Transcript: Eric Satz: Founder of Alto IRA

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Host: Hey Eric, uh welcome to startup project.

I'm super excited to talk to you uh especially because I think in the arc of democratization of access of different investments whether it is, you know, we've seen products like Robin Hood, you know, making traditional equity investments easier for investors.

And that's how I first encountered Alto IRA where I wanted to have more control over my own IRA management and I was super excited to see Alto IRA.

Uh, and uh actually uh full disclosure, I do have a little bit of equity in Alto IRA via the equity crowdfunding campaign that you guys did.

So doubly excited both as a, you know, podcast host as well as you know, someone who has a small equity in Alto IRA.

Uh, but before getting into all that, I want to understand uh how and when did you know, you get started with Alto IRA and what is the motivation behind it?

Guest: So, first of all, Nagaraj, thanks for having me on uh on on the show. I really appreciate it and um always happy to have an opportunity to to talk about Alto, especially with by the way, an investor. So thank you for having confidence uh confidence in in Alto and what it is we do and and the product.

Guest: Um, you know, for me this process really started back in 2013, 2014 when I made my first uh self-directed IRA investment.

And I'll sort of spare everyone the drama of the process, but let's just say it took eight to 10 weeks to execute this investment that should take really like eight minutes.

Um, it was incredibly uh annoying, it was overly complicated, uh took way too long and it was hugely expensive. And I say that, um, especially given the fact that I did all the work to make the investment happen.

Uh, including finding the investment and then orchestrating the transaction. And so none of this actually made sense to me. I didn't I didn't understand why it took so long. I didn't understand why it had to be so complicated.

I didn't understand why it had to be so expensive given that I was the one that did all the work. Um, and my first sort of thought was, well, maybe I just chose the wrong custodian, right?

Like maybe when I, you know, actually if we take uh an uh an even greater step back and up a level, I didn't even know if it was legal to use your retirement savings to invest in uh in a private company.

So the first thing I did was I went to Google and and I and I searched, I literally searched uh invest retirement funds in private company.

So then when I discovered that it was in fact legal uh and I went about identifying a custodian because you have to have a trust company and a custodian uh to to custody these assets for you in your retirement accounts.

I found a custodian uh that um it sort of appeared to have some traction, right?

And and so I went through this experience, had this terrible experience, uh that you know, it it was terrible and yet I wanted to do it more because I really wanted to use my retirement savings to invest in more private companies from a duration matching standpoint, uh and from a tax advantage potential return standpoint, uh, I felt like this is what made the most sense um, for me and my financial future.

Uh, and and also understanding that these would be assets that would um generate returns not correlated with the public markets.

And so after this first experience, I decided I had to find a different custodian because I was already not satisfied with my original custodian. And and so the the really long story made short is that I end up making three different investments.

I I used three different custodians. Each time the experience was worse than the one before. Um, and so at the end of all this, I started to ask myself the question, is this a big market opportunity that no one's really focused on?

Because, you know, it was 2013, 2014, Arissa was created in 1973 and 1974 and apparently nothing had changed in the industry in the 40 years since.

And so, you know, the thought for me was, you know what, let me go figure out how much money is actually in retirement. Uh, let me figure out how many people are trying to invest in alternative assets.

How many people are currently invested in alternative assets? What's the upside? And in doing that research, um, I found that at the time there was 20 plus trillion dollars sitting in retirement accounts.

Today there's 30 plus trillion dollars sitting in retirement accounts. But the thing that hasn't changed over the last eight years is that give or take 1%, maybe 2% max of that amount of money is invest in alternative assets.

And my thought was, you know what?

If by doing for alternative IRA investing what uh turbo tax did for self filing, meaning make it easy to do, uh, use technology so that uh anyone could do it, provide a a scalable platform such that uh it could be done in a cost effective way by ripping the people and the paper out of this otherwise burdensome process.

Well, if we could then unleash, you know, another 10% of this 30 trillion dollars for alternative asset investment, well then we could build a really big business and by the way, we could change the future of retirement in the country because um, especially in in you know, and I'll just highlight what's happening today in the US.

Uh, yes, maybe the market returns 8% but we have 6% inflation. So net net you got 2%. Uh, can we do better than 2%? Yes. Should we do better than 2%? Yes. How do you do better than 2%?

You invest in assets that function and can return uh, can create returns that have nothing to do with the public stock markets. And and so um, for me anyway, that was the big opportunity and and that's what we've been trying to do with with Alto.

Host: So there a couple of things, right?

One is uh a lot of people are not aware that you can use something like this to invest in other than the 20 mutual funds or the ETFs that your, you know, IRA provides whether, you know, via your employer, which is probably the most majority use case for IRA at this point, right?

Um, it is almost, you know, uh ironic because we always keep hearing that all information is out there and free and if you really look into it, you can find this but it's all uh it's also hard to execute.

It's one of those things always feels like it's made inaccessible by intention. Um, and what was the main problem at that point when you figured out when you went through this process? Like what was the limiting factor?

Why more people didn't uh use this opportunity. Like what is the limiting factor? Is that the per transaction cost is way too high to execute this or um you have to do all this paperwork which is tedious and cumbersome.

So what are the couple of things that were really stopping individuals like you who can who are interested and who are trying to strategize their IRA for the long term because I think this method actually allows you to, you know, something to do and that is my personal motivation when I encountered Alto was hey, if you really want to do a long-term bet, IRA is where you could do a long-term bet, right?

Which could have exponential return. But you only have 20 options that you that are provided by your employer.

So you're kind of limited but you are told to think about long term, but you can't really think about long term and make those long term bets.

Um, so what are those really two or three problems that were really limiting and that, you know, you sort of said, okay, these are the three things that we should first start with uh in Alto.

Guest: Well, interestingly in your question, you hit on all three. So, um the first is education or knowledge, the second is complexity uh and and with complexity I include just overall time suck. Uh and then the third is cost.

Um, and interestingly uh or maybe not so interestingly, they they're all related. So, I'd been investing for 20 something years and I had no idea that you could use your retirement savings to invest in an alternative asset.

And and when I talk about alternative assets, when when the folks at Alto talk about alternative assets, we're talking about non-public non-registered securities.

So things like uh ownership interest in private companies, whether it's later stage private equity or earlier stage uh venture capital.

It it could be real estate, it could be um credit products, it could be artwork, it could be securitized collectibles, of course, it could be crypto, right?

Um, and and I didn't know it was possible until I I sort of had this opportunity to invest in a private company and my retirement statement showed up and you know, I I I saw what I had in in my IRA and and sort of had that proverbial light bulb moment of holy smokes, I can't touch this money until I retire.

And and this is a long-term investment. This is the money I should use. But I again, I didn't know if you could do that. So education and knowledge was the first part, you know, what did I do? I went to Google to see if it was legal.

What are your listeners going to do? They're going to listen to you in this podcast and know it's legal. So go to Altoira.com and open up your uh, you know, your IRA account now. How about that for a call to action?

Um, but so so knowledge and education is is the first part. The second part is is the complexity of the of what used to be a paper burden process, which we've eliminated at Alto, okay?

Um, and we've got 60 plus various investment platform partners uh to streamline an investment process with starting with uh Angelist which was uh not the the number one integrated platform partner with us in uh 2018.

Uh there's uh uh Republic and WeFunder and Silicon Prairie uh and Masterworks and Cadence and I don't know, 60 others, right? So we streamline uh an investment process for you, but also by the way, we don't limit you to uh our platform partners.

You can also bring your own deal to the platform. And what's really interesting uh and unique about the platform we built is we built this two-sided platform that works for both the demand side and the supply side.

On the demand side, you have all the investors and their advisors that help them invest. Uh and on the supply side, you have uh all of the investment platforms uh and uh all all of the companies and funds that are looking to to raise money.

And and we built this unique platform which enables us to uh sit in the center between supply and demand and function as the transaction hub, the transaction engine to make it super easy and seamless for people to transact.

And then, of course, finally, uh because we're using technology and because we aim to serve millions of people, not tens of thousands of people, we can do this at scale and therefore in a in a cost cost effective way.

And so you no longer have to have um $100,000 to make an investment out of your IRA. You can actually do it with as little as $100 on WeFunder, for example.

Host: So uh you brought up an interesting point. Um, you simplified a lot of process. A similar company I would say sort of did this in for a different category I would say is Angelist, right?

They really simplified the process of, you know, creating an SPV and, you know, making a deal much faster and easier at scale.

I think if I can think of any other company that brought efficiency uh as innovation, which is what you're doing in my opinion, is Angelist because they've sort of democratized and gave access to essentially deal making, right?

They did deal making at scale and it almost now I've heard stats like $2 billion flowing through Angelist last year. So it's incredible to think about just how much efficiency can add uh you know, to investing process.

I mean similar thing with you know, Coinbase if you think about it, there are hundreds of exchanges you can trade crypto but Coinbase add simplicity to retail users. That's why a lot of people use it.

Um, but uh one of the interesting things about Alto I feel is you're at the cross section of so many partnerships, um, and you you work with Angelist, Republic, WeFunder, Alt, you know, all kinds of different assets Coinbase and Coinbase.

Um, and how do you think about making these partnerships? Like because often you know, partnerships are so crucial and you can um, and it's also tough to think about and pitch a partnership, you know, to a new platform, right?

So how do you guys initially thought about partnership and what have you learned in terms of the tactics to develop these partnerships?

Guest: Well, I think you have to go back to what our mission is, which is to help individual investors access alternative assets. Okay? So so that's the mission.

And and when we say access alternative assets, we don't mean uh access just private companies or just funds or just artwork or just crypto. We actually mean access all of that uh because from a uh a portfolio construction standpoint.

We we believe that the single most important and free tool by the way, uh in portfolio construction is diversification.

And uh the thing about portfolio diversification is that it is statistically proven to reduce overall volatility and increase returns. And so for us, um, when we think about partners, we think about investment choice.

And we think about uh horizontal, you know, horizontally, we think about asset classes. So how many different asset classes can we provide access to? And who are the best in those categories?

And and that's what drives our thinking and that's what drives our partnerships and our execution.

And one of the things, you know, uh I'm old enough to believe in is that uh you know, especially in in building a new company from scratch and and be and and sort of transitioning from startup into into high growth.

Uh, yes, you have to work hard and yes you have to be smart and yes you have to be good and all of those things, but you also have to get lucky now and again. Um, and we've gotten lucky a couple times.

Uh, and and the first time that I really think we got lucky, um, was in our initial meeting with the folks at Angelist.

Um, and after an hour long conversation explaining how what we were doing uh could be a game changer in the industry uh and and was unique and technology driven, uh they said, yeah, we agree. Let's integrate.

Uh, and and so then once we were um, when once we were integrated with Angelist, that was kind of like a calling card for and and quite frankly a stamp of approval at the time for all the other investment platforms that were popping up and growing and and creating this new ecosystem which really supports uh what I like to call the fractionalization of securitization.

And and I say that mostly because it rhymes and it makes me sort of giggle every time I say it. But another way another way to think about is the fractionalization of ownership, right?

We we we can each now own a small piece of what can be uh a a really high return sort of categorized asset, you know, whether um whether it's a a piece of art or an antique automobile or a piece of real estate, um, or an investment in a fund, I no longer have to show up with $100,000 to make that investment and be qualified.

I could have $100 or $1,000 or $10,000, whatever it may be and I can buy as much as I want, right?

And by the way, I don't have to bet it all on one asset, I can diversify across a whole lot of assets and and I can even diversify within an asset class. So, for example, you may want to hold 10 or even 20 different crypto assets, right?

And and by the way, if you look at our customers and if you look at the aggregate uh crypto asset portfolio across the Alto IRA customer base, what you'll see is yes, uh not too different probably from Russell world, you know, about a third hold Bitcoin, uh a little less hold Ethereum, you know, maybe somewhere between 25 to to 30%.

Um, maybe 15 to 20% are holding Solana and then there is a huge long tail of all the other assets that are held, right? And and it's really quite significant.

Um, but point being you can build this diversified portfolio within crypto and then you can build a diversified portfolio within artwork, uh and in funds and company investments.

And so not only do you have diversification within an asset class, you can also have diversification across asset classes. Uh, and and that I think is incredibly important and incredibly unique to to today's day and age.

Host: I I think that diversification point there's also a little bit of nuance because in traditional diversification of let's say an SP diversification or let's say in my perspective because I moved from India to US and I'm an immigrant so you could technically invest in Indian equities sort of like a diversification.

That's like first level of diversification. But the thing is we are so diversified in equity markets today is that they're all correlated.

Like you don't have to have exposure to the Indian markets because they're almost running correlated to your uh US equities.

So uh that diversification level one is actually not working out because they're all so correlated because something happens in the US, the markets in India react and everywhere else also react. So that diversification actually doesn't work anymore.

Um, and uh another interesting point uh is when I was following Alto IRA for a couple of years from 2018, the real aha moment stuck to me as well as as you mentioned is when you integrated with Angelist.

I think that's the product market fit use case I thought was for Alto at that point of time when you first integrated.

Um, and I know a lot of, you know, LPs who are doing and using uh Alto as, you know, their basis, you know, their their primary way to invest in uh startups now because it actually makes a lot more sense using your IRA uh if you obviously have, you know, certain differentiation between regular equities and uh uh you know, your venture capital investments uh because you tend to hold these investments long term seven to 10 years.

You don't want to lose out your liquidity on these investments.

Uh, and that is what one of the dichotomy of this thing is if you're investing a lot in startups, you tend to be illiquid for a long, long time and you are already liquid with your IRA, so why not deploy those cap that capital um into startup.

So it was the aha moment for me for where Alto IRA because when I initially invested, uh, I was not sure which one would be the product market fit use case, but when I saw the integration with Angelis that was like, okay, this is actually the most important use case in at this time uh for Alto IRA.

Guest: No, I I agree with you by the way.

Host: Um, so another question I had is because you've been an investor yourself, um, and obviously you understand how fundraising for a startup works as an investor and uh as a previous founder. Uh you did obviously go to uh equity crowdfunding uh route. Um, so what was the motivation behind that?

Guest: So, uh you know, that's a a really great great question and the motivation is is to show that the dogs will actually eat the dog food. Um, and and that it's uh it it's good for a company to do that.

It's good for a company's customers to do that and it's good for uh the eventual uh financial returns that that those who believe in what it is you're doing get to get to benefit from um, from from your service.

So, uh, you know, we raised around on Republic, actually we did a couple different things, right?

So we we raised around on Angelist, um, when we launched with Angelist to say, hey, guess what everybody, now you can invest with your IRA on Angelist and the first company you get to invest in is Alto, right? So that was the first time we did it.

The second time we did it, um, you know, we did it on Republic, uh, which includes non-accredited investors.

And and so we said, um, you know, and I think give or take 2,000 different individuals uh invested in that round and they basically got to invest alongside uh institutional investors who were investing in Alto at at essentially the same time.

Um, and and so they got the they got the benefit of that. Um, and you know, I think we'll do it again.

And and the point here is that you really should open up an Alto IRA account and use your IRA funds, um, to to invest in uh alternative asset opportunities including Alto itself, right?

And so, you know, it'll be our goal when whenever it is we do our next fundraising to then add uh another crowdfunding round as well and and continue to uh generate access for uh individual investors who otherwise don't get the opportunity to invest in companies like ours.

And so we we believe it's important and uh, you know, um I actually I should say it's not enough to just believe it's important or say it's important, we need to show it's important.

And and so we we make equity and Alto available to um to our customers as well.

Host: So for me equity crowdfunding is interesting because it obviously gives more access to more people to participate in assets that that were obviously restricted by accreditation rules.

But if you think about it for you uh Alto IRA or there are a set of companies for which equity crowdfunding can be a great way to acquire customers uh in an almost negative cac because you're not spending anything in marketing.

In return you're getting you know, capital to fund your operations. Obviously you're you know, diluting equity, but that is a equity that you could otherwise dilute anyways, right?

So if you are taking out a portion of the equity raise and you're giving it to uh through crowd uh funding campaigns.

Um, that's an interesting way to almost not spend money uh on marketing and get a strong user base and if there are competing user base or products, I would stick to Alto because I have small equity.

I want you to you guys to succeed and there's a positive sum game uh for the customers as well. So there's an interesting dynamic for a certain set of companies which is really playing out uh very well in equity crowdfunding campaigns.

Uh but we're still waiting to see a big exit from Republic or you know, WeFunder uh where we see sort of like a venture returns uh sort of to validate that opportunity where I think would more people will start adopting both, you know, Alto IRA and also Republic and uh others.

Uh, the other thing I really I think well I want to I want to jump in there for a second. Um, I I think I think those big access are coming. Um, you know, the uh, you know, these aren't short-term investments. Yeah, right?

That they are seven to 10 year investments and we're really only five years into equity crowdfunding. So I I think it's appropriate to um, remind everyone that it doesn't happen overnight. Yes.

You know, it's a 10 year overnight success is what is is what happens, right?

And and so, you know, Mercury, uh, so I was actually talking to a Mod a couple days ago, um, you know, Mercury did around on WeFunder subsequent to uh their big, I think $120 million rounds, right?

Um, and you know, I've I I feel strongly that Mercury is going to going to have a a good exit at some point if depending on how he wants to to grow that business and and continue to go forward.

Uh, and I feel similarly for Alto investors and those who invested in the Republic round and you know, whenever it is we do our next round and and um make more equity available to Alto IRA customers, I feel like we're on the right track as well and you know, Mercury and Alto aren't the only two companies that are going to end up with successful exits.

Uh, I think there will I I I know there are others. But what I what I would remind everyone is five years is too early to judge. And um, you know, you can look at the best venture capitalist in the world, right?

And you know, uh it it's a percentage of the portfolio that drives all of the returns and that actually speaks to the point about portfolio diversification. You you can't just bet on one company. You need 10 companies or 50 companies, right?

And that's the thing about technology today is that you can build a portfolio of 10 or 50 companies with um whatever amount of money that you have available to you. And and remembering that diversification is key, um, it is the real driver there.

Host: Uh another company that comes to my mind on Republic is uh uh Cery Network, which is one of the, I think top 10 or 20, which is also uh did an equity crowdfunding. I believe is that more than 50X based on the numbers that I've seen at least.

Um, so there's some really good startups that have actually been crowd funded and will I think and even even for that matter, if you see where Angelist growth happened in last two years, that is because of the investments that happened probably seven eight years coming as exits in the form of Airbnb, Uber and basically the all the IPOs went really last two years, which sort of brought all this new LP money into Angelist as well.

Guest: That's right.

Host: Um, so another interesting uh thing that I wanted to talk to you about, probably you're the best person to talk to you about this is, you know, what uh Peter Thiel did with his IRA and it sort of made for really catchy headlines uh, you know, recently and sort of captured attention of a lot of people because a lot of numbers were uh involved in how he converted, you know, very small amount into a very large amount over 30 years.

But it's actually a great, you know, a way to show the value you could create from, you know, even using Alto IRA is that you could make these long-term bets and you could, you know, on a play see play play out over 30 years and I'd love to know what your take on it is.

Guest: Well, my first take is um, you know, I'm not 100% clear on the details of of like how he got his uh PayPal stock into his uh he did a he did a a Roth IRA.

Um, and you know, I don't know what the mechanics of getting his PayPal uh founder shares into his Roth were. So I can't comment as to whether or not uh that was legal or not legal and I therefore don't have have an opinion.

My assumption is that uh if it wasn't legal then the IRS would have done something, you know, way back when or uh rather than um Congress planting articles about it um in in magazines, they would actually uh have someone in, you know, in an appropriate uh authority position go sort of explore it.

Or maybe they just missed it and they're beyond the statute of limitations and couldn't do anything about it. I don't know. Um, but what I do know is that once the money was in his Roth IRA, he made a series of really smart investments.

Uh, including a $500,000 investment in a Roth IRA uh into Facebook which turned into give or take a billion dollars. Um, and and then he made a series of additional smart investments from there.

I mean, uh, I've never met Peter Deal, uh, but he's clearly uh a smart investor um, and and his Roth IRA account demonstrates that. And and so because it's in a Roth, it is tax free. It's tax protected.

Um, and when he, you know, reaches retirement age at 59 and a half or whatever it is. Um, if he chooses to distribute that cash out of his IRA, he gets to distribute it tax free, without taxes.

Um, and I I think one of the motivating factors behind your question, um, is whether or not other people can use Roth Roth IRAs for investment purposes in private companies. And the answer is yes, they can.

Uh, and um, it's it's available to everyone and it's you know, uh sort of once the money's uh in in your Roth IRA account, so long as you don't um enter into a prohibited transaction or make investments with disqualified persons, all of these are defined terms by the way in the IRS code, uh then when you do hit retirement age, whatever money you have in that account can be distributed to yourself uh tax free.

Host: Yeah, that that's my takeaway as well.

Uh, that article basically I thought, okay, you can do this with Alto IRA if you have a Roth 401k and if you are investing on Angelist, you know, trying to hit 100X or 50X return, you probably that's the best way to maximize your returns.

And so when some of my friends uh who asked about, you know, I was talking to you and what is and they were not aware of Alto and then I said, you know, what is Alto? I said, um, it's Peter Thiel strategy as a service.

Um, that that's the best way I can describe Alto IRA uh for people who don't know.

Guest: You can raise you can raise a lot of money on that line.

Host: What do you do? Peter Thiel as a service.

Host: Uh on that note uh Eric uh thanks for taking time and uh coming onto the podcast and um I wish to see, you know, more exciting things coming up from Alto.

Guest: Nagaraj, man, thanks for having me. It was really fun and I appreciate all of the opportunity to uh to talk to you as well.

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