Have you heard of venture capital? You can see firms like Clean Venture Fund investing in startup businesses, with a lot of potential for growth and return of investment. However, just like many types of investments, it is a high-stakes ‘game’ that would involve the risk of loss, but the potential of incredible returns.
This is not for the faint of heart or those with limited funds. If you are looking into becoming a venture capitalist and investing in a venture capital fund, you will need to be in a position to invest a lot of money. Furthermore, you have to risk losing that money.
This may probably leave you asking yourself: Should I invest in a venture capital fund?
Find out if it is a good idea for you and how you can begin!
Should You Invest in a Venture Capital Fund?
Those who invest in venture capital funds are called LPs, or Limited Partners. Usually, LPs are individuals, family offices, or institutional investors with a high net worth.
This is the breakdown of capital that will be invested in venture capital funds:
- Majority would come from institutions, such as pension funds, endowment funds, and the like. Institutional fund managers would invest some capital in venture capital funds to achieve a percentage of return yearly.
- A small percentage will come from individuals with a high net worth, specifically over $1,000,000 in liquid assets.
There will also be GPs, or general partners, who will run the funds of LPs. They are the ones who will make smart investment decisions to maximize the return of investments.
So, should you do it?
Again, venture capital funding is one of the highest risk investments out there, as there is a greater risk of failure in startups. Statistics show that around 70% of startups would fail at one point during the process of attaining venture capital.
Despite the risks, venture capital funding is also profitable. For instance, a venture capitalist can invest around $20,000,000 in a startup business for 20% of the equity in the business. If ever the startup will raise $1 billion in the IPO, then the investor equity stake will be a whopping $200,000,000!
If you are a high-net-worth individual with a few million that you can lose without going bankrupt, you may want to try investing in venture capital. Otherwise, you should build yourself up until you become financially ready for high-risk investments like these.
How to Begin Investing Like a Venture Capitalist
If you plan to invest like venture capitalists, you can do so through crowdfunding. This is a great idea for small-time investors since you won’t need to invest millions into startups!
There are many great platforms to start with so you can test the waters and work your way up, but only if you have enough funds to become a venture capitalist and have done thorough research.
Wrapping It Up
Investing in a venture capital fund is NOT for everyone. However, if you have the finances and would like to invest, there are opportunities where you can invest in startups to begin your journey as a venture capitalist.