinds of company’s microequity can get involved with into groups they call moonshots, neighborhood businesses, software, biotechnology, and entertainment, among others. They also provide the same kind of advice financial advisors would give their clients, including, research, diversify, and having a proper perspective, which WeFunder states as “expect to lose it all.” It’s all cookies and carbon-neutral biospace until someone loses money.
The takeaway for financial advisors may be to consider how emotional investors may be drawn to the idea of returns on neighborhood businesses. “This urge to pull money out of investments and move it towards “helping” may also have earmarks of emotional investing.”[8] While emotional investing often means moving money from traditional investing into something that seems “safer”, sometimes clients who have had the hardest time economically may be the most motivated towards helping others. The now CEO of a thriving business may remember the sleepless nights trying to keep the lights on in the early years and may be motivated to prevent that pain from happening to others.
These trends may be less of an interest in terms of alternative investments, and more of an interest in developing technological aspects of investing as well. In other words, sometimes you can have your cake and eat it too.
[1] https://www.bcgbenefits.com/blog/the-science-of-splurges
[2] https://www.bcgbenefits.com/blog/real-estate-investing
[3] https://www.bcgbenefits.com/blog/microloans
[4] Email dated February 18, 2023. Contents of their pitch may have changed since this article was published.
[6] https://dizraptor.app/offerings
[7] https://www.bcgbenefits.com/blog/real-estate-investing
[8] https://www.bcgbenefits.com/blog/clients-who-want-to-help
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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