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Jan 4, 2021

Portfolio Confidential: Real World Confidential Portfolio Discussions

by Barbara Stewart
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Barbara StewartQ: I ’d like to allocate a small portion of my overall portfolio to investing in startups. I want to put some of my money into businesses that are involved in causes that matter to me. Is equity crowdfunding a good way to accomplish this?


A: Crowdfunding platforms allow individual investors to access start-up investment opportunities that have traditionally only been available to venture and
institutional investors. There are several platforms available in Canada but the one I found with the most diverse selection of stocks and funds is OurCrowd. Investors can pick and choose from 10-15 live deals at any given time and two to four different funds (although since inception there have been 220 different companies and over 20 funds). If you are interested in emerging spaces such as Ag-Tech, Food-Tech, or Med-Tech…this could be a great way to go. Or how about a pandemic innovation fund that invests in companies combating current and future pandemics?

Important note: This is a long term investment. Valuation is on a quarterly basis and there is no liquidity (e.g. no redemptions are possible) with equity crowdfunding. As an investor you are supporting the start-ups with your money and they are out spending your investment dollars. You will see a return of capital when there is a company event such as if they go public or if they get acquired. By way of example, the OurCrowd50 fund (50 different companies in diverse industries) started in 2017 and has enjoyed five exits out of 50 companies so far and a 19.5% gross compound IRR (internal rate of return) from inception.

Jon Medved is the CEO of OurCrowd and based in Jerusalem. OurCrowd has offices all around the world, including Toronto. Medved is a serial entrepreneur and, according to the Washington Post, “one of Israel’s leading high tech venture capitalists.” He talked with me about how equity crowdfunding is helping my own favorite cause (gender equality): “The OurCrowd investment platform attracts women into a financial arena that is otherwise exclusive. The fact that the platform enables the investors to pick and choose their deals, will also allow our investors, male and female alike, to apply preferential investment criteria and for example prioritize investing in female-led ventures. Inclusion of more women as decision makers in venture capital, specifically in investment committees, is progressing at a very slow pace. Much slower than we hope for. Same applies for the number of female founders of startups – a very slow progress, unfortunately. Hence the importance of equity crowdfunding platforms like OurCrowd that produces more democratic access to the venture capital asset class - for founders and investors alike. We at OurCrowd have thousands of female investors, with the number growing annually as we grow our presence globally. The road to inclusion is still long and winding but democratizing the investment process is definitely a key milestone to be celebrated.”

How much can an individual invest on an equity crowdfunding platform? According to the Ontario Securities Commission, under the Crowdfunding exemption: “There is a cap on the amount of money that investors can invest in order to limit the money they could lose. Accredited investors can invest up to $25,000 per investment but no more than $50,000 per year.” Investors on the OurCrowd platform must be Accredited Investors. OurCrowd’s minimum investment per company is US $10,000 and per fund it is US $50,000 (OurCrowd operates under different securities exemptions than the Crowdfunding exemption,
as that is too limited).

Q:  It seems like more and more people are talking about investing in ESG these days. Which funds would qualify?

A:  Your hunch is correct. There has been a sizeable uptick in dollars invested in Environmental, Social and Governance (ESG) strategies. From the Financial Times: “Investors have injected record sums into sustainable investment funds during the coronavirus pandemic, providing a glimmer of hope to active managers battered by the relentless flight of capital into passive products. Funds that invest according to environmental, social and governance principles attracted net inflows of $71.1 billion globally between April and June this year, pushing assets under management in the products to a new high of just over $1 trillion, according to Morningstar.”

The National Bureau of Economic Research published a study in July of the performance and flows of U.S. actively-managed equity mutual funds during COVID-19. With regard to ESG: “…our finding that investors remain focused on sustainability during this major crisis suggests they view sustainability as a necessity rather than a luxury good.” And critically “we find that funds with higher sustainability ratings perform better during the crisis.”

Here in Canada, the Honeytree Global Equity Strategy (USD) is a great example of this outperformance. In Q3 2020 the fund returned 16% vs the Global Index 8%, for a year to date return of 14% vs. 2% for the Global Index. Honeytree Investment Management was created by two women who wanted to build active ESG strategies focused on responsible growth and identifying purpose-driven companies that are making a net positive impact in the world. I spoke with Co-Founder Paula Glick about their focus areas: “Our focus at Honeytree is on companies that reflect entire systems change - a full embrace of stakeholder driven governance. Our process uses both quantitative techniques, and deep qualitative research to decipher and identify the leaders of this system wide change; companies that are making money because they are positively and meaningfully impacting communities, employees, customers, industries, supply chains and every aspect of their ecosystems.”

Active or passive ESG?

Glick says “Choosing active versus passive ESG products is guided by a general preference above and beyond the subject of ESG. Passive strategies perform in line with a broad market (index) and tend to hold many positions. Canadian investors have access to some impact focused, fossil fuel free, and other systematic strategies in the form of ETFs. Active however, is meant to be more deliberate in selecting companies, with a focus on long term outperformance. This is true of active ESG strategies as well.”

Looking for an ETF?

In October, Morningstar recommended a couple of different ETFs for investors looking to gain exposure to ESG strategies. One was the ESG Vanguard ESG US Stock ETF ESGV. This fund provides broad exposure to U.S. stocks of all sizes, but it excludes firms that are engaged in areas like fossil fuels, firearms, tobacco, alcohol, as well as firms that are engaged in significant controversies. The other was the iShares Edge MSCI USA Leaders ETF SUSL. This fund ranks companies within each sector on sustainability issues that could be material to long-term financial performance. So, for example, in financial-services, it’s looking at things like how well firms are doing in data security, and in consumer products, it’s looking at things like packaging and how environmentally responsible those companies are.


Do you have questions about your own investment portfolio? I have recently set up The Rich Thinking® Financial Advice Hotline. This will be a win/win: you get a free 30-minute confidential Zoom chat offering an independent, unbiased perspective on your financial situation with no sales pitch! In exchange, I get to use the anonymized data that will come from these conversations to make my Rich Thinking research even better.

Email me to book your Zoom discussion: barbara@barbarastewart.ca.