How does investing in a venture fund work?'


Don’t do it.

Almost always — do not, as an individual, invest in venture funds.

They are not designed for you.

A “Very Good” (not great, but very good) Venture Fund will:
double your money (i.e., do 2x)
over 10 years (it takes a long time) with
zero liquidity until then (at least, zero material liquidity).
A truly great one will do 4x. Even 3x is quite rare.

Does this sound like a good idea vs. investing in Vanguard VTI? Which is 100% liquid? No. For 99.9% of individuals — it is not.

Now, if you are $5b+ pension fund. Or a sovereign wealth fund, or large endowment. And struggling to earn 6–8% on your portfolio. It turns out 2x, with a shot at 3–4x, can translate back to 20%+ annual returns. And here, liquidity is not as important. You’re managing patient capital. So the trade-offs are OK.

But for most individuals, it’s not worth it. It’s better to do angel investing, where at least a rare Uber can do 100x+. But a venture fund will never do 100x. Ever.

Stay away unless you really know what, and why, you are investing in.

View original question on quora

Published on December 12, 2016
Share This