Rick Swart – Family Office Collaboration

 

About RICK SWART

Bio: Growth strategist, advisor, and global connector Dr. Richard Swart helps family offices, VC firms, and socially responsible enterprises unlock their next level of innovation. Dr. Swart is an expert on their impact on social innovation and global challenges as well as the application of cutting-edge technology for creating greater access to capital. In addition, he is a noted authority on emerging models of AI-Driven predictions and decision-making in venture capital and corporate innovation.

Dr. Swart has played key roles in the entrepreneur ecosystem with such major universities as Stanford, UC Berkeley and the University of Cambridge in this field — as well as top accelerators, angel funds, and family offices, major foundations, Fortune 50 companies, national governments and global research institutions. He has been in leading business publications including BBC, Bloomberg, CNBC, New York Times, The Guardian, Wall Street Journal  Forbes, Inc,  VentureBeat, New York Times,  Financial Times, Washington Post and dozens of others.

Dr. Swart is recognized as one of the earliest and most prolific experts in Blockchain, ESG-Impact, AltFi, Fintech, Crowdfunding and platform investing. His work led him to playing a role in helping shape various bipartisan legislation and being an advisor to the likes of the Whitehouse National Economics Council, Bill and Melinda Gates Foundation, Rockerfeller Foundation, World Bank, United Nations,  Crowdsmart, Cambridge, and Silicon Valley Blockchain Society.

In addition to practical industry experience Richard has deep roots in academia. Richard partnered with the University of Cambridge to complete the first country-level study of alternative finance, “The Rise of Future Finance: The UK Alternative Finance Benchmarking Report.” He serves on the Industry Leadership Board at The Cambridge Center for Alternative Finance, a distinction afforded to select VIPs around the globe. Later Dr. Swart served as a research scholar in the Institute for Business & Social Innovation in the Haas School of Business, UC Berkeley, he was the University’s resident expert on evolving models of alternative finance. He also organized the Annual Academic Symposium on Crowdfunding Research. Today Dr. Swart serves as a board member and strategic advisor to a number of alternative investing and technology firms; advises professional investors, funds, and consulting firms on market developments and investment strategies. He resides in [insert] Utah with his spouse and has [insert number of children].

 

Transcript:

Alan Olsen: Welcome to American Dreams, my guest today is Rick Swart. Welcome.

 

Rick Swart: Nice to be here again Alan.

 

Alan Olsen: So, Rick, you got a wealth of experience from running an Entrepreneurship Center at the school, Berkeley, the Haas School of Business and in addition to that family office advisor, been involved in some real innovative programs. And so today I’d like to focus on what brought you up to where you are today. Again, maybe you can take us through your timeline of your career,

 

Rick Swart: I’ll try to make it fast. I originally started off life as an academic studying information systems. And then I was invited to join a startup and my wife thought I was crazy for leaving academia for a startup. But after about 18 months, we had an exit, and I sort of got the entrepreneurial fever, and was involved in a couple of other startups. They weren’t as successful as the first but that’s often the road you traveled as an entrepreneur. I then got very interested in how to help other entrepreneurs, really going back to my business school professor. Origins and spend quite a bit of time studying and working with groups that were helping entrepreneurs and setting entrepreneurial policy. One was Alan Hall on YouTube at a group called GROW AMERICA ventures, which is very, very similar to what Steve Case now has, Rise of the rest, a very similar model. In fact, I was part of Steve Case and Startup America Partnership Program as well. So I spend a lot of time nationally working on entrepreneurship, did a lot of work in Washington, DC on policy, basically was one of the key organizers of the crowdfunding industry that had nothing to do the legislation that ran the first national conference did a lot of lobbying sort of was the plumbing and pipes behind the formation of that industry. After that, I was invited to go back into academia. I ran a research center at the Haas Business School, looking at innovative ways of financing entrepreneurship, not just crowdfunding, but tokenization, securitization, marketplace lending. And along the way, I then started speaking all over the world and met these interesting creatures called family offices. And, I didn’t really know much about them since I was a tech guy, not a finance guy. But over the past several years, I’ve actually left academia and most of my time is now spent either on social impact projects, or in working with family offices and groups that serve family offices.

 

Alan Olsen: Yeah, I want to delve into this family office concept, because this is an area that has been the center of focus recently with all the transition of wealth from one generation to the next. And then also there are a lot of family offices that have been direct investors, where before they were going through a lot of the venture and private equity groups. So right now you’re working on creating a family office consortium, a think tank per say. And can you explain the focus of where you feel the benefit will come by family offices collaborating together?

 

Rick Swart: Yeah, there’s two different things we’re working on, I need to be a little bit careful because some of the partners haven’t announced they’re going to be leaving other positions yet. So this will sort of be a pre announcement. But a group of us that are all mostly academics, Stanford, Berkeley, Cambridge, Oxford, you know, pretty well known universities. All of us are members of family offices or work in a family office space. And we realize that a lot of family office advisors are very focused on narrowly selling a particular service, whether that’s wealth advising, or multi generational planning, or family legacy, those are all valuable services. But we’re basically going to create an ad hoc advisory firm where none of us are going to be doing it full time, it’s going to essentially be a on demand loose confederation of experts that are going to tackle some very interesting problems. One of the gentlemen involved is part of a network of 900 family offices and has spent years interviewing families globally. So there’s a pretty good data set. And we find that a lot of families as they move towards direct investing and moving away from reliance on advisors and away from reliance on venture funds, are really looking for a pool of expertise, where they, you know, basically can ask for other advice on impact or they can ask for advice on ESG monitoring, or they can ask for global political risk analysis, you know, whatever the questions are, that may be affecting their investment decisions. We’re never going to manage money or we have no intention of becoming a money manager or an RA, but we think there’s a little Lack of high quality information by people that really understand the family office industry.

 

Alan Olsen: What changed the world of investing under COVID, this has been an interesting 12 month period.

 

Rick Swart: Oh, and we’re still deep in the middle of it. Several things. And obviously, there was a huge explosion of investing and opportunistic things like EdTech remote conferencing, the vast majority families liquidated, a lot of their assets moved to cash. And that has continued, a lot of people were investing heavily in gold. That is still continuing. I think the key change for me has been a massive increase in the trust that families and investors are putting in platforms, whether it’s groups like share net is a well known platform and allows families to do direct investing together, there are others, but I like that one. But there’s been a massive increase, if you will. It’s almost crowdfunding for family offices where they’re able to go on platforms, they have a broker dealer, or a third party group that does analysis and diligence for them. And then they then they co invest, and most people aren’t aware that family offices in the aggregate are multiple times sorry, not articulate, there are investing multiple times more than venture capital funds these days, there are substantial sources of capital, making very large scale investments. And they have a very patient timeframe and horizon. So a lot of the metrics and models that venture capital firms have always pushed aren’t really the things that concern families. So I’m shocked by the willingness of families to invest through these platforms and online platforms. And I’ve seen an incredible uptake in them, I don’t have specific data. But I would say you know, 5x 10x, what it was 18 months ago.

 

Alan Olsen: So you’ve been working on AI and artificial intelligence and collective reasoning for some time. Why the passion in this area? What is it that you’re looking to derive?

 

Rick Swart: Oh, thank you. It’s an interesting area. Yeah, I’m a geek in my heart of hearts, I still go back to technology for fun. But from a business point of view, AI is poorly understood oftentimes maladapted. And it’s used to solve the wrong problem with a limited data set. So I’m really trying to look for those groups that have true expertise, and understanding different ways of and business models of applying artificial intelligence. One of my favorites as a company, I’ve been advising for several years, called crowd smart. And they sort of have a counterintuitive approach to artificial intelligence where they have artificial intelligence operating against human input. So instead of relying on machine learning, or neural nets, or large collections of data, looking for the needle in the haystack, they believe that humans are still going to have pattern recognition and abilities to make decisions, especially in unknown situations, for example, under COVID, where essentially, all the strategies and playbooks had to be thrown out, and companies had to reinvent themselves on the fly, given situations that no one had ever anticipated before. So then we ran up against the limitations of AI and the limitations of strategy, when all of a sudden the whole economy just sort of stopped. So human collective intelligence is where you use artificial intelligence to improve the reasoning of humans. There’s an AI, there’s a Bayesian network, there’s learning happening in the background. But instead of informing some random metric, which then is used by an algorithm to then make a decision, it actually provides output that’s human understandable. It’s not a black box, it’s very easy to understand. And it improves humans. So I think that there’s a strong case for this in any sort of situation where you’re making predictions on uncertainty, whether it’s, you know, political uncertainty, or predicting prices in markets, or whether it’s trying to make complex financial decisions. I’ve heard of, and I’m aware of projects at the World Bank at the United Nations inside intelligence agencies inside governments inside the Department of Defense, where they’re trying to understand how AI can make human decision makers and human leaders better. So for me, that’s a fascinating way of thinking about AI, which is counterintuitive for most people. And I believe that also we need to do a better job of getting humans and computers to work together as opposed to just trusting in the power of the machines.

 

Alan Olsen: In our recent conversations, we’ve discussed Europe and European investments, and can you give us your assessment or take on what’s happening in that sector of the world?

 

Rick Swart: Well, I’m not a macro economist, but, you know, I’ve been learning from and working with a number of very large family offices, and I’ve been very interested to see how many of them are heavily investing in Europe. I don’t know if that’s just politics or risk mitigation strategy they have. But I have seen many European funds and fund to funds and investment strategies. And I need to be careful many of these are opportunities that are only available to ultra high net, ultra high net worth investors or family offices. These are not retail investments. But I’ve been exposed to and I’m aware of significant opportunities in the European capital markets that far outperform American markets. And frankly, I’m actually very happy with the segregated accounts and some of the reporting and requirements with third party auditing. America sort of has a security’s environment, based on buyer beware, and tons and tons and tons of disclosures. But I think the Europeans have built an architecture that does protect investors. And I’m, frankly, more surprised, I’m surprised that a lot of other families in America are not heavily investing in these projects. You know, one of which I ran across. And this isn’t an endorsement to just an example, is a group called Swiss alpha. And I’ve met the leaders of that group, and I’m very impressed with their, their structures and their performances. And, you know, they’re far outperforming almost everything I see here in the US. So I think it may be somewhat political, and it may be somewhat a matter of more saner and easier to understand regulations. But regardless, I’m seeing a lot of interest in and a lot of investment in Europe, more so than I would have expected. Traditionally, people think about putting money into American markets. I think there’s more of a flow out of American markets, a lot of people realize right now.

 

Alan Olsen: So what are the key technological disruptions that either excites you or keep you up at night?

 

Rick Swart: Well, one of my problems, Alan, I’ve got a lot of friends that work in three letter agencies, and a lot of ex Navy SEAL types. So sometimes my friends accuse me of being a little bit pessimistic because of the crowds I hang around. But I think there’s a couple of massive threats to the world economy, the first of which is the Chinese dominance of the internet and their intention of bifurcating or splitting the internet, there’s going to be a Chinese controlled internet. And there’s going to be a US controlled internet. And they intend to launch their own, you know, new architecture of the internet for their allies for companies doing business with them for trade partners. Essentially, they are going to have an active splitting of the internet into two literally incompatible domains where the data can be exchanged between them. And that’s going to cause huge repercussions on trade and finance. They’re also shifting their currency into a digitized format. That is part and parcel of the shift towards controlling e-commerce and controlling the world’s markets. They intend to do everything they can to boost the dollar as the reserve currency in the world. And they have no qualms about stealing, hacking and destroying their opponents. So I don’t think this is going to be a friendly bifurcation, I think it’s going to be a really messy cyber warfare. And we’ve been in cyber war with Russia for 20 years, it’s nothing new. But the Chinese have been getting more and more aggressive. So from a geopolitical risk. And from a bifurcation point of view, I don’t think most people know that this bifurcation is coming probably in the next couple of years. And then secondly, both exciting and worrisome is we are in an arms race with China on quantum computing, quantum computing is here, I don’t think most people understand it. And it certainly isn’t the top of the show to go into the nuances of what makes quantum computing so powerful. But right now, the Chinese are far ahead of us, far, far, far ahead of us in the performance of their machines. And there’s a certain point at which there is about a 20 qubit advantage, where that advance will probably never be able to be caught up. But the change in technology that’s going to be driven by quantum computing, is going to be as serious as going from hardware to the launch of the personal computers, I mean, the quantum revolution that’s about to happen is going to totally remake, almost all computing prediction systems, you know, 10s of 1000s of fold increase in the computing power about hundreds of 1000s fold increase in what companies are going to be able to do very quickly. So there’s a massive technological change, which is going to make us rethink how we use computing systems and how we use computers for predictions. The question is going to be, you know, are we going to be able to maintain some dominance over the industry or is China going to own the industry, if they can own that industry and own the internet, we’re gonna have a world of hurt.

 

Alan Olsen: Well, you’re not a global leader on platform investing. And this COVID the last 12 months has really caused an explosion in this series. So you’ve touched a little bit on that, but if we look into the crystal ball of the future, I realize it’s a prediction like an economist. Where do you see this whole heading right now?

 

Rick Swart: I think that platform based investing is going to be the dominant model for most individuals, I still think institutions are going to rely on their standard processes and structures. But Excuse me, I net worth individuals are certainly open to and have been using zoom platforms, whether it is through an angel network or currency forum or family office networks, there’s been a huge increase in the willingness of investors to be on those platforms. And because of that, there’s been a dramatic increase in the quality of the due diligence, the quality of the screening, and the quality, of the companies that are willing to go on those platforms originally, one of the challenges was that companies perceived it as almost like a selection bias that only poor quality companies that can’t get money anywhere else would dare to use those platforms. Now we’re seeing that very aggressive companies realize it’s an efficient way of raising capital. You know, capital formation is a huge distraction for startups and early stage companies. And if they’re able to use these platforms, and do what took them, you know, nine months in the past and 30, roadshows, within two weeks, and four or five zoom calls, it allows him to focus on execution as opposed to capital raising. So higher quality companies are using them, we’re seeing a massive increase. I’m personally aware of at least six large networks with hundreds of family offices, in each of the networks that are doing syndicated investing through these platforms through their own version of a platform. So part of what we’re seeing is a shift towards trusting other people’s diligence, third party diligence as a service, where in the past, most families in high net worth individuals were less willing to trust, I’m seeing a high, high amount of deal flow and volume. There’s also been a lot of discussion around gender equity. And this isn’t a politically correct statement, but it’s just a very germane topic of conversation, and that female led businesses and female founded companies are having a pretty good shake on these platforms. Whereas historically, when they go to roadshows, they don’t do as well. So I think it’s changing the ability of innovative companies to get funded, regardless of the characteristics of the founder. And I think that’s a good thing. There’s a lot of women who have fascinating and awesome ideas that have been a challenge getting funded in the past. I think that families still basically travel as tribes. And that they have their network of friends, and some of them are multi-generational relationships, and they tend to invest together and travel together. I think these platforms are just taking some of the friction costs out of what they traditionally do anyway, I still think you’re going to have gatherings. But a lot of families are willing to look at secondaries and direct investing through a platform rather than relying on, you know, the 2000 deals a day they get emailed to them. I’m exaggerating, of course, but they have no shortage of deal flow. So I think that that psychological shift and technological shift and quality shift, have all really driven the willingness of people to look at platform investing, in a way that several years ago, I never would have predicted.

 

Alan: Richard, how does the family office reach out to you For more information or to collaborate with the projects you’re working on?

 

Rick Swart: For now it’s at Richard@RichardSWART.com. I’m not very active on social media, I find it to be a huge distraction. So I’m on LinkedIn, and I have a website and those are really the only ways that people can reach out to me. The think tank will be announced in a few months when we get it together. But for now, that’s the best way.

 

Alan: Again, Richard, thanks for being with us today.

 

Rick Swart: It’s always a pleasure Alan. Thanks for everything you’re doing.

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