REUTERS/Shannon Stapleton
Tony James, president of the Blackstone Group
- Tony James, Blackstone's executive vice chairman, has invested $1.25 million via his family office, Jefferson River Capital, in the seed round of a startup aimed at disrupting retirement plans.
- Nashville-based Alto makes it easier to put retirement savings in alternative assets such as startups, private companies and real estate.
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A top executive at one of the largest investors in alternative assets just personally backed a startup aimed at disrupting retirement plans.
The family office for Blackstone's executive vice chairman Tony James - Jefferson River Capital - and early-stage VC Moment Ventures on Thursday said it had invested $1.25 million apiece in Nashville-based startup Alto.
The fintech makes it easier to put retirement savings into alternatives such as startups, private companies and real estate by automating some of the costly, manual-intensive complexities that often come with dealing in the assets that aren't easily tradable.
Alto's initial goal is to focus on the $9 trillion individual retirement account (IRA) market, of which only about 1% invest in alternatives. However, Eric Satz, Alto's CEO, told Business Insider the entire $28 trillion market for retirement plans could be disrupted to the point where 10-20% of investments are made in alternatives, which typically yield above-market returns but are difficult to make.
"I like to say that we did for self-directed IRA investing what TurboTax did for self filers. So we took a people and paper-based process that's heavily burdened and completely simplified it with an online application," Satz said. "And in doing so we built something that is scalable and therefore cost effective for the masses."
Alto connects with platforms such as AngelList, a hub for startups, to easily connect investors with firms looking for capital.
The investment comes on the heels of an initial seed round earlier this year. In March, the Nashville-based startup announced a $2.8 million seed round that included Jake Gibson, cofounder of NerdWallet, Foundation Capital, and Scout Fund, Sequoia Capital's seed round-focused fund.
Jefferson River Capital's introduction to Alto came through first-hand experience. The firm's employees wanted to use their retirement savings to mirror the investments they were making for James, David Wittels, Jefferson River Capital's president, told Business Insider. After working with another solution that was more paper based, Wittels jumped at the opportunity to test out Alto this summer and was pleased with how simple the process was.
"We could access our retirement accounts and fund our alternative direct investments quickly, efficiently and cost-effectively," Wittels said.
The investment was also appealing as James is a staunch advocate of changing how people save for retirement (he even co-authored a book on the topic in 2016 called Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans. Wittels and James have also known Satz for close to three decades.
For those reasons, Wittels said investing in Alto was viewed as the right move.
"It's a product that speaks to the heart of the problem, in terms of retirement savings, and market awareness was relatively low," Wittels said. "We thought a cost-effective, technology-enabled solution had a leg up over anybody in terms of penetrating this very large potential market."