Changing the Investment Game

How does your retirement fund look? Is it growing as fast as you’d like?  Eric Satz of AltoIRA has an innovative new way for “regular folks” to invest like the rich and get returns that are just not possible with “traditional” plans.  Make sure to check out the interview if you want to have your money work for you.   (If you’re happy with being “average” with your investments, no need to watch this episode.)

Podcast Transcript

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    Josh Fonger: [00:00:00] Welcome to the Work the System podcast, where we help entrepreneurs make more and work less. Using systems and I’m your host, Josh Fonger. And today we have a special guest. We’ve got Eric Satz here who is going to open the door to alternative investments, which I’m really excited to dig into. But before we do, I want to thank our podcast sponsor today, which is Trainual. If you want to get your business out of your brain into documentation, which is what we’re all about here, at work the system and go to my friends at work the system dot com slash trainual, you’ll need amazing software to organize your processes, procedures, videos, you name it. You can finally grow your business without the chaos. Again, work the system dot com slash trainual and get a free account today. All right, so let me give you the full intro, Eric. So Eric is the founder and CEO of Alto IRA. He’s a serial entrepreneur who’s seen both wins and losses. Eric knows investing is no longer just for the wealthy, and he’s living out his mission of delivering 21st century investment opportunities to everyone, even non-credit investors. Eric is a former investment banker and early stage investor with a passion for nurturing startups and raising capital. He teaches an entrepreneurship class to high school students and national and serve on the board of Tennessee Valley Authority for 2015-2018. Although Alto IRA, through Alto IRA Eric is making alternate asset investments available to all. By giving people the support they need to choose and make their own investments using their IRA savings. All right, Eric. I’m excited to have you on the show and learn about alternate investing. Once you give us the story, the background, how did you get into this kind of investing?

    Eric Satz: [00:01:41] Well, Josh, first thing. Thanks for having me. Really appreciate it. And I think I need to shorten that bio. Background it of seems to go on forever and ever. Maybe that’s just because I’m about to be 50 years old. But you know, the question about why Alto IRA and why alternative investments, I think is actually an interesting one. I’ve been a venture capitalist for the last 10 years. I had an opportunity to invest alongside the fund in some of our portfolio companies. And I found, I found myself looking at my IRA statement wondering why I wasn’t using these funds that are tied up and restricted until retirement age. And that also have this either tax deferred; in the case of most IRAs or tax free and in the case of a Roth IRA type account benefit for these investments in assets which are locked up over a long period of time, they’re illiquid, tend to carry what we refer to as an illiquidity premium, and thus I expect a greater level of return from these assets, which becomes even greater to the extent that we’re deferring taxes until some much later point in time. And so when I went to the first thing I had to figure out was whether or not one could actually use IRA or retirement savings to invest in alternative assets. I quickly determined you could. But the process of figuring out how to actually execute such a transaction was much longer, much more complicated and way more expensive than I thought it ought to be. And so after doing this a few times and concluding that there is this rather large systemic issue in the marketplace, the industry hadn’t changed in 40 some odd years and that there are 30 trillion dollars sitting in retirement savings accounts with less than one percent invest in alternative assets. I thought it might be a good idea to build a platform to fix it in much the same way that Turbo Tax decided that that they could fix the complexity and otherwise significant cost of of hiring someone else to do your taxes. Well, they turned complexity into simplicity. They made an otherwise cumbersome process, easy to follow and understand and easy to execute. And so that’s what we’ve done in the alternative assets space.

    Josh Fonger: [00:04:18] Ok, good. So for our audience, you know, entrepreneurs who are looking to invest. I’ve got to leave list based on my clients, most of them. They just invest back in themselves. They invest back in their business, their business or business. But I keep reminding us kind of that can be risky to do that. So what would you say to an entrepreneur who is starting to build up some? They’ve got a hundred thousand dollars in the bank and they’re trying to say, well, if I invest in my company or should I start to diversify? When does that point happen?

    Eric Satz: [00:04:45] Yeah. So there’s no one answer to this one, I think. I think you know that although I appreciate the question, you know, sort of the golden rule is invest in what you know. OK. And most people, most entrepreneurs know their own business really, really well. And so there’s some there’s comfort in that. But I think when you think about portfolio diversification and a basket of goods, if you will. There’s a lot of risk. If you’re putting every single dollar that you have back into your own your own business. And so the question then becomes, well, you know, how is it appropriate for me to diversify? You know, while we preach about alternative assets and alternative investments, it’s not meant to be at the exclusion of the public markets. Right. So you want some? Public market exposure. But you also want diversified assets that have what we say, non correlated returns to the public markets. So that may be real estate, that may be small business marketplace loans, that may be investments in other early stage companies or later stage companies. And the thing that’s interesting to us about what has really changed over just the last five years and I’ll pick real estate for a second. You know, it used to be that if you wanted to buy a building or have real estate exposure, you had to buy the whole building. Well, today, with the investment platforms that are out there, you no longer have to buy the whole building, you can buy a piece of the building. And so whether you’re investing on a on a platform like yield street or ground floor or peer street or crowd street or real T-Mogule, you have the opportunity to take a smaller exposure to a broader set of assets. And and that’s not just true in real estate. It’s true in early stage company opportunities. It’s true in later stage company opportunities. And so one of the things that’s changed about the investment landscape when it comes to alternative assets is the growth in investment platform opportunities. And so, you know that the company that sort of led the way was Angel List. But it’s in and we have a fully integrated solution with Angel List. But since then, we’ve seen we-funder, and Republic and some of the others that I have already mentioned. And also they’re on our Web site, if you check them out. But this gives you an ability to get exposure to assets across, across asset classes, across debt or equity opportunities and then across industries and across stage of company growth. And, you know, I think that’s a that’s a net positive.

    Josh Fonger: [00:07:50] So let me ask you some some dumb question, because I’m not that I’m not an expert in alternate investing. So what would be considered an alternative investment? Like what, what are the different asset classes?

    Eric Satz: [00:08:01] I guess so. I’ll define it as sort of, you know, in a backhanded way to begin with it, which is to say any non publicly traded security. Right? So you can’t go to the New York Stock Exchange. You can’t go to Nasdaq to acquire an interest in a private company. You know the company, your client base, your your listener base. Right. That for the most part, they’re not running public companies, that they’re running private companies. And you can’t buy an interest or you can’t make a loan to them in a public market capacity. Right? And so if we flip it around and we define it in what I would say is a more positive sort of approach as opposed to what it’s not it’s it’s a private company. It’s a marketplace loan. It’s real estate. It could be a crypto asset if that’s something that you’re interested in. But you’re not going to place an order through Fidelity or Schwab or TD and saying, hey, I want a 100 shares of IBM at this price. Please execute. Like it doesn’t happen that way.

    Josh Fonger: [00:09:19] So how does your software work then? I mean, how do you go in there and is it just, how does the novice investor make choices or would you not recommend that novice investor go in there?

    Eric Satz: [00:09:30] No. So I’m going to go back to the Golden Rule, which is that, you know, you want to invest in things that you know, and I and I think are really important. Supporting rule to that is do your homework. Right? So if, for example, you want exposure to fintech companies, OK, financial technology companies, you may go to angel list or you may go to we fund or you may go to a republic and you may search those sites for fintech companies that are raising money. OK. And and then you’ve got to do your homework on those companies. Who are the entrepreneurs? Who are the other investors? How big is the market opportunity? What’s the competitive landscape look like? What are the obstacles to adoption? What sort of moat can this company build around its service or product that will keep it differentiated from the competition? All right. So you’ve got a you’ve got to go ask all these questions and educate yourself, which I think, you know, we’re talking about a listener base that is entrepreneurial. They are self starters almost by definition. They know how to solve for problems. And I think it’s the perfect audience to go do some homework for themselves. They know how to call on resources. Right? To answer questions and sort of figure it out. And so I think it’s actually the perfect audience to do this. So as I mentioned before, Fidelity, Schwab, T.D., Ameritrade, they’re not going to let. They’re not going to custody what’s referred to as custody, an asset for you. That’s an alternative investment. OK. So whereas. They’ll hold IBM for you in their account, in your account, on their platform. They’re not going to hold 100 shares of Company X then when when they don’t know what company X is, right. And so you come to Alto IRA. You create an IRA account with us. You execute what’s called a transfer of asset, which is typically your moving cash from your existing IRA account to your new Alto IRA account. There are no tax consequences of doing so. And then you have the opportunity when you find an investment, it may be a friend of yours who is an entrepreneur and who’s raising cash. Right? And you want to invest in her new company. And and so you can execute that transaction via the Alto IRA platform. And that’s what we enable. And then we custody the asset for you, which is required as per IRS rules and regulations.

    Josh Fonger: [00:12:24] Ok, so I guess it goes both ways. And so let’s say one of my clients, they need to raise much as a million dollars to buy some new equipment or a new location. Can they go on your platform as well to kind of set up that system so that people can invest in a platform?

    Eric Satz: [00:12:39] They can and in fact, where the were the first ones ever to do this. So historically, the industry has only ever had a relationship with the investor, the IRA owner. I have sort of a lifetime of deal transaction execution experience first as an investment banker. I’m also a serial entrepreneur and I’ve also been a venture capitalist. So I’ve kind of seeing all these deals from from every side. And so when I made my first alternative IRA investment, it didn’t make sense to me that I was doing all the work. And for the privilege of that, I was writing a check to the custodian at the end of the day. And so what we did was we built the transaction platform that included both what we referred to as the issuer, which is the company in this case that’s selling securities or borrowing money. So we we include the issuer and the investor and the issuer has the ability to invite investors to the deal and in in reverse. Someone who wants to invest in your company, but the company doesn’t know Alto exists. And the investor wants to use their IRA. They can invite that company to the platform as well. And when that happens and the platform automates this imitation process, by the way, and it generates unique URLs. And as soon as those parties come to the platform and they don’t have to come simultaneously, we keep track of who knows whom. So that when you show up, your accounts are already tied for that respective deal.

    Josh Fonger: [00:14:25] Sounds great. Very cool. So. So if you need money, that might be a place to go and vice versa if you’re looking for investments. This would be a place to go as well. And like you said, you don’t buy the whole building. You could buy percentages of certain asset classes. OK. So how does this compare to some of other crowdfunding sites? And I haven’t done a lot of research on crowdfunding, but this is definitely a whole new frontier that didn’t exist 10 years ago.

    Eric Satz: [00:14:49] Yeah. So we’re not a crowdfunding site.

    Josh Fonger: [00:14:51] OK

    Eric Satz: [00:14:53] And, you know, we we actually refer to to our partners as investment platform partners rather than crowdfunding, in part because so many people out there, when they think about crowdfunding, they think about Kickstarter, which has an awesome place in society. But that’s not that’s just usually that’s presale of product or service. That’s not by definition on Kickstarter. That’s not selling equity. That’s not selling debt. Ok. And so we like to refer to our partners as investment platform partners. And what we don’t do is we don’t promote for compensation issuers and end deals. Instead, we say, hey, good, our investment platform partners go through their deals. And if you’re interested in investing or lending, then we have a relationship. And oftentimes it’s a fully integrated, seamless execution relationship so that you can use your IRA money to invest in the deals on those platforms. An investment platform is not required in order to make an investment, however. So as in the aforementioned example, you can invest in a friend’s business and that friend does not need to go list their business on the investment platform. That’s just a direct relationship that we help facilitate.

    Josh Fonger: [00:16:19] Very cool work. I have to take a quick pause and at this point, plug one of our sponsors for this podcast, which today is Trainual. And this is a fun one for me because I personally asked him to be a sponsor because so many of my clients have been helped out by their software. It’s just simply a place to put every process policy procedure for every role or responsibility all in place plus or integrating new features all the time. Tracking, testing, app integration. It’s really my go to spot price and a lot of my clients. So if you want to find out more about training, I’ll set up a free trial counting, go to work the system, dot com slash trainual. You’ll like them because they’re local. I know the owner. I know Chris. Jonathan. Chelsea. Sarah. So a great team over there. Again, you can support them and work the system dot com slash trainual. All right, Erica. So back back to the questions. So since this is like a new technology, it’s a new emerging market. Like, where do you see this going? Because, you know, 15 years ago, this didn’t exist. Now it does. Well, I mean, will the whole investing landscape change now?

    Eric Satz: [00:17:23] Yes. So the short answer is, I sure as hell hope so. I hope the investment landscape changes. Maybe not for the reason that is as obvious. And the real reason is because we have a we have a looming retirement crisis in this country. And so it’s projected that by 2050, we’re going to have 25 million elderly Americans living in poverty. And our mission and vision for the Alto IRA, a business, is to help change that. All right. It’s a lot at this point. It’s a little bit like fighting climate change. Some people maybe believe some people don’t. I believe we have a retirement crisis coming. And so our mission is to the best of our ability, give Americans the tools and resources they need to invest in a way such that by the time they get to retirement age, they actually have a choice of retirement. And I say this, and the reason I think we’re playing an important and crucial role is because from a very high level macro perspective, we’re all looking at shrinking public markets. OK. We have less than half the number of public companies that than we had just, I think, about eight years ago. And so all those companies that used to go public, maybe raising 50 to 100 million dollars at a sub billion dollar valuation or maybe around a billion dollar valuation. Those companies don’t go don’t go public anymore. Those are now private rounds done in Silicon Valley and the Northeast and elsewhere in the US. And so 2019 is a great example of, hey, it’s actually been a big IPO year. We’ve had slack go public Luft, go public. Uber go public. CloudFlare go public. We’ve had a bunch of companies go public. But guess what? They’re raising billions of dollars and they’re doing it at tens of billions of dollars of valuations, which mean all the public investors lost out and all that opportunity in between. And that’s where we used to have the alpha return, the big return for the public investor. Well, that’s all gone. That’s been evaporated. And so unless we get individual investors access to these alternative asset opportunities earlier in the game, then we’ll never fix the problem. And so part of what we’re doing is enabling access and we’re enabling it in a cost effective, scalable way. So specifically with respect to investment platforms and and investment platforms across the equity and debt asset classifications, I think we’re still in the very early days. OK, we’re going to see a bunch of these companies that the platforms implode and disappear. We’re going to see others pop up. And I think, you know, if you think about it, go back to the early days of search. Right. So we’re in, you know, late 90s. Right. Think about the companies that no longer exist today. Right. Excite at home. Right. I mean, you can’t really know if you go back. The only one that’s you know, it’s got a small place in the market is is Yahoo! Other than Google. Everybody else has disappeared.

    Josh Fonger: [00:20:53] Right.

    Eric Satz: [00:20:53] Right? So so all of those who were first are gone. Right? And Google was far from first, you know, and but there was a lot of learning there. And I think that’s exactly what’s going on in the investment platform world. We’ve got some folks who who will evolve and survive. We’ve got others who are going to disappear. And then we have people that we have no idea they’re going to exist. You know, three years from now and they’re going to pop up and do great.

    Josh Fonger: [00:21:25] So as the; I’m going ask you a CEO question, because a lot of my clients, probably a third of them have online companies and just any any online company is is new in the whole scheme of the world. How do you run and manage your business being a CEO in an environment as dynamic as the one you just mentioned and stay on top long term? What’s what’s the secret to doing that?

    Eric Satz: [00:21:50] Paranoia. Yeah. You know, I look, I try to surround myself with people who are smarter than I am. And, you know, I sorta I also make sure to the best of my ability that we all bring something different to the table. You know, if everybody sort of thinks the same way, then you got way too many people or the wrong people. And so I try to make sure that we’ve got independent thinkers. We’ve got people who not, not only bring a certain level of expertise to what it is we’re doing, but more importantly, they’re just curious about the world and they don’t. They don’t come with a lot of excess baggage with respect to our particular industry. They come out of some other industry where we think the best practices may be applicable to what we do. And so it’s a matter of, you know, surrounding myself with people that are better than me at, you know, making this whole thing hum.

    Josh Fonger: [00:23:07] So this is your personal question. What’s the lowest amount of money you can get in there to get started with your with your platform?

    Eric Satz: [00:23:14] Yeah. So a hundred bucks.

    Josh Fonger: [00:23:17] Hundred bucks. OK. Because I’ve got another one. My clients runs a wealth management company and it’s a million dollars to get started. So I’m just a little bit shy of that one right now.

    Eric Satz: [00:23:25] So, yes, you Josh, you raise a great point. So everything we’re doing is designed to be below that person who can make a million dollar commitment.

    Josh Fonger: [00:23:37] Mm hmm.

    Eric Satz: [00:23:37] OK. It’s not those people are fine. Those people have, you know, financial advisors and wealth managers. And Goldman Sachs calls on them and, you know, Wells Fargo and Merrill Lynch and Morgan Stanley. Like, I’m not worried about them. I’m trying to bring access to everybody else who’s not writing the million dollar check. Someone who who can write a thousand dollar check or twenty five hundred dollar check or a ten thousand dollar check. It’s not that we won’t work with the high net worth individual that wants to make a big investment in a private company. We do. And by the way, they love us because we’re way cheaper than anybody else. But what’s really driving us is making sure that everybody else has the same level of access.

    Josh Fonger: [00:24:28] Yep, that that is interesting. I am short story when I first got into consulting 10 years ago by my advisor. Been there a long time, said Josh, don’t work with any company that does under a hundred million dollars in sales. He says, I’m not going to be worth your time. Then I can pay you enough. It’s just not worth doing. And I was explaining this whole idea of the Internet and how I’m able to work. It’s like now just don’t do it. And so I’ve got about a hundred clients right now, and I don’t think any of them are doing over a hundred million dollars a year in sales. And so just the world is changed and the ability to help more people at that lower level that need the help is now. It’s cool. I’m glad you’re able to do that. That neat.

    Eric Satz: [00:25:05] I wouldn’t Josh, I wouldn’t even describe it as a lower level, by the way. It’s certainly a lower level of sales. Right. But it’s not a lower level of business complexity.

    Josh Fonger: [00:25:16] Definitely.

    Eric Satz: [00:25:16] I would I’m sure you say the same thing. I would argue the smaller the business, the harder the business.

    Josh Fonger: [00:25:22] Definitely. I’m more blood, sweat and tears. Lot more personal, too.

    Eric Satz: [00:25:26] Yeah, it is. Right. And you know, as it should be.

    Josh Fonger: [00:25:31] Mm hmm. Yeah. Well, cool. Well, I’ve got a few more questions for you wrap up here. What’s the one thing that you want to make sure that the audience who was listening to this really understands and gets about what you do? Before we sign off like a question I forgot to ask you.

    Eric Satz: [00:25:47] So what what I’d love to make sure the audience understands is the fact that we’re allowing you to access your retirement savings for investment in assets that you otherwise just can’t purchase via, you know, the public markets. Right. So. So that’s sorta I’ll say that’s what we do. The other thing I would want to relay from a messaging standpoint is other than your own business, don’t bet at all on black or red. Like diversify. OK, you know, to take a diversified portfolio approach to your own future financial success and security.

    Josh Fonger: [00:26:31] And where can people find you if they want more information, if they’re really interested in doing this type of investment, where should they go?

    Eric Satz: [00:26:38] Yes. So Alto IRA, which is A L T O I R A dot com. And if anybody wants to reach out directly. I love talking to people. It’s just Eric SATZ E R I C S A T as in Tom, Z as in Zebra at ALTO IRA dot com. No mystery there.

    Josh Fonger: [00:27:00] Okay. Well, very good. I learned a lot. This is really fun for me. I was actually in the investment club in college. I really enjoy investments and learned about them. This is a whole new opportunity, especially. I like the idea of the fact that used to be all this growth in the market. But now that growth, people don’t have access to that that early stage growth and this play out just a real, real cool tool. So for folks will check it out. Go to Eric’s Web site there out ALTO IRA and find out some information. And everybody make sure to like the Facebook page is really doing more and more of these live, live streams of the podcast. I’m actually going to work the system Facebook page and you can do that. Next week, I’ll be interviewing another expert like Eric or an author of one of my previous clients to share their lessons about what they learned. Hopefully you can use those so you can make more and work less in your business. And before we sign off, if you want a free copy of that book right there. Work the system behind me. You go to the Web site, work the system dot com, get the free download. But if you want the physical version mailed to you. Leave us a review, leave us a review on whatever platform or site you’re looking at this, whether it’s Facebook or YouTube or iTunes, let us know. I sent the message info at work the system dot com and then we will be drawing a name out of a hat once a week. And the winner gets a free book. I’m twisting Sam’s arm right now. So hopefully I’ll get him to sign those books as well. But anyways, check in, check in next week and we’ll see you soon.


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