1. With access to highly-competitive, pre-IPO opportunities, venture returns have outperformed public market indices over many periods.

The number of public companies in the U.S. peaked in the late 1990s5 and has been on a steady decline ever since. If you exclusively invest in public markets, that might not be good news for you. Many companies now experience their “hyper growth” while still private (i.e. pre-IPO). Slack, Lyft, and Uber, are just a few examples of companies with stellar private market growth and lackluster IPOs.6

Today, it’s not uncommon for companies to go public with valuations ranging from a billion to tens of billions.7 If you wait until the IPO to invest, it can be a challenging way to make money. Venture capital provides access to private, pre-IPO opportunities when valuations are lower, resulting in returns that outpace investing only after companies go public.

2. Combat market volatility by better diversifying your investment portfolio.

You’ve likely given plenty of thought to diversifying your portfolio of publicly traded assets such as stocks and bonds. But have you considered the next level of diversification — diversification into alternative asset classes like venture capital, real estate, and more? Venture is attractive to many investors because it is a longer-term private investment that doesn’t fluctuate with public market volatility like your short-term stock portfolio.

“When I speak to investors and advisers about their reasons for wanting to invest in venture capital, either for themselves or their clients, one of the top reasons is almost always diversification — without question. They have a regular portfolio, diversified by large cap, small cap, stocks, and bonds. But they realize they are missing venture capital.” – Laura Rippy, Managing Partner at Green D Ventures. 

VC returns have historically been strong and only loosely correlated with stock returns.* Cambridge Associates, a global investment firm managing and advising on large institutional portfolios, recommends that institutional investors put up to 15% of their portfolios in early-stage private companies with high-growth potential.9 In fact, Yale has targeted putting over 23% of its endowment into venture capital for 2021.10  You might wonder what you have in common with an institution or endowment, but their investment goals are similar to yours — seek positive returns and risk minimization. 

3. Get a front-row seat to disruptive innovation.

Many investors find venture capital an exciting and informative window into “what’s next.” Investing in venture means investing in game-changers, high-tech innovations, and disruptive business models. Here are just a few examples of venture-based startups from AV’s portfolio that are making an impact:

Healthtech: Kinsa, Tembo Health, and many others are doing great work to tackle problems caused by COVID. Notable Labs and SHINE Medical are improving the effectiveness and efficiency of cancer treatment, while Tempest and Sondermind are revolutionizing the delivery of care for addiction and mental health.

Deep tech innovation: Capella Space is making vital information about our planet more accessible, while others are pushing the boundaries of quantum computing, 5G networking, and next-generation composites.

Proving the power of science: Frore Systems and hosts of others are relying on science to break through boundaries and solve tough technological challenges.

Ag/food tech: Ag innovators like EnkoChem and FarmWise are making contributions to crop protection and sustainability.

4. Align your investment strategy with your values and interests.

Each of us has values, beliefs, passions, areas of personal and professional interest, and investment theses. Venture capital, through targeted thematic funds, makes it easy to invest in areas that align to your values and interests, from impact investing to blockchain to seed-stage investing and more.

Investing in a venture brings much-needed capital to fuel the ideas, creativity, and relentless energy of innovators and entrepreneurs. Venture-backed entrepreneurs are forming companies with the potential to change industries, and your investment can play a role in contributing to their good work. If you’re passionate about science, innovation, impact, or even supporting the startups of your alumni entrepreneurial ecosystem, there is a venture capital fund to align your beliefs, values, and priorities.

5. Reduce risk and improve chances for success versus angel investing or crowdfunding

Investing in startups means you are investing in companies when they are young, privately owned, and have lower valuations. 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. Most startups 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. That is why it is critical to get access to high-quality investment opportunities and lots of them.

Some examples:

Early investors in tech companies like Zoom2 and Snowflake3 saw 6000x and 3000x-9000x return on their initial investments respectively.

AV investment Freshly, a leader in the prepared meals space that launched in 2015, was recently acquired by Nestlé for $950 million, with another $550 million in possible earnouts.4

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. Building a big portfolio on your own, via angel investing is really difficult and time-consuming. Many investors come to Alumni Ventures after dabbling in angel investing and find our smart, simple venture funds much more attractive. They make one investment and let our team of 50+ professional investors build their portfolios of 30 or more private companies.

There is also often a significant difference in the type and quality of investments being backed by professional venture capital firms compared to startups trying to raise money through angel investing groups and equity crowdfunding. That private investment opportunity you heard about from a friend on the golf course is not the same as a high-growth startup backed by Andreessen Horowitz, Sequoia, or Greylock.

If you are ready to add venture capital to your portfolio or are just curious to learn more, sign up to get started.