YieldStreet, a financial platform that offers exotic investment products like marine finance and loans to law firms to the mass affluent, has raised $62 million in a new round of funding.
The New York-based startup said on Tuesday that its new round is led by Edison Partners, alongside participation from Raine Ventures, the venture capital arm of New York merchant bank The Raine Group, Greenspring Associates and a multi-billion family office in New York. Founded in 2015, YieldStreet has raised a total of $178 million.
The new funding round will be used to recruit more staff, said YieldStreet’s CEO and cofounder Milind Mehere. The company is also eyeing acquisition opportunities.
YieldStreet offers alternative investments to accredited investors, who earn at least $200,000 a year or have $1 million in net worth, and requires a minimum investment of $5,000. Rather than conventional assets like stocks or bonds, the company’s portfolio consists of loans to commercial real estate projects, small businesses, and law firms.
It also allows investors to finance cargo vessels that ships dry-bulk commodities like grain and coal. The company has accumulated assets of over $607 million from over 100,000 investors. It’s returned nearly $300 million, including principal and interest payment.
It’s a riskier proposition than investing in the traditional equity markets, though returns are higher.
Since its inception in 2014 through December 31, 2018, YieldStreet’s expected internal rate of return was around 12.4%, Mehere said. The firm hasn’t calculated annualized yield, he said.
YieldStreet is also considering expanding its clientele beyond accredited investors. The company plans to launch an investment vehicle targeting more mainstream investors, said Mehere, and the product would function the same way as an index fund, giving them access to diversified investments in a single portfolio.
While the company is still in its talk with regulators for the potential offering, it aims to roll out the product in the second quarter of this year, Mehere said.
The investments offered by YieldStreet are not without risks. But Mehere said the investment offerings are backed by tangible assets, with protection against default.
“YieldStreet investments are just a different type of risk that we educate investors on,” he said. “Investor education and transparency is core to our ‘Investor First’ approach. All YieldStreet investments are backed by assets that generate cash flow such as a real estate property or shipping vessel, with asset protection elements in place to protect investor principal in the unlikely event of a default.”
Following other fintechs like Wealthfront and M1 Finance, YieldStreet recently introduced a FDIC-insured high-yield savings account, which offers 2.2% interest. The new offering is a partnership between YieldStreet and Evolve Bank & Trust.
“Interest rates have been very depressed coming out of recession, and in the last two or three years, they have gone up,” Mehere said. “And if you look at the last ten years, there were always small community banks or smaller regional banks offering these interests, which were not widely available. Through technology and APIs, a non-financial services company can partner with banks and offer good customer service. So we went out and found the right banking partners that were willing to offer a good interest rate. ”
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