Cathie Wood on Investing in Private Companies via Interval Funds

The ARK Venture Fund Structure

• 💡 ARK Venture Fund (ARKVX) was created to democratize venture capital for a broader client base, including non-accredited investors.
• 🚀 The fund utilizes an interval fund structure, which allows for a higher percentage of illiquid assets (around 80% private exposure) compared to traditional ETFs (limited to 15% illiquidity).
• 💰 This structure enables daily inflows and quarterly outflows up to 5% of NAV, providing necessary liquidity.

Investment Strategy and Valuation

• 🧠 ARK's portfolio managers conduct rigorous research on private companies, applying the same analytical standards as for public equities.
• 🎯 The team focuses on companies with traction, strong leadership, and potential for significant growth, often investing in Series B, C, D, and pre-IPO rounds.
• 📊 Valuation is a critical process, involving daily monitoring of secondary markets, public company comparables, and primary funding rounds to ensure accurate NAV pricing.
• ⚠️ The fund's pricing committee is separate from the investment team to maintain objectivity and discipline in valuation.

Direct Investment vs. SPVs

• 🤝 ARK emphasizes direct investment on the cap table, engaging directly with company management, rather than relying on Special Purpose Vehicles (SPVs).
• 🚫 SPVs are often seen as a less transparent and potentially fee-laden way to gain private market exposure, and private companies themselves often prefer direct relationships.
• 📈 Companies may cancel shareholdings in SPVs due to dissatisfaction with the structure or lack of control.

Value-Add for Portfolio Companies

• 🛠️ Beyond capital, ARK provides value through enterprise introductions, connecting startups with large corporations for potential collaborations and revenue generation.
• 📣 The firm also assists companies in telling their story and clarifying their market positioning through research and PR.
• 🤝 ARK leverages its extensive network to help companies secure follow-on funding and participate in super pro-rata rounds.

Future of Private Investment in ETFs

• 📈 While private companies have been hesitant to be included directly in ETFs due to daily trading volatility, there's a growing interest in finding ways to provide this exposure.
• ⏳ The ARK Venture Fund, as an interval fund, offers a unique middle ground between traditional venture capital and ETFs.
• 🌐 The increasing market cap of unicorns and the potential for significant IPOs suggest a future where more private exposure may become available within ETF wrappers, though direct inclusion by companies remains a key hurdle.