Do you invest in Venture Capital as a small investor?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Do you invest in Venture Capital as a small investor?

Post by huzaing »

Hi,

I am wondering if average folks here invest in Venture Capital, maybe like 5-10% of their portfolio?
I'm seeing several such platforms like AngelList, SeedInvest, WeFunder.

Do you think it's a good idea?
What's a good way to do so with $10-50K of capital?

Thanks.
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: Do you invest in Venture Capital as a small investor?

Post by Nathan Drake »

No, if I were to chase additional risk I’d increase equities or SCV

Data for VC/PE/HF is very poor in aggregate for the investor, but quite good for the managers collecting obscene fees
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: Do you invest in Venture Capital as a small investor?

Post by Taylor Larimore »

huzaing wrote: Thu Jul 29, 2021 10:16 am Hi,

I am wondering if average folks here invest in Venture Capital, maybe like 5-10% of their portfolio?
I'm seeing several such platforms like AngelList, SeedInvest, WeFunder.

Do you think it's a good idea?
What's a good way to do so with $10-50K of capital?

Thanks.
huzaing:

It is nearly always a mistake to invest in venture capital schemes. This is from Investopedia:
According to recent research, the failure rate for a venture fund portfolio is 40% to 50% in a given year, and 90% of all companies invested in will not make it beyond the 10-year mark.
Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Owning the total stock market is tax-efficient and cost-efficient." "Investing in equities entails four risks: stock risk, style risk, manager risk, and market risk. You can easily eliminate the first three of these risks simply by owning the entire stock market."
"Simplicity is the master key to financial success." -- Jack Bogle
jebmke
Posts: 25475
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Do you invest in Venture Capital as a small investor?

Post by jebmke »

I don't invest in anything that isn't liquid. No VC, no PE, no metals, no RE.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Dontsell1
Posts: 44
Joined: Thu Jul 15, 2021 9:35 pm

Re: Do you invest in Venture Capital as a small investor?

Post by Dontsell1 »

Wouldn’t do it. Chances are very low you get the next Uber.
User avatar
AerialWombat
Posts: 3106
Joined: Tue May 29, 2018 1:07 pm
Location: Cashtown, Cashylvania

Re: Do you invest in Venture Capital as a small investor?

Post by AerialWombat »

deleted
Last edited by AerialWombat on Sat Feb 05, 2022 3:15 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Do you invest in Venture Capital as a small investor?

Post by retiredjg »

No. No. and I wouldn't.
jarjarM
Posts: 2511
Joined: Mon Jul 16, 2018 1:21 pm

Re: Do you invest in Venture Capital as a small investor?

Post by jarjarM »

High fee and illiquid, and also not going to make much of a difference with $10-50k. As mentioned upthread, most ventures blow up after a while. The good deals are available only to the top tier VC funds (due to name recognition and favorable publicity) and small time investor just couldn't get in these VCs (Sequoia and Kleiner Perkins type).
investorpeter
Posts: 609
Joined: Sun Jul 31, 2016 5:46 pm

Re: Do you invest in Venture Capital as a small investor?

Post by investorpeter »

I've looked into some of those websites like Angel List, but have never been able to find any ventures that seemed compelling enough to compensate for the very real risk of a total loss. From the start-up's point of view, if they had a compelling business model, why in the world would they want me, a nobody small investor, as an owner. As Groucho Marx said, "I don't care to join a club that would have me as a member."
User avatar
22twain
Posts: 4030
Joined: Thu May 10, 2012 5:42 pm

Re: Do you invest in Venture Capital as a small investor?

Post by 22twain »

huzaing wrote: Thu Jul 29, 2021 10:16 am I am wondering if average folks here invest in Venture Capital
I don't, although that may simply be a sign that I'm far below average. :(
Meet my pet, Peeve, who loves to convert non-acronyms into acronyms: FED, ROTH, CASH, IVY, ...
Jack FFR1846
Posts: 18502
Joined: Tue Dec 31, 2013 6:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Do you invest in Venture Capital as a small investor?

Post by Jack FFR1846 »

These investments fail my test for ROI.

(ROI = return OF investment)
Bogle: Smart Beta is stupid
backpacker61
Posts: 1613
Joined: Wed May 20, 2020 6:36 am

Re: Do you invest in Venture Capital as a small investor?

Post by backpacker61 »

I have a very (very very very) tiny allocation to a couple Business Development Companies.

https://www.bogleheads.org/wiki/Busines ... nt_company

The largest firm in the space is ARES Capital Corporation (ARCC), another big player is Main Street Capital (MAIN). These are listed public companies, so BDC's are pretty liquid investments.

The annual expenses of these will whiten your teeth if you're accustomed to index funds, but given the oversight and management involvement required, I guess it's to be expected.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
sabhen
Posts: 360
Joined: Sat Feb 27, 2016 12:03 am

Re: Do you invest in Venture Capital as a small investor?

Post by sabhen »

another idea is to invest in an ETF with venture-like characteristics (diversified holdings, liquidity, reasonable expenses, high risk/potential for high reward...).
Dhchicago
Posts: 7
Joined: Sat Nov 26, 2016 12:30 pm

Re: Do you invest in Venture Capital as a small investor?

Post by Dhchicago »

I do invest in venture pretty actively.
The angel investing book listed in an earlier post is great, highly recommended.
You need to have enough capital to invest in a very large number (like 50-100) to have any reasonable shot of approaching the distribution of total venture returns. With smaller numbers of investments your probability of loss in early stage deals is quite high. At $10-20k total I don’t think the math works at all.

Second thing - you need to have a good way to access a high quality stream of deals - easier said than done. I am working with one of the older and well established investing syndicates, works almost like a distributed venture fund with full time management staff etc… I would NEVER try to do this on my own.

Results so far over almost 4 years are excellent, but I kind of fell into a good situation. As everyone says on this board, your mileage may vary - but sounds like venture might not be a great fit for your situation.
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

Dhchicago wrote: Fri Jul 30, 2021 8:27 am I do invest in venture pretty actively.
The angel investing book listed in an earlier post is great, highly recommended.
You need to have enough capital to invest in a very large number (like 50-100) to have any reasonable shot of approaching the distribution of total venture returns. With smaller numbers of investments your probability of loss in early stage deals is quite high. At $10-20k total I don’t think the math works at all.

Second thing - you need to have a good way to access a high quality stream of deals - easier said than done. I am working with one of the older and well established investing syndicates, works almost like a distributed venture fund with full time management staff etc… I would NEVER try to do this on my own.

Results so far over almost 4 years are excellent, but I kind of fell into a good situation. As everyone says on this board, your mileage may vary - but sounds like venture might not be a great fit for your situation.
So you are not talking about AngelList, right?
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

AerialWombat wrote: Thu Jul 29, 2021 11:27 am The best way to learn about angel investing is through a local angel conference or angel fund. Beware of funds that charge large up front fees to participate.

I also suggest reading this book:

https://www.amazon.com/Angel-Investing- ... 1118858255
I'll check it out, thanks. Any idea if that one is more useful than this one I found earlier:
https://www.amazon.com/Angel-Jason-Cala ... 071D6MRDT/

Thanks
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

investorpeter wrote: Thu Jul 29, 2021 11:57 am I've looked into some of those websites like Angel List, but have never been able to find any ventures that seemed compelling enough to compensate for the very real risk of a total loss. From the start-up's point of view, if they had a compelling business model, why in the world would they want me, a nobody small investor, as an owner. As Groucho Marx said, "I don't care to join a club that would have me as a member."
Hi, so is it like you have to do the evaluation yourself?

I had read that Meb Faber has some deals on AngelList that one can join? Would that not help since he might some good ones, no?
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

Taylor Larimore wrote: Thu Jul 29, 2021 10:48 am
It is nearly always a mistake to invest in venture capital schemes. This is from Investopedia:
According to recent research, the failure rate for a venture fund portfolio is 40% to 50% in a given year, and 90% of all companies invested in will not make it beyond the 10-year mark.
Best wishes
Taylor
Maybe it's a mistake or bad idea for other reasons, but this reason doesn't seem valid to me:

1. The high failure rate is already acknowledged and expected; it's inherent in this type of investing. Just like people who invest in the stock market with knowledge, already know that it will drop a big % at some point. Similarly, I don't think people who do Angel investing with knowledge are expecting a majority of the companies to make it. Agree, disagree?

2. Isn't the statistic above incomplete? What about the 10% that do make it beyond 10 years; what's their performance like?

3. Unless I'm misremembering, I think even with the stock market, the majority of the companies underperform the index and only a minority are responsible for the bulk of the index's return. Can someone correct me if this is wrong please?
User avatar
AerialWombat
Posts: 3106
Joined: Tue May 29, 2018 1:07 pm
Location: Cashtown, Cashylvania

Re: Do you invest in Venture Capital as a small investor?

Post by AerialWombat »

deleted
Last edited by AerialWombat on Sat Feb 05, 2022 3:16 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
FItech
Posts: 8
Joined: Mon Jan 11, 2021 2:14 pm

Re: Do you invest in Venture Capital as a small investor?

Post by FItech »

The best deals on AngelList and similar sites are extremely oversubscribed. As a result, your allocation will likely be squashed down significantly to the point where it's miniscule. The only way to avoid this is to have actual connections to the startup. Don't expect meaningful allocations for the best companies on AngelList, which are precisely the ones that you need to outperform. Reg CF sites such as WeFunder tend to be lower quality because crowdfunding is seen as a last resort for companies that can't raise VC funding. (This is unfortunate, but often true.)

I am an LP (Limited Partner) in a few VC funds and also angel invest in companies run by friends. I only had access to the VC funds because they invested in my own company and let me put in a small check. Most of these funds are capped at 100 or 250 investors by SEC regulations, so space is very limited and goes to people in the industry. These venture funds are raised privately so you need to know the partners to be able to get in. Many of them turn away people with a net worth under $5M, almost all turn away people with a net worth under $2.1M.

The current regulations put investors without connections and a significant net worth at a severe disadvantage. It's unfortunate and needs to be changed, but be careful with venture investing since the current regulations harm small investors. In the long term, I sincerely hope that this changes. In the short term, if you don't know the company or venture fund directly, you'll be in a much more difficult position.
todaysBob
Posts: 167
Joined: Mon Mar 02, 2020 5:39 pm

Re: Do you invest in Venture Capital as a small investor?

Post by todaysBob »

Before I knew anything about Bogleheads way of investing, I put money in 6 private companies over 2018-19 through EquityZen. Results were pretty dismal until this year. This is how they have turned out so far:

Positions that had an exit:
Company Name, Amount Invested, Exit Value, Years illiquid
MapR, $10.5k, $0, 1 yr
Credit Karma, $10.5k, $16k, 1.5 yrs
Doximity, $11k, $192k, 2.5 yrs [This is still in IPO lockup, so value could be much different when I am actually able to sell in Decemeber]

Positions still illiquid:
Company Name, Amount Invested, Latest Value, Years illiquid
Offerup, $21k, $10k, 3.5
Thumbtack, $10.5K, $16k, 3.5
Sift Science, $11k, $36k, 2

So among companies that had an exit, first company went bankrupt, 2nd returned 50% in 1.5 year and 3rd really went bonkers(~17X) in 2 years.

And companies w/o an exit, 2/3 seem to be doing ok.

After starting on my boglehead journey from Feb 2020, I was just patiently waiting for these positions to liquidate and direct them to VTI/VXUS/VWO(I do tilt towards emerging markets). But seeing how Doximity exploded I have decided to keep some portion of my portfolio invested in PE just for few more years. This is my new algo:
a) Keep max 5 deals open(i.e without a liquidation event) at a time
b) Keep cost basis < $100k [This would be less than 5% of my total portfolio]
c) Only choose companies with market cap < $500M
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

todaysBob wrote: Sat Jul 31, 2021 3:28 am Before I knew anything about Bogleheads way of investing, I put money in 6 private companies over 2018-19 through EquityZen. Results were pretty dismal until this year. This is how they have turned out so far:
Hi, I liked your post. Thanks for sharing this experience!!

Is EquityZen like an alternative to AngelList or in another category altogether?

As read I about this, accredited investor comes up, is that determined by the platform itself (by asking you questions?) or is it some official certification you need to get first by providing your statements, etc?
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

FItech wrote: Sat Jul 31, 2021 1:20 am The best deals on AngelList and similar sites are extremely oversubscribed. As a result, your allocation will likely be squashed down significantly to the point where it's miniscule. The only way to avoid this is to have actual connections to the startup. Don't expect meaningful allocations for the best companies on AngelList, which are precisely the ones that you need to outperform. Reg CF sites such as WeFunder tend to be lower quality because crowdfunding is seen as a last resort for companies that can't raise VC funding. (This is unfortunate, but often true.)

I am an LP (Limited Partner) in a few VC funds and also angel invest in companies run by friends. I only had access to the VC funds because they invested in my own company and let me put in a small check. Most of these funds are capped at 100 or 250 investors by SEC regulations, so space is very limited and goes to people in the industry. These venture funds are raised privately so you need to know the partners to be able to get in. Many of them turn away people with a net worth under $5M, almost all turn away people with a net worth under $2.1M.

The current regulations put investors without connections and a significant net worth at a severe disadvantage. It's unfortunate and needs to be changed, but be careful with venture investing since the current regulations harm small investors. In the long term, I sincerely hope that this changes. In the short term, if you don't know the company or venture fund directly, you'll be in a much more difficult position.
Amazing and very excellent post! I really appreciate that you shared first-hand knowledge.
NOW it makes sense to me what was confusing earlier when I used to read about people investing in PayPal, Linkedin, etc in the very early stages.
It sounded like they had unique personal connections that made it possible for them to invest.

It would make me think:
If VC is such a bad idea (as implied by some folks above), then why are these wealthy, savvy and connected individuals not just putting all their money in index funds.

But now it *seems* like:
For us commoners, since the proper VC opportunities are not accessible, public indexing is the most suitable approach amongst what's left.
todaysBob
Posts: 167
Joined: Mon Mar 02, 2020 5:39 pm

Re: Do you invest in Venture Capital as a small investor?

Post by todaysBob »

huzaing wrote: Sat Jul 31, 2021 8:51 am
todaysBob wrote: Sat Jul 31, 2021 3:28 am Before I knew anything about Bogleheads way of investing, I put money in 6 private companies over 2018-19 through EquityZen. Results were pretty dismal until this year. This is how they have turned out so far:
Hi, I liked your post. Thanks for sharing this experience!!

Is EquityZen like an alternative to AngelList or in another category altogether?

As read I about this, accredited investor comes up, is that determined by the platform itself (by asking you questions?) or is it some official certification you need to get first by providing your statements, etc?
I haven't looked at AngelList in a while, if I remember correctly there used to be a lead investor and others just following whatever he is investing in. Equityzen just sources deals from current or ex employees or maybe even the company directly. You pay 5% commission on each deal though.

Re: accredited investor, yes the platform will ask you questions. You either need to have $1M in assets outside of primary home or made $200k/year for last couple of years. Not sure what the repercussions are if you just say you have a $1M but not have them for real.
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

todaysBob wrote: Sat Jul 31, 2021 6:06 pm
huzaing wrote: Sat Jul 31, 2021 8:51 am
todaysBob wrote: Sat Jul 31, 2021 3:28 am Before I knew anything about Bogleheads way of investing, I put money in 6 private companies over 2018-19 through EquityZen. Results were pretty dismal until this year. This is how they have turned out so far:
Hi, I liked your post. Thanks for sharing this experience!!

Is EquityZen like an alternative to AngelList or in another category altogether?

As read I about this, accredited investor comes up, is that determined by the platform itself (by asking you questions?) or is it some official certification you need to get first by providing your statements, etc?
I haven't looked at AngelList in a while, if I remember correctly there used to be a lead investor and others just following whatever he is investing in. Equityzen just sources deals from current or ex employees or maybe even the company directly. You pay 5% commission on each deal though.

Re: accredited investor, yes the platform will ask you questions. You either need to have $1M in assets outside of primary home or made $200k/year for last couple of years. Not sure what the repercussions are if you just say you have a $1M but not have them for real.
Thanks for sharing the info :beer
User avatar
Forester
Posts: 2400
Joined: Sat Jan 19, 2019 1:50 pm
Location: UK

Re: Do you invest in Venture Capital as a small investor?

Post by Forester »

I skim over any media content relating to startup culture, delete any podcast episode where a VC / startup founder is interviewed. Really boring, self-congratulatory stuff and is promoting "lottery ticket" investing. Liquid transparent public market investing via passive vehicles is for me.
Amateur Self-Taught Senior Macro Strategist
evestor
Posts: 184
Joined: Sat Feb 21, 2015 4:37 pm

Re: Do you invest in Venture Capital as a small investor?

Post by evestor »

huzaing wrote: Sat Jul 31, 2021 9:50 am
FItech wrote: Sat Jul 31, 2021 1:20 am The best deals on AngelList and similar sites are extremely oversubscribed. As a result, your allocation will likely be squashed down significantly to the point where it's miniscule. The only way to avoid this is to have actual connections to the startup. Don't expect meaningful allocations for the best companies on AngelList, which are precisely the ones that you need to outperform. Reg CF sites such as WeFunder tend to be lower quality because crowdfunding is seen as a last resort for companies that can't raise VC funding. (This is unfortunate, but often true.)

I am an LP (Limited Partner) in a few VC funds and also angel invest in companies run by friends. I only had access to the VC funds because they invested in my own company and let me put in a small check. Most of these funds are capped at 100 or 250 investors by SEC regulations, so space is very limited and goes to people in the industry. These venture funds are raised privately so you need to know the partners to be able to get in. Many of them turn away people with a net worth under $5M, almost all turn away people with a net worth under $2.1M.

The current regulations put investors without connections and a significant net worth at a severe disadvantage. It's unfortunate and needs to be changed, but be careful with venture investing since the current regulations harm small investors. In the long term, I sincerely hope that this changes. In the short term, if you don't know the company or venture fund directly, you'll be in a much more difficult position.
Amazing and very excellent post! I really appreciate that you shared first-hand knowledge.
NOW it makes sense to me what was confusing earlier when I used to read about people investing in PayPal, Linkedin, etc in the very early stages.
It sounded like they had unique personal connections that made it possible for them to invest.

It would make me think:
If VC is such a bad idea (as implied by some folks above), then why are these wealthy, savvy and connected individuals not just putting all their money in index funds.

But now it *seems* like:
For us commoners, since the proper VC opportunities are not accessible, public indexing is the most suitable approach amongst what's left.
VC isn't a bad idea in absolute. VC just has power law returns.
Ref: https://visible.vc/blog/understanding-t ... rve-of-vc/

Not all of that return goes to high end VCs but a lot of it does. Even within the VC industry you see this...the return delta between some firms and other firms is massive (ex: Sequoia, KPCB, Benchmark).
So to your point about savvy investors....savvy investors who are well connected in this space can get access to firms with a higher probability of being at the head of the curve.

I would strongly advise *not* investing in companies yourself on random sites. Unless you have material knowledge of these companies and can get an allocation through this vehicle it is unwise. The overwhelming probability is you'll lose $.
If you decide to enter tech and do this sort of work for a living this can change and VC can become a fine way to make a living. But it's more nuanced. I could write for pages on this. There are caveats abound.

Be careful & good luck.
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

evestor wrote: Sun Aug 01, 2021 10:10 am
huzaing wrote: Sat Jul 31, 2021 9:50 am
FItech wrote: Sat Jul 31, 2021 1:20 am The best deals on AngelList and similar sites are extremely oversubscribed. As a result, your allocation will likely be squashed down significantly to the point where it's miniscule. The only way to avoid this is to have actual connections to the startup. Don't expect meaningful allocations for the best companies on AngelList, which are precisely the ones that you need to outperform. Reg CF sites such as WeFunder tend to be lower quality because crowdfunding is seen as a last resort for companies that can't raise VC funding. (This is unfortunate, but often true.)

I am an LP (Limited Partner) in a few VC funds and also angel invest in companies run by friends. I only had access to the VC funds because they invested in my own company and let me put in a small check. Most of these funds are capped at 100 or 250 investors by SEC regulations, so space is very limited and goes to people in the industry. These venture funds are raised privately so you need to know the partners to be able to get in. Many of them turn away people with a net worth under $5M, almost all turn away people with a net worth under $2.1M.

The current regulations put investors without connections and a significant net worth at a severe disadvantage. It's unfortunate and needs to be changed, but be careful with venture investing since the current regulations harm small investors. In the long term, I sincerely hope that this changes. In the short term, if you don't know the company or venture fund directly, you'll be in a much more difficult position.
Amazing and very excellent post! I really appreciate that you shared first-hand knowledge.
NOW it makes sense to me what was confusing earlier when I used to read about people investing in PayPal, Linkedin, etc in the very early stages.
It sounded like they had unique personal connections that made it possible for them to invest.

It would make me think:
If VC is such a bad idea (as implied by some folks above), then why are these wealthy, savvy and connected individuals not just putting all their money in index funds.

But now it *seems* like:
For us commoners, since the proper VC opportunities are not accessible, public indexing is the most suitable approach amongst what's left.
VC isn't a bad idea in absolute. VC just has power law returns.
Ref: https://visible.vc/blog/understanding-t ... rve-of-vc/

Not all of that return goes to high end VCs but a lot of it does. Even within the VC industry you see this...the return delta between some firms and other firms is massive (ex: Sequoia, KPCB, Benchmark).
So to your point about savvy investors....savvy investors who are well connected in this space can get access to firms with a higher probability of being at the head of the curve.

I would strongly advise *not* investing in companies yourself on random sites. Unless you have material knowledge of these companies and can get an allocation through this vehicle it is unwise. The overwhelming probability is you'll lose $.
If you decide to enter tech and do this sort of work for a living this can change and VC can become a fine way to make a living. But it's more nuanced. I could write for pages on this. There are caveats abound.

Be careful & good luck.
Hi,
Thanks for your input on this one. I found it very informative!
Dhchicago
Posts: 7
Joined: Sat Nov 26, 2016 12:30 pm

Re: Do you invest in Venture Capital as a small investor?

Post by Dhchicago »

huzaing wrote: Fri Jul 30, 2021 3:43 pm
Dhchicago wrote: Fri Jul 30, 2021 8:27 am I do invest in venture pretty actively.
The angel investing book listed in an earlier post is great, highly recommended.
You need to have enough capital to invest in a very large number (like 50-100) to have any reasonable shot of approaching the distribution of total venture returns. With smaller numbers of investments your probability of loss in early stage deals is quite high. At $10-20k total I don’t think the math works at all.

Second thing - you need to have a good way to access a high quality stream of deals - easier said than done. I am working with one of the older and well established investing syndicates, works almost like a distributed venture fund with full time management staff etc… I would NEVER try to do this on my own.

Results so far over almost 4 years are excellent, but I kind of fell into a good situation. As everyone says on this board, your mileage may vary - but sounds like venture might not be a great fit for your situation.
So you are not talking about AngelList, right?
No.
Dhchicago
Posts: 7
Joined: Sat Nov 26, 2016 12:30 pm

Re: Do you invest in Venture Capital as a small investor?

Post by Dhchicago »

huzaing wrote: Fri Jul 30, 2021 4:04 pm
Taylor Larimore wrote: Thu Jul 29, 2021 10:48 am
It is nearly always a mistake to invest in venture capital schemes. This is from Investopedia:
According to recent research, the failure rate for a venture fund portfolio is 40% to 50% in a given year, and 90% of all companies invested in will not make it beyond the 10-year mark.
Best wishes
Taylor
Maybe it's a mistake or bad idea for other reasons, but this reason doesn't seem valid to me:

1. The high failure rate is already acknowledged and expected; it's inherent in this type of investing. Just like people who invest in the stock market with knowledge, already know that it will drop a big % at some point. Similarly, I don't think people who do Angel investing with knowledge are expecting a majority of the companies to make it. Agree, disagree?

2. Isn't the statistic above incomplete? What about the 10% that do make it beyond 10 years; what's their performance like?

3. Unless I'm misremembering, I think even with the stock market, the majority of the companies underperform the index and only a minority are responsible for the bulk of the index's return. Can someone correct me if this is wrong please?
Taylor’s stats are correct but his interpretation is silly. The distribution of returns (cross section) is a power curve - you definitely have to invest in it as an asset class across a wide range of deals, but the idea that nobody makes money in venture is a pretty strange one. If you have good access to deal flow via an established fund (preferably multiple) it is a reasonable place for a small fraction of a larger portfolio.
User avatar
Noobvestor
Posts: 5944
Joined: Mon Aug 23, 2010 1:09 am

Re: Do you invest in Venture Capital as a small investor?

Post by Noobvestor »

On a quick up ramp toward more wealth than I'd ever known, I got ahead of myself and did a bit of angel/venture investing a while back now ... and I've regretted it ever since. My returns have actually been pretty damn good, but the hassle of monitoring (not to mention tax forms) just wasn't worth it. I honestly don't even know if those investments on the whole have done better or worse than an index, but I'd take it back just to keep things simpler.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Dhchicago
Posts: 7
Joined: Sat Nov 26, 2016 12:30 pm

Re: Do you invest in Venture Capital as a small investor?

Post by Dhchicago »

evestor wrote: Sun Aug 01, 2021 10:10 am
huzaing wrote: Sat Jul 31, 2021 9:50 am
FItech wrote: Sat Jul 31, 2021 1:20 am The best deals on AngelList and similar sites are extremely oversubscribed. As a result, your allocation will likely be squashed down significantly to the point where it's miniscule. The only way to avoid this is to have actual connections to the startup. Don't expect meaningful allocations for the best companies on AngelList, which are precisely the ones that you need to outperform. Reg CF sites such as WeFunder tend to be lower quality because crowdfunding is seen as a last resort for companies that can't raise VC funding. (This is unfortunate, but often true.)

I am an LP (Limited Partner) in a few VC funds and also angel invest in companies run by friends. I only had access to the VC funds because they invested in my own company and let me put in a small check. Most of these funds are capped at 100 or 250 investors by SEC regulations, so space is very limited and goes to people in the industry. These venture funds are raised privately so you need to know the partners to be able to get in. Many of them turn away people with a net worth under $5M, almost all turn away people with a net worth under $2.1M.

The current regulations put investors without connections and a significant net worth at a severe disadvantage. It's unfortunate and needs to be changed, but be careful with venture investing since the current regulations harm small investors. In the long term, I sincerely hope that this changes. In the short term, if you don't know the company or venture fund directly, you'll be in a much more difficult position.
Amazing and very excellent post! I really appreciate that you shared first-hand knowledge.
NOW it makes sense to me what was confusing earlier when I used to read about people investing in PayPal, Linkedin, etc in the very early stages.
It sounded like they had unique personal connections that made it possible for them to invest.

It would make me think:
If VC is such a bad idea (as implied by some folks above), then why are these wealthy, savvy and connected individuals not just putting all their money in index funds.

But now it *seems* like:
For us commoners, since the proper VC opportunities are not accessible, public indexing is the most suitable approach amongst what's left.
VC isn't a bad idea in absolute. VC just has power law returns.
Ref: https://visible.vc/blog/understanding-t ... rve-of-vc/

Not all of that return goes to high end VCs but a lot of it does. Even within the VC industry you see this...the return delta between some firms and other firms is massive (ex: Sequoia, KPCB, Benchmark).
So to your point about savvy investors....savvy investors who are well connected in this space can get access to firms with a higher probability of being at the head of the curve.

I would strongly advise *not* investing in companies yourself on random sites. Unless you have material knowledge of these companies and can get an allocation through this vehicle it is unwise. The overwhelming probability is you'll lose $.
If you decide to enter tech and do this sort of work for a living this can change and VC can become a fine way to make a living. But it's more nuanced. I could write for pages on this. There are caveats abound.

Be careful & good luck.
Yes. This is good advice for most.
User avatar
Noobvestor
Posts: 5944
Joined: Mon Aug 23, 2010 1:09 am

Re: Do you invest in Venture Capital as a small investor?

Post by Noobvestor »

Dhchicago wrote: Wed Aug 04, 2021 9:31 pm
evestor wrote: Sun Aug 01, 2021 10:10 am I would strongly advise *not* investing in companies yourself on random sites. Unless you have material knowledge of these companies and can get an allocation through this vehicle it is unwise. The overwhelming probability is you'll lose $.
If you decide to enter tech and do this sort of work for a living this can change and VC can become a fine way to make a living. But it's more nuanced. I could write for pages on this. There are caveats abound.

Be careful & good luck.
Yes. This is good advice for most.
To add an anecdote: I was at a venture/angel event years ago, and watching presentations from new companies looking for money. During a smoke break, one of the presenters casually on the side said this was kind of a back up project for them, and inquired as to whether I would want to invest in their *new* venture (not the one they presented on stage). I as frankly floored - here was a guy who had just upsold an audience (me included!) on his amazing new business, but already his mind was elsewhere. So yeah, better to know the business and have real faith in the founders.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
hi_there
Posts: 1182
Joined: Sat Aug 29, 2020 7:00 pm

Re: Do you invest in Venture Capital as a small investor?

Post by hi_there »

I would be skeptical of VC investments as a retail investor. I doubt that the returns, especially risk adjusted, will be nearly enough to compensate you for a 5-7 year lock up period, plus whatever packaging fees are included to give you access to this product. More importantly, you probably won't get access to many blockbuster deals, since the most promising investments tend to be crowded by top VC firms.
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

Noobvestor wrote: Wed Aug 04, 2021 9:28 pm On a quick up ramp toward more wealth than I'd ever known, I got ahead of myself and did a bit of angel/venture investing a while back now ... and I've regretted it ever since. My returns have actually been pretty damn good, but the hassle of monitoring (not to mention tax forms) just wasn't worth it. I honestly don't even know if those investments on the whole have done better or worse than an index, but I'd take it back just to keep things simpler.
Thanks for sharing this feedback!
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

Noobvestor wrote: Wed Aug 04, 2021 10:33 pm
Dhchicago wrote: Wed Aug 04, 2021 9:31 pm
evestor wrote: Sun Aug 01, 2021 10:10 am I would strongly advise *not* investing in companies yourself on random sites. Unless you have material knowledge of these companies and can get an allocation through this vehicle it is unwise. The overwhelming probability is you'll lose $.
If you decide to enter tech and do this sort of work for a living this can change and VC can become a fine way to make a living. But it's more nuanced. I could write for pages on this. There are caveats abound.

Be careful & good luck.
Yes. This is good advice for most.
To add an anecdote: I was at a venture/angel event years ago, and watching presentations from new companies looking for money. During a smoke break, one of the presenters casually on the side said this was kind of a back up project for them, and inquired as to whether I would want to invest in their *new* venture (not the one they presented on stage). I as frankly floored - here was a guy who had just upsold an audience (me included!) on his amazing new business, but already his mind was elsewhere. So yeah, better to know the business and have real faith in the founders.
hi_there wrote: Wed Aug 04, 2021 10:59 pm I would be skeptical of VC investments as a retail investor. I doubt that the returns, especially risk adjusted, will be nearly enough to compensate you for a 5-7 year lock up period, plus whatever packaging fees are included to give you access to this product. More importantly, you probably won't get access to many blockbuster deals, since the most promising investments tend to be crowded by top VC firms.
Does AngelList do any of this better than other options?
Valuethinker
Posts: 49032
Joined: Fri May 11, 2007 11:07 am

Re: Do you invest in Venture Capital as a small investor?

Post by Valuethinker »

hi_there wrote: Wed Aug 04, 2021 10:59 pm I would be skeptical of VC investments as a retail investor. I doubt that the returns, especially risk adjusted, will be nearly enough to compensate you for a 5-7 year lock up period, plus whatever packaging fees are included to give you access to this product. More importantly, you probably won't get access to many blockbuster deals, since the most promising investments tend to be crowded by top VC firms.
And we are 10 years into a bull cycle of VC investing.

There's always been booms and busts in VC investing.

The most opportunities to invest were in years like 1999/2000. These were also the worst years to invest (ask me how I know).

There's a huge amount of money that has gone into VC investing in the last few years (from Softbank on down). That has tended to boost the values of later stage investments - huge amounts of money can only crowd into those deals if the valuations are high enough - leading to self-reinforcing cycles.

You want to be doing venture investing where:

- you are sure you are investing alongside the smart money (top VC firms cut in other investors who bring something to the table - such as a successful entrepreneur might bring insight & deal flow) and not against it

- the industry is having one of its periodic droughts, and valuations have fallen. Also the filter is tougher - the deals that make it to investors are usually less "me too" and better thought out, with stronger Founders etc.
User avatar
Noobvestor
Posts: 5944
Joined: Mon Aug 23, 2010 1:09 am

Re: Do you invest in Venture Capital as a small investor?

Post by Noobvestor »

huzaing wrote: Thu Aug 05, 2021 8:26 am
Noobvestor wrote: Wed Aug 04, 2021 10:33 pm
Dhchicago wrote: Wed Aug 04, 2021 9:31 pm
evestor wrote: Sun Aug 01, 2021 10:10 am I would strongly advise *not* investing in companies yourself on random sites. Unless you have material knowledge of these companies and can get an allocation through this vehicle it is unwise. The overwhelming probability is you'll lose $.
If you decide to enter tech and do this sort of work for a living this can change and VC can become a fine way to make a living. But it's more nuanced. I could write for pages on this. There are caveats abound.

Be careful & good luck.
Yes. This is good advice for most.
To add an anecdote: I was at a venture/angel event years ago, and watching presentations from new companies looking for money. During a smoke break, one of the presenters casually on the side said this was kind of a back up project for them, and inquired as to whether I would want to invest in their *new* venture (not the one they presented on stage). I as frankly floored - here was a guy who had just upsold an audience (me included!) on his amazing new business, but already his mind was elsewhere. So yeah, better to know the business and have real faith in the founders.
hi_there wrote: Wed Aug 04, 2021 10:59 pm I would be skeptical of VC investments as a retail investor. I doubt that the returns, especially risk adjusted, will be nearly enough to compensate you for a 5-7 year lock up period, plus whatever packaging fees are included to give you access to this product. More importantly, you probably won't get access to many blockbuster deals, since the most promising investments tend to be crowded by top VC firms.
Does AngelList do any of this better than other options?
I'm not exactly sure what you're asking, but AngelList is like (stretched analogy) the Facebook of angel/venture investing. If it's on there, it's already pretty public, and if it's already pretty public, the good deals were likely at earlier stages (or: it's a crappy company needing funds). It's hard to overstate how insider-y the early-stage investment community is, at least in Silicon Valley where I was when I was a bit more into this stuff. Even things I got to 'relatively early' still had seed money in them that would return a ton more than later-series funding from folks like me.

In short: unless you really are in the thick of this industry, I would highly recommend avoiding it entirely. I was probably more 'in the know' than 99% of the public (just through luck/timing/location), and I still felt woefully behind the really in-the-know folks who got in on the ground level. Really well-positioned startups know people with money - it's self-reinforcing: they have connections, get money, get support, get promoted, etc.... Truly raw startups, no matter how innovative they may seem (or even be) rarely get out the gate without serious connections these days. /2 cents
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Valuethinker
Posts: 49032
Joined: Fri May 11, 2007 11:07 am

Re: Do you invest in Venture Capital as a small investor?

Post by Valuethinker »

Noobvestor wrote: Thu Aug 05, 2021 8:39 pm

I'm not exactly sure what you're asking, but AngelList is like (stretched analogy) the Facebook of angel/venture investing. If it's on there, it's already pretty public, and if it's already pretty public, the good deals were likely at earlier stages (or: it's a crappy company needing funds). It's hard to overstate how insider-y the early-stage investment community is, at least in Silicon Valley where I was when I was a bit more into this stuff. Even things I got to 'relatively early' still had seed money in them that would return a ton more than later-series funding from folks like me.

In short: unless you really are in the thick of this industry, I would highly recommend avoiding it entirely. I was probably more 'in the know' than 99% of the public (just through luck/timing/location), and I still felt woefully behind the really in-the-know folks who got in on the ground level. Really well-positioned startups know people with money - it's self-reinforcing: they have connections, get money, get support, get promoted, etc.... Truly raw startups, no matter how innovative they may seem (or even be) rarely get out the gate without serious connections these days. /2 cents
I was in London not the Valley, and in VC there is "the Valley" and there is everywhere else* (basically nowhere else).

But what you say rings totally true to me, as well.

Another thing I experienced was that when the VC money comes in, it often comes in on terms that crush the previous Angel Investor rounds. Founders get compensated (because their presence is necessary to the success of the venture). Third Party, non professional money? No.

I can name companies that eventually made 10x the valuation I invested in on, but because of the way the VC money came in during the downturn, my return was 1x.

You absolutely need the 10x+ ones to pay for all the ones that are writeoffs or "the living dead".

* Boston, at times and places, has been a successful area for venture investing. Still is in Life Sciences, I believe. London was looking good for Fintech, but then Brexit happened, now I am not so sure (the Financial Services industry in the UK expected to be a central concern of UK govt in its negotiations with the EU, in the end they were not granted even regulatory equivalence; amazing how all that political power & influence that they had in the 90s and 2000s just evaporated).

It should be noted that there is amazing technology in Europe. But the ecosystems which turn those start-ups into billion dollar companies are just not as developed, or not as successful. I think they tend to get bought by US (or nowadays, Far Eastern) tech companies for maybe $100m.
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

Noobvestor wrote: Thu Aug 05, 2021 8:39 pm
I'm not exactly sure what you're asking, but AngelList is like (stretched analogy) the Facebook of angel/venture investing.
Valuethinker wrote: Fri Aug 06, 2021 8:53 am I was in London not the Valley, and in VC there is "the Valley" and there is everywhere else* (basically nowhere else).

But what you say rings totally true to me, as well.
Thanks for sharing the feedback, I think I understand, perhaps just slightly better, the challenges involved.

What I meant to further clarify on was whether the AngelList Access Fund solves any of the difficulties?
- Because the selection is done by them, so likely would be better than an average person, I imagine?
- You are getting multiple deals (150-200), so maybe higher chance of getting a hit than investing in individual deals?

Image
garlandwhizzer
Posts: 3565
Joined: Fri Aug 06, 2010 3:42 pm

Re: Do you invest in Venture Capital as a small investor?

Post by garlandwhizzer »

The compelling opportunities in venture capital never make it into open ended VC funds available to small investors. Compelling VC opportunities are snapped up quickly by private VC groups like Andreesen Horowitz. Individual investors have essentially zero chance of getting in on the most attractive VC opportunities. Great VC deals get oversubscribed instantly by experienced savvy VC groups that keep their their asset bases small enough to be manageable. They are not interested in selling shares to small investors. What is left over after the VC cream has been carefully removed winds up in funds open to individual investors.

If you have special insight into a specific VC firm, reliable critical knowledge that the market does not have, it may make sense to take a flyer on it with a modest portion of your portfolio. Otherwise most small investors in VC are very likely not to be rewarded adequately for the huge level of risk they take. The risk is very likely to show up, the reward much less so. These investments are illiquid for a long period of years and carry very high risk for that entire time period. There is a real chance of massive loss, approaching 100%. The reward, if it comes at all, is way down the road. My advice as one who has tried VC investing: do not play in this sandbox unless you really know what you're doing because others in this particular sandbox know exactly what they're doing and snap up the very few likely winners, leaving the huge mass of losers for the others to share. Just my 2 cents worth.

Garland Whizzer
User avatar
Noobvestor
Posts: 5944
Joined: Mon Aug 23, 2010 1:09 am

Re: Do you invest in Venture Capital as a small investor?

Post by Noobvestor »

huzaing wrote: Fri Aug 06, 2021 10:00 am
Noobvestor wrote: Thu Aug 05, 2021 8:39 pm
I'm not exactly sure what you're asking, but AngelList is like (stretched analogy) the Facebook of angel/venture investing.
Valuethinker wrote: Fri Aug 06, 2021 8:53 am I was in London not the Valley, and in VC there is "the Valley" and there is everywhere else* (basically nowhere else).

But what you say rings totally true to me, as well.
Thanks for sharing the feedback, I think I understand, perhaps just slightly better, the challenges involved.

What I meant to further clarify on was whether the AngelList Access Fund solves any of the difficulties?
- Because the selection is done by them, so likely would be better than an average person, I imagine?
- You are getting multiple deals (150-200), so maybe higher chance of getting a hit than investing in individual deals?

Image
I think you're trying to apply the logic of indexing public companies to a space that is totally different. It's not like you're getting a little slice of every startup - you're getting slices of ones that can't get funding other ways and fall back on a suboptimal strategy. Basically, the result is a collection of startups that are almost certainly subpar. The only analogy that does apply perhaps is active management, but not the way you think: having managers pick for you is a good way to lose money, not make money. Managers win either way because you pay a fee. Your incentives aren't aligned.

So ... couuld you get a hit amidst the duds? Sure, that's always possible, but the odds are against you in multiple ways. I would avoid this.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

Noobvestor wrote: Fri Aug 06, 2021 12:43 pm Basically, the result is a collection of startups that are almost certainly subpar. The only analogy that does apply perhaps is active management, but not the way you think: having managers pick for you is a good way to lose money, not make money. Managers win either way because you pay a fee. Your incentives aren't aligned.

So ... couuld you get a hit amidst the duds? Sure, that's always possible, but the odds are against you in multiple ways. I would avoid this.
Image

Being new and curious about this, I was reading some more and saw this.

Questions:

1. Do you think that those who participated in this fund got a great deal/returns (due to the two companies)? If so, does it sound like it's worth it to allocate a small portion (like 5%)?
2. Is your main point that even getting companies like those highlighted would not be worth it overall, or is it that finding such companies going forward would be a very very low chance?

Thanks
User avatar
Noobvestor
Posts: 5944
Joined: Mon Aug 23, 2010 1:09 am

Re: Do you invest in Venture Capital as a small investor?

Post by Noobvestor »

huzaing wrote: Fri Aug 06, 2021 1:20 pm
Noobvestor wrote: Fri Aug 06, 2021 12:43 pm Basically, the result is a collection of startups that are almost certainly subpar. The only analogy that does apply perhaps is active management, but not the way you think: having managers pick for you is a good way to lose money, not make money. Managers win either way because you pay a fee. Your incentives aren't aligned.

So ... couuld you get a hit amidst the duds? Sure, that's always possible, but the odds are against you in multiple ways. I would avoid this.
Image

Being new and curious about this, I was reading some more and saw this.

Questions:

1. Do you think that those who participated in this fund got a great deal/returns (due to the two companies)? If so, does it sound like it's worth it to allocate a small portion (like 5%)?
2. Is your main point that even getting companies like those highlighted would not be worth it overall, or is it that finding such companies going forward would be a very very low chance?

Thanks
> 1. Do you think that those who participated in this fund got a great deal/returns (due to the two companies)?

Past tense, maybe, but who cares? You can't time travel backward. And statistically, some people will guess right. Doesn't mean they're skilled. Everyone always gets pumped about the people who called this or timed that, but roll the dice and someone will always get it right by accident. The financial industry is littered with one-hit wonders ... people who make one right call, parlayed that call into a fund, drew in money and lost big.

I also have no idea from that screenshot what they got when, or how much they paid for their stake at what stage - it's (suspiciously?) not on that page. Clearly, they're putting out the info that makes them look good. Note that their winners are listed as a 'select track record' - shoot, I could invest in 300 startups and get lucky on a few (I actually did get lucky on a few, come to think of it), but if I don't share all the ones that crashed and burned, you're just looking at survivorship bias - a carefully curated 'here's where I did well' list while I push all my failures under the rug.

> 2. Is your main point that even getting companies like those highlighted would not be worth it overall, or is it that finding such companies going forward would be a very very low chance?

Again, I don't care about the companies highlighted - of course getting in on Uber early as great for those who did it. That's the past, though. Pick hundreds of people who tried, then delete out the ones who don't brag their losses and someone invariably will remain and look good on paper. I'm not sure in which threads offhand, but Nisiprius (a veteran forum member) regularly posts the speculator failures of once-successful managers. So really, it's both - I wouldn't expect their success to persist, but I also don't know what they paid when to get in. Shoot, I could invest in Uber today, then add it to my list of things I've invested in. Or I could have gotten in at a late stage and higher valuation. Big difference from early seed money.

Something to consider about active managers, like this guy and otherwise: if they're so amazing and find all the best deals, why are they sharing that with you? Why do they need your fees? Why aren't they just leveraging themselves to the hilt and retiring as billionaires? Why aren't they constantly maxed out on investors who have tons of money and can see what geniuses they are, versus having to market themselves to you or me?

I visited that guy's full page and to be frank he looks like a snake oil salesman. 2 and 20 is pretty common for expense ratio and carry, but it's still highway robbery. So you pay 2% no matter what, then 20% of your gains (if/when you have any). Yikes. I Googled the guy and found him saying his interests are aligned with yours, which, OK, the 20% part is, sure, but the 2% part he gets no matter what. If he can get hundreds of millions of dollars invested under his management, he'll be just fine even if all his picks going forward are duds - he can thrive on that ER alone. Sure, he'd like to also get bonuses on the carry side, but that's just gravy - he wins even if you lose. That's not 'aligned interests' in my book.

The whole point of passive investing is (1) you pay less to get the market return, (2) you don't have to worry about someone between you and your money. There's no single point of failure with the market - you just get what it is. As soon as you add a manager between you and the market, they could have a bad day, week, month, year, decade ... the past is riddled with folks who got lucky, parlayed fame into fees and then did terribly. So active management even with low fees, like 0.5% to 1%, statistically does worse than indexing - these expenses are much higher. I have a policy of reducing points of failure - I refuse to let a manager of any kind get between me and my money, because humans make mistakes.

Here's the billion dollar question, though: what's causing the rise of this kind of investing? Is it generous rich people who want to share the wealth? Or is it folks who see an opportunity to make easy money by convincing you they can manage your wealth? We see this same story play out over and over again, from Edward Jones to Cathy Woods - the fees are where they make their money. And some (like Woods) even succeed for a while, but almost invariably their returns come back down to Earth and fees erode your gains. Even Buffett has lost his edge. But I digress. Bottom line: you're hearing from me and a lot of others in this thread that this approach is a bad idea - I strongly suggest listening to what folks are saying on this front. And if you're looking for support for why you *should* go this route, try to find it outside of the sales material from the people who want your money. It should go without saying, but if you want to see if something is a good deal, look (far) beyond their marketing material for what they're selling.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
investorpeter
Posts: 609
Joined: Sun Jul 31, 2016 5:46 pm

Re: Do you invest in Venture Capital as a small investor?

Post by investorpeter »

huzaing wrote: Fri Aug 06, 2021 1:20 pm
Noobvestor wrote: Fri Aug 06, 2021 12:43 pm Basically, the result is a collection of startups that are almost certainly subpar. The only analogy that does apply perhaps is active management, but not the way you think: having managers pick for you is a good way to lose money, not make money. Managers win either way because you pay a fee. Your incentives aren't aligned.

So ... couuld you get a hit amidst the duds? Sure, that's always possible, but the odds are against you in multiple ways. I would avoid this.
Image

Being new and curious about this, I was reading some more and saw this.

Questions:

1. Do you think that those who participated in this fund got a great deal/returns (due to the two companies)? If so, does it sound like it's worth it to allocate a small portion (like 5%)?
2. Is your main point that even getting companies like those highlighted would not be worth it overall, or is it that finding such companies going forward would be a very very low chance?

Thanks
A quick Google search reveals that is Naval Ravikant, co-founder, chairman, and former CEO of AngelList. https://en.wikipedia.org/wiki/Naval_Ravikant Investors in that fund may have done well, but I doubt that fund is representative of what is available.
Starfish
Posts: 2996
Joined: Wed Aug 15, 2018 6:33 pm

Re: Do you invest in Venture Capital as a small investor?

Post by Starfish »

jebmke wrote: Thu Jul 29, 2021 11:00 am I don't invest in anything that isn't liquid. No VC, no PE, no metals, no RE.
Mercury IS liquid.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Do you invest in Venture Capital as a small investor?

Post by Grt2bOutdoors »

backpacker61 wrote: Thu Jul 29, 2021 5:36 pm I have a very (very very very) tiny allocation to a couple Business Development Companies.

https://www.bogleheads.org/wiki/Busines ... nt_company

The largest firm in the space is ARES Capital Corporation (ARCC), another big player is Main Street Capital (MAIN). These are listed public companies, so BDC's are pretty liquid investments.

The annual expenses of these will whiten your teeth if you're accustomed to index funds, but given the oversight and management involvement required, I guess it's to be expected.
That's not venture capital, its making leveraged loans to established companies. "We seek to originate investments in market-leading companies with a history of stable cash flows, proven competitive advantages and experienced management teams". They are also subject to certain SEC requirements including meeting a minimum asset coverage test among other required reporting. Some BDC's are more highly levered or invest in lower tier securities and their definition of "middle market" can be a stretch from true middle market companies. I wouldn't go so far as to say they are pretty liquid investments either, when liquidity driven events happen like March 2020 and/or they actually get into difficulties the value of the shares are affected by at least two variables - the value of the underlying portfolio companies and what is occurring in the general markets. Reading an actual 10-K will be instructional and recommended for any singular investment made in an individual security, that is not exclusive to BDC's as they will specifically spell out the risks and the expense ratio is the least of it.

Venture capital is extending money in return for private placement equity and/or debt to people with "ideas or concepts that have not been proven or generate unstable flows of revenues from concentrated areas and cash flow is usually negative with inexperienced management.

Personally, I stick to small value, but one might consider micro cap investing to be closer to holding more riskier assets. There are a few microcap funds out there available in public realm.

Alternatively, some might consider buying the underlying investment manager's equity - there are several out there - Blackstone, Carlyle, KKR etc.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
huzaing
Posts: 292
Joined: Mon May 03, 2021 2:59 pm

Re: Do you invest in Venture Capital as a small investor?

Post by huzaing »

Noobvestor wrote: Fri Aug 06, 2021 2:34 pm I strongly suggest listening to what folks are saying on this front. And if you're looking for support for why you *should* go this route, try to find it outside of the sales material from the people who want your money. It should go without saying, but if you want to see if something is a good deal, look (far) beyond their marketing material for what they're selling.
Yes, that's sort of what I'm trying to do :)
I really like your feedback and analysis. I've highlighted this part because it stood out as very useful.

Thanks again!

Something I'm curious about and would appreciate comment on:

1. If these people (the one in the photo or those you mentioned) make a lot of money doing what they do, e.g. entrepreneurship, or collecting the 2% fees, etc (and I am sure their net worth is much, much larger than indexers), then why isn't that promoted or recommended?

2. If the answer is that it's actually a losing proposition, then these people are themselves very savvy, intelligent and sophisticated. So why are they not just investing in an index fund and calling it a day? I am sure they know all about indexing and efficient markets and modern portfolio theory, etc.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Do you invest in Venture Capital as a small investor?

Post by Grt2bOutdoors »

huzaing wrote: Sat Aug 07, 2021 2:45 pm
Noobvestor wrote: Fri Aug 06, 2021 2:34 pm I strongly suggest listening to what folks are saying on this front. And if you're looking for support for why you *should* go this route, try to find it outside of the sales material from the people who want your money. It should go without saying, but if you want to see if something is a good deal, look (far) beyond their marketing material for what they're selling.
Yes, that's sort of what I'm trying to do :)
I really like your feedback and analysis. I've highlighted this part because it stood out as very useful.

Thanks again!

Something I'm curious about and would appreciate comment on:

1. If these people (the one in the photo or those you mentioned) make a lot of money doing what they do, e.g. entrepreneurship, or collecting the 2% fees, etc (and I am sure their net worth is much, much larger than indexers), then why isn't that promoted or recommended?

2. If the answer is that it's actually a losing proposition, then these people are themselves very savvy, intelligent and sophisticated. So why are they not just investing in an index fund and calling it a day? I am sure they know all about indexing and efficient markets and modern portfolio theory, etc.
Why does one purchase a lottery ticket in tonight’s Powerball when they know that buying the ticket is a sure loser except for the one or the very few who actually win the jackpot prize? Think greed or perhaps just the thought of being a big winner in some investment you’ve made. Ask yourself the same question? Why are you so willing to part with $10-$50k?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
Yesterdaysnews
Posts: 964
Joined: Sun Sep 14, 2014 1:25 pm
Location: Sugar Land, TX

Re: Do you invest in Venture Capital as a small investor?

Post by Yesterdaysnews »

I listen to the “All in podcast” and these guys are all crazy rich but don’t seem to have any particular special insight. They are connected guys with who got into the tech industry at the right time and have printed money. Lots of luck and connections at play, the rest of us mere mortals are better off in public markets.
Post Reply