Axios Pro Exclusive Content

Exclusive: Brokerage startup Cache raises $8.5M for diversification product

headshot
Mar 13, 2024
Illustration of an infinite stack of Wall St. bulls.

Illustration: Shoshana Gordon/Axios

Cache, which provides an exchange fund product to accredited investors, has raised $8.5 million in seed funding, the company tells Axios exclusively.

Why it matters: Previously, exchange funds were only available to high net-worth clients at elite Wall Street banks.

Driving the news: First Round Capital and Quiet Capital led the seed round, which included 40 notable angels from Silicon Valley and Wall Street.

How it works: Cache's exchange fund makes it easier for accredited investors with concentrated stock portfolios to diversify their holdings.

  • It does that by pooling investors with concentrated stock holdings into a diversified fund, which is not considered a taxable event.
  • After seven years, investors can withdraw a diversified basket of stocks and defer capital gains taxes until they sell.

Zoom out: Exchange funds have existed since the 1930s, but access is limited to investors with private bankers at investment firms like Goldman Sachs and Morgan Stanley.

  • They are usually accessible only to "qualified purchasers" with more than $5 million in investment assets and require a minimum investment of $500,000 to $1 million.
  • Furthermore, due to the appreciation and demand around pooling certain stocks — like Apple, Microsoft, Amazon, Alphabet and Meta — it can take several months before those holdings can be added to an exchange fund.
  • Cache charges 0.4% to 0.8%, depending on the contributions, lower fees than for comparable products that range from 1.5%–2.25%.

Zoom in: Cache's exchange fund, by contrast, is open to all accredited investors — i.e., anyone making over $200,000 per year or having a net worth of over $1 million — and has a lower limit ($100,000) than comparable funds.

  • Because it is indexed to the Nasdaq 100 rather than broader market indexes like the Russell 3000, it can absorb holdings from investors with those assets much more quickly.

Between the lines: For now, Cache is targeting long-term employees at companies like Apple, Google and Meta who have seen their holdings massively appreciate in value.

  • But it is also working with wealth management firms and advisers to help bring their clients on board.

By the numbers: The company's first exchange fund includes stocks from more than 50 companies and has an average commitment of $625,000.

  • It's working through a waitlist of more than 1,000 people, with reservations totaling over $900 million across more than 125 companies.
Go deeper