Tommy Martin, the CEO of Mammoth VC, is a registered investment advisor, and he noticed something interesting about his high-net-worth clients: they were often active in angel funding and friends-and-family rounds, the riskiest sectors of the venture market.
Other advisors reported the same thing. “It’s not if their clients are going to do venture capital, it’s when,” Martin said, “Right now they’re doing it without their advisor, and a lot of times it’s a brother-in-law or a college buddy that’s bringing them an idea, which doesn’t mean it’s a great idea.”
These clients were sometimes interested in making allocations to venture capital funds but could not. They were accredited investors with venture experience but without enough money to meet the $1 million-plus minimum investments on most VC funds.
Martin noticed something else. He is based in Fort Wayne, Indiana and his business partner, Jud Mackrill, is in Charlotte, NC. Both regions have a lot of health care business activity (Fort Wayne being up the road from Warsaw, where many orthopedic companies are headquartered), but were overlooked by funders who concentrated on California and the Northeast. The firm primarily invests in medical device and technology firms, and the investment team includes a cardiologist and a neurosurgeon.
Mammoth VC addresses both issues. They started with a few special-purpose entities and are now raising a fund with a $50,000 minimum investment.
“In the process of working with RIAs, it became clear that they were concerned about the compliance issues involved with selling a venture product,” Martin said.
To that end, the fund is structured as a 506(c) fund under Regulation D of the Securities Act of 1933, meaning that it must verify that investors are accredited. This involves more work than most private investments, which allow for self-certification under rule 506(b). In exchange, though, the Mammoth VC team has more leeway to market the fund. “It allows us to be publicly outspoken about what we’re up to, without having to worry that you know we’re speaking to some investors that are not accredited,” Martin said.
To assist with the process, Mackrill and Martin developed an onboarding app that allows RIAs to submit customer information for verification. “On average, somebody can onboard with us in eight minutes, online,” Martin said, including accreditation, KYC, and AML verification. “They can also invest in our funds directly from our online enrollment engine.” The process works so well, Martin says, that many private funds are interested in using the platform on a white-label basis.
Many doctors are accredited investors and RIA clients, and Martin says that they are interested in the fund. This creates a network of people who can help validate the products and markets for potential venture investments. “We really don’t invest in ideas,” Martin says. ”Instead, we want to come in later,” after there is a viable product or users on a tech platform. Among the firm’s first investments are MiRus, which has developed a molybdenum and rhenium alloy for use in medical implants, and MRIguidance, which makes software that creates a CT image from an MRI scan, which reduces the number of scans that patients need to take before surgery.
Martin sees two challenges for the upcoming year. The first is to educate wealth managers on the availability of a venture fund for their customers. The second is to work with other health care venture funds that are looking for co-investors. Given the investor base, Martin thinks that the most likely future scenario involves raising many small funds rather than one large one.
And Martin is fully committed. “The beautiful part about venture is we’re bringing the future to the world,” he said. “Especially in the healthcare space, we’re talking about saving lives.”