Venture funds can suit a small part of a large, stable portfolio held across several vintages. For most investors they are an optional extra, not a core holding.
9 min read · Level 4
The institutions with the best venture results tend to have two things individuals do not: access to managers who are closed to new money, and the patience to commit steadily through bad years when everyone else stops. Individuals can copy the second and rarely the first. That is why I think a small, steady, diversified commitment is the only version of venture that makes sense for most private investors, and why declining to invest at all is a respectable answer rather than a missed opportunity.
Venture fund exposure fits only after a portfolio's basics are in place: enough liquid reserves, a diversified core, and no near-term need for the committed money.
Within that, three principles decide how:
Size small enough that a total loss would not change your life Time spread commitments across several vintage years Manager diversify across managers, or use a fund of funds
Vintage diversification matters because returns vary sharply by the year a fund starts investing. Committing 50,000 a year to four funds over four years spreads entry prices and conditions far better than 200,000 into one fund in one year.
Funds of funds and platforms provide manager diversification and lower minimums, but add a second layer of fees. A fund of funds charging 1% a year and 10% carry on top of underlying 2% and 20% can take a large share of whatever the underlying funds produce.
Because venture's usefulness in a portfolio is limited by its illiquidity and concentration. It offers exposure to early-stage growth that public markets may not, but only an investor who can leave money untouched for well over a decade can hold it without the structure hurting them.
It is also where overconfidence costs most. An allocation sized on the hope of a big winner can become the part of a portfolio that makes the rest harder to manage.
This is educational information, not investment, securities or financial advice. Rules differ by country and change — get advice from a qualified professional in your jurisdiction before acting.
Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.
Sources: U.S. SEC - Investor.gov, asset allocation; FINRA - investor information; UK FCA - information for consumers
Two investors, each with 2,000,000 investable and stable income.
Investor A: commits 400,000 (20%) to one fund in a strong year. Investor B: commits 50,000 a year to four different funds over four years, 200,000 in total (10%).
A downturn arrives in year two. Investor A still owes most of the 400,000 in calls and has concentrated all venture exposure in one manager and one vintage. Investor B has three commitments still to make, can adjust future ones, and holds four managers across four entry years.
Neither result is known yet. B's position is simply easier to live with, and much less dependent on a single decision made at one moment.
Sizing a venture allocation on the returns of the best funds. The allocation must be sized on what happens if you get an average or below-average manager, which is the likelier outcome for someone without special access.
Hold liquid reserves, a diversified core and no need for this money for twelve or more years before considering any commitment.
Choose a share of investable assets you would accept losing in full without changing your plans.
Split the allocation into yearly commitments so no single year's conditions dominate.
If using a fund of funds or platform, compute the combined fees and decide whether manager diversification is worth them.
When you already have a robust, liquid, diversified portfolio, qualify under local rules and want a small long-term growth exposure you do not need to manage yourself.
When you are still building reserves or a core portfolio, have unpredictable cash needs, or would be investing mainly because venture feels exciting. For most investors, owning no venture funds at all is a perfectly sound choice.
Fundraising data across the industry show venture commitments rising sharply after strong return periods and falling after downturns. Funds raised in some periods of heavy fundraising have historically underperformed funds raised in leaner years, as more capital competed for the same companies at higher prices, though the pattern is not consistent in every cycle.
A steady commitment schedule decided in advance protects you from investing most when prices are highest.
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