Private markets platform Yieldstreet was on the bleeding edge of the move to bring alternative investments to a wider audience.

The firm launched 10 years ago with a model focused on co-investments—curating individual deals across a number of asset types, such as individual real estate investments. However, the private markets trend has evolved and it’s become increasingly clear the industry has embraced evergreen funds as the preferred access points. And Yieldstreet is evolving with the times.

Overall, the firm has identified three customer personas: fully self-directed investors, investors seeking guidance and “do it for me” investors—i.e. investors who just want to put money in a portfolio and have all the investment decisions and tasks as automated as possible.

In addition, Yieldstreet said 80% of its customers invest in two or more products, with average investment reaching $140,000 to $150,000 within 18 months of joining the platform. Notably, the firm said 60% of its customer base retains financial advisors, but uses Yieldstreet for private markets.

The firm has made a series of moves in recent months as it pivots from a platform where 80% of the opportunities are co-investments to a goal in 18 months of seeing 70% of the volume of funds curated by Yieldstreet.

Related:Private Credit Goes Big on Open-Ended Funds to Lure Retail Cash

In April, the firm announced it would launch Yieldstreet 360 Managed Portfolios—a service in which it will build and manage diversified private markets portfolios across private credit, private equity, real estate and venture capital. It will allocate investors to a mix of evergreen funds from Carlyle, Goldman Sachs and Stepstone. In addition, the firm said it plans to make more evergreen funds available on its site sometime this fall.

Most recently, two weeks ago, the firm announced it had raised $77 million in Series D funding from new and existing investors. The investment was led by Tarsadia Investments, with participation from Mayfair Equity Partners, Edison Partners, Cordoba Advisory Partners and Kingfisher Investment Advisors, alongside new investor RedBird Capital Partners. A portion of the new capital will be invested in marketing campaigns. And the company expects to achieve cash flow positivity by the end of the year.  

That followed the news in May that the firm had tapped its Chairman Mitchell Caplan as interim CEO. Caplan (who is also president of Tarsadia) also previously served stints as CEO of Telebanc and E-Trade.

WealthManagement.com sat down with Caplan to discuss the state of private markets and the evolution of Yieldstreet.

Related:Capital Group, KKR Seek SEC Nod for Retail Private Equity Fund

This interview has been edited for length and clarity.

WealthManagement.com: Let’s start with the most recent funding round and what that process was like and what it means for Yieldstreet.

Mitchell Caplan: In the process of going out and talking to investors, two of the things we heard almost immediately, which were rewarding and validating, were that we didn’t have to spend any time convincing them of the market size or the evolution of the retail and the direct-to-consumer markets.

When we invested in Yieldstreet five years ago, there was still a question. You would hear people questioning the adoption of private market assets and certainly specifically in the D2C vs. the advised channel.

In this round it was markedly different. Everyone was saying “We believe the market sizing is enormous and there’s a really interesting opportunity for you to be a leader.”

The feedback on the tech was also universally positive in the way we are taking the evolution of the customer from learning why private markets, then why Yieldstreet and then saying do you want this to be self-directed or guided or do you want Yieldstreet360?

WM: I imagine some things have changed since Yieldstreet’s launch. Specifically, in adopting private markets more generally, there’s now this trend of evergreen funds as an access point. That’s a different approach from what Yieldstreet had been doing, correct?

Related:Fidelity Brings its Custom Models with Private Assets to Vestmark

MC: One point of feedback we got was, “What do you want to be? Do you want to be a distribution platform with an emerging high-net-worth base with a cross-section of private assets in way that is self-directed, guided or ‘do it for me.’ Or do you want to be an asset manager and asset manufacturer, because you are doing both.”

The answer I gave was “I understand.”

It’s true when Yieldstreet began and when Tarsadia invested, the [private market investments] were not abundant. On the road, we talked with strategics and financials. We talked to manufacturers, distributors and RIA platforms. What we heard was a validation that the world is moving in a direction, whether you’re a manufacturer, a distributor or someone in the middle, there will be a lot of choice. And with more choice, the more fungible and commoditized the solutions become, and the easier it is to get adoption. We can move from the manufacturing of a product to curation.

That’s an important concept that we have had to build internally. We used to have to build. We don’t anymore. Our job now is to curate. We need to think about a different process where we are selecting assets to go on the platform. Today, virtually 80% of the investments on platform are in the co-investment world or slices of things rather than in the pure fund world. In 18 months, it will be 70% funds and 30% bespoke co-investments.

WM: That seems in line with how things are evolving more broadly. It also feels like we’re in this moment where people are shifting from saying “alternatives” to “private markets.”

MC: Internally, we have banned the phrase “alternative investments.” Why is this alternative? It should be core to an investment portfolio. Investors should be thinking about diversifying between public and private. And even in privates, we are trying to help investors understand how to build and what does true diversification look like.

Having lived through Telebanc and E-Trade, in the earliest days when we were pioneers, online banking didn’t exist. At best, it was a feature. The same thing was true in the early days of E-Trade. At first, it was less about the experience of the platform and more about the product itself. At Telebanc, we could offer a savings account at a higher rate, for example, because we had no real estate costs. At E-Trade, we could offer trades for $20 rather than $100.

Over time, that moved to lots of people offering similar products and similar kinds of solutions. What it meant was to build new customer relationships, we had to think about the platforms and make sure it was state-of-the-art in terms of curation of product and the customer journey.

I believe you will see that happen now with private markets. I said to our team that we should be making sure our platform is state of the art. If we are going to migrate from the heavier concentration of co-investments to funds, we need to make sure everything with the plumbing and the customer journey is state-of-the-art. As we begin to launch each one, it’s not only about access, it’s the curation and convenience.

WM: How do evergreen funds fit into what you are doing?

MC: Our job is to give people as many options as possible—registered funds, unregistered funds, interval funds and co-investments. Our view is that if we also win the hearts and minds of customers and they come to us and expect access and curation, they will lean into their desire to be diversified, and our tech can help them.

We have to bring it all. If I’m right and the evolution gets to a point where products look more fungible, commoditized and mainstream, our differentiator will be the curation of the product and customer journey and experience.

WM: There have been developments in the advisor world around private markets. But there also remains resistance.

MC: There’s a thought with E-Trade that everyone is self-directed. That’s nonsense. Customers still have questions and need guidance and advice and not just on how to navigate the platform. From the early days of Telebanc and E-Trade I knew you had to build the customer experience.

With Yieldstreet, the early adopters were innovators and self-directed. But if you want to serve an emerging market, there are multiple personas: self-directed, guided and “do it for me.”

Think about when you are going to a new city. You can rent a car and figure out where to go on your own, you can rent a car with a GPS or you can hire a driver.

The way to “do it for me” in this space is create robo advisors for private markets. We worked in stealth with Wilshire and hired them to help build the infrastructure. We picked three different asset managers—Carlyle, Stepstone and Goldman—and picked different funds—for private credit, private equity, real estate and venture capital. How you allocate between those is based on answers on what an investor’s goals are.

We are seeing rapid adoption. It’s a way to test the idea of “do it for me.” We can build it with other funds and have lots of features and flavors and product that we can change. What it does is goes beyond curation and is based on goals and a way to build a diversified portfolio.

WM: I’ve also heard that in some cases investors who go to advisors for traditional investments are managing and getting advice on their private investments elsewhere. Is that something you have seen?

MC: We have found 60% of our customer base has advisors, and it’s exactly the thesis you just postulated.

We are serving high-net-worth investors, qualified purchasers and accredited investors. An advisor may want to put you in a single investment with a fund and the minimum is $500,000.

We want to make it more accessible—sometimes $10,000 or $20,000. The minimums are addressable in a way that works for the customer and allows them to build portfolio. In all, 80% of customers have two or more investments with us and by 18 months, they are at $140,000 to $150,000.

I’m feeling remarkably excited about where we are and the future of Yieldstreet. I honestly believe we are at that tipping point. I watched it happen at Telebanc and E-Trade. I saw what it took to move on the adoption curve. It feels to me like we are there.