Reduce Risk and Improve Chances for Success Through Diversification
Part 1 in a 5 part series on the benefits of adding venture capital to your portfolio
Today, there is no shortage of options for an investor to consider, with thousands of public equities to choose from and a bevy of apps that make trading as easy as a swipe. Private investments are increasingly popular for sophisticated portfolios, but options can be limited for many individual investors and deliver varying results. However, there is another asset class that can play an important role in your financial strategy, and it’s still missing from many seasoned investors’ portfolios.
Enter venture capital. When you imagine the venture capital industry, you might immediately think “high risk,” “exclusive,” and “elite.” You might think of storied venture firms like Andreessen Horowitz, Sequoia Capital, or imagine the likes of Mark Cuban, Shark Tank, and decisions made in 10 minutes or less.
While it’s true that this asset class is high-risk/high-reward, serious firms conduct far more diligence than TV would lead you to believe, and venture is no longer only available to the ultra-high-net-worth investor. In fact, this is an asset any individual accredited investor can own. You might be one of the millions of accredited investors still missing venture capital from their portfolios — but you have options.
There are a number of financial and inspiring reasons to consider adding VC to your investment mix. At AVG, we have compiled a list of five compelling reasons to consider venture investing. Today we will discuss reason number one.
Reason #1: You’ll Have Potential For Large Returns
To understand the potential for returns, you first have to understand how venture capital works. You invest in a company when it’s young, privately owned, and has a lower valuation. Your investment has the chance of becoming more valuable over time if the company grows, gains customers, increases revenue, and maybe even goes public or is acquired.
The larger your venture portfolio, the greater the odds of potential gains and reducing risk. Most venture-backed companies will either fail or reach, at most, a modest level of success. But a few big winners — those returning 10x, 100x, 1000x — produce most of the returns for an entire portfolio and can make up for numerous losers. That is why it is critical to own a venture portfolio of approximately 30 companies or more to give yourself a strong chance of investing in those winners. Early investors in tech companies like Zoom and Snowflake saw 6000x and 3000x-9000x return on their initial investments respectively. The AVG investment Freshly, a leader in the prepared meals space that launched in 2015, was just acquired by Nestlé for $950 million — with another $550 million in possible earnouts.
Before you take off on a unicorn hunt, you should recognize that there is an art and science to doing venture investing well; DIY is not advised. That means saying “no” to that deal you heard about on the golf course — unless losing friends and money is your goal.
VC TIP #1
Deploy your capital into a large venture capital portfolio (~30+ companies per fund), diversified over sector, stage, geography, lead investor, and time that is actively managed by investment professionals.
Financial and Inspiring Reasons to Consider Adding VC to Your Investment Mix
Check out a recent guide, titled Five Compelling Reasons to Start Venture Investing, to discover all five in-depth benefits of adding Venture to your portfolio.
DISRUPTING THE VENTURE INDUSTRY
Alumni Ventures Group (AVG) is democratizing the venture asset class by offering a path for accredited individuals to own an actively managed, diversified venture portfolio (about 20-200 investments per fund), co-investing alongside experienced VC firms.
We invite you to learn more by speaking with a member of our team. If you are interested specifically in our alumni-based funds, click here to select your fund.
Not sure if you’re accredited? Here’s how to easily find out.
Contact [email protected] for additional information. To see additional risk factors and investment considerations, visit avg-funds.com/Disclosures.