How will Caplight expand to cover privately held assets such as real estate, beyond its current focus on private company securities?

We're already being asked for some of this, which is really cool. Part of why it's cool is it makes our decision, and my decision, on where to go next a lot easier when you have potential clients already pulling you for something. We haven't got the pull yet from real estate, but where we've seen it pretty strongly so far are LP stake transfers. The use case here would be, you have an investor into a VC fund or even a private equity fund that wants to decrease their exposure to that. Either they want liquidity and they want to sell the position outright, or they simply feel like they're overexposed to VC as an asset.

We've had this conversation a number of times with people who are very large LPs -- your endowments, your insurance companies, and especially your pensions. I like how one client put it. Their feedback was, “We love the VC asset class. We're investing in the VC asset class directly. We think that the returns that are available in private companies far exceed what's possible on publics, which is very common knowledge at this point, but we are overexposed at the portfolio level, because our VC allocation is exposed to VC and our public and hedge fund investor allocation are also investing in late-stage private companies that are in the VC asset class. Every one of our manager allocations is owning the same private companies, which means that, as a whole, our portfolio is overexposed to negative shocks to the VC asset class. What do you have that helps us?”

That's a case where they don't want to sell outright their exposure to the asset class because they still like it, but they want to be able to risk manage. It goes back to this theme of being able to tactically shift your risk exposure at the click of a button, which is really where we want Caplight to go. So we're thinking through what structured products, like baskets, could look like for these types of investors where, by basketing different company exposures, you can create long or short indexes to help LPs quickly manage their private company risk. That's one place we are absolutely going.

Then beyond that is, “Okay, but a lot of the core technology we're building can still help price assets that are illiquid very quickly, so we could also be helpful for outright stake transfers.” When I say stake transfer, I mean an LP into a private equity or VC fund selling their exposure to that entire fund, selling the LP interest. That is a very large business that is heavily brokered and very manual at this point, and I think the tech that we're building will help make that process a lot simpler and a lot easier.