Alto Raises $40 Million for Tax-Savvy Investing in Crypto & Art

The Rising Tide of Alternative Investments

Alternative investments are currently experiencing significant growth in popularity. Over the past decade, this asset class has expanded considerably, increasing from slightly above $3 trillion in 2008 to surpass $10 trillion by 2019, as reported by Preqin.

Institutional and High-Net-Worth Investment

A substantial portion of this expansion has been driven by institutional investors, who are allocating capital to alternatives – such as cryptocurrency, private businesses, and real estate – at an unprecedented rate. Certain high-net-worth individuals have realized substantial gains through alternative investments held within tax-advantaged accounts.

For example, billionaire Peter Thiel reportedly grew his Roth IRA from a modest $2,000 to $5 billion over two decades, all tax-free, as detailed in a ProPublica report.

Accessibility for Average Investors

Now, a growing number of individual investors are seeking opportunities within these markets, attracted by the potential for higher returns, particularly when realized tax-free.

Although investing retirement funds in alternatives is legally permissible, access has historically been limited for the average retail investor.

The Challenges of Self-Directed IRAs

Eric Satz, a seasoned investor, encountered this difficulty in 2013 when attempting to invest IRA funds into private companies. His financial advisor expressed concerns regarding the inherent risks involved, as Satz shared with TechCrunch.

After a ten-week period of research and navigating logistical obstacles, Satz successfully made his first tax-advantaged alternative investment through a self-directed IRA.

“The process, which seemed designed to create hurdles, required significant effort to complete,” Satz stated, adding that he even paid a fee to the custodian for the privilege of making an investment he had independently researched.

Limited Participation and Alto's Solution

Satz’s experience was not unique; he found similar complexities when attempting the same process with three different custodians. This challenging process, he believes, is a key reason why less than 2% of the $35 trillion held in IRAs is allocated to alternatives.

In contrast, affluent investors and institutions typically maintain significantly higher allocations, ranging from 15% to 80%, according to Satz.

Recognizing the suitability of retirement accounts for early-stage investments due to their long-term nature and risk-return characteristics, Satz sought a solution to the high fees – exceeding $500 annually – associated with self-directed IRA companies. This led to the launch of Alto in 2018.

Alto: Simplifying Alternative Investment

Alto’s platform aims to provide a more streamlined and affordable method for individuals to invest their retirement savings in alternatives. The Nashville-based startup offers access to a diverse range of alternatives through partnerships with over 70 investment platforms, including AngelList, Grayscale, and Masterworks.

Currently, Alto manages nearly 20,000 funded accounts, representing approximately $1 billion in assets, with 40% of those accounts dedicated to cryptocurrency holdings.

Recent Funding and Future Plans

Alto recently announced a $40 million Series B funding round, led by Advance Venture Partners, with founder and managing partner David T. ibnAle joining the company’s board. Existing investors, including Unusual Ventures, Acrew Capital, and Coinbase Ventures, also participated.

The company previously raised $17 million in its Series A round in April 2021.

The new funding will be used to expand Alto’s product and engineering teams from 50 to 120 employees by the end of 2022. Additionally, Alto plans to enhance its educational content to assist investors in understanding alternatives, while clarifying that it is not a registered broker-dealer or investment advisor.

Expanding Investment Options

While cryptocurrency is currently a popular area of interest for Alto users, Satz anticipates growing demand in other sectors, such as private company investments and artwork.

“We anticipate increased involvement in collectibles and marketplaces during the first and second quarters,” Satz explained. “Product innovations will simplify access for a wider range of investors.” He also foresees advancements in fund access, enabling greater participation in fund investing throughout 2022.