MANCHESTER, NH / ACCESSWIRE / January 17, 2023 / Venture capital (VC) can be a dynamic and lucrative asset class, which is why it has long been popular among financial institutions and the ultra-wealthy. As of 2022, Alumni Ventures, one of the most active venture capital firms in the world (Pitchbook), has raised over $1 billion from accredited individual investors to invest in more than 1,000 companies since its inception just eight years ago. This rapid growth and success can be attributed to Alumni Venture’s innovative approach to venture capital, which involves creating, developing, and tapping into large, well-connected networks. In fact, Alumni Ventures has sustained a 219% growth over the past three years, earning a spot on the 2022 Inc. Magazine Fastest Growing Companies in America. Alumni Ventures now serves a growing network of 8,000+ investors and 600,000+ community members and subscribers.
Venture capital is an attractive option for investors seeking long-term growth potential and positive performance, and it also provides access to early-stage companies with the possibility of high returns. As demonstrated by the most recent Cambridge Associates US Venture Capital Index, venture capital has shown an annual return of 32.4% over the past 25 years after accounting for all fees and expenses.
Below, Alumni Ventures discusses five reasons to consider venture capital investing.
1. Access potential gains.
The number of public-company listings in the United States peaked in the mid-1990s at nearly 6,000, but that number has fallen by about half over the past 20 years, which may not be good news for investors who only invest in public markets. Many companies now experience their most rapid growth while they are still operating as a private company before they go public with an initial public offering (IPO). Some examples of companies that have experienced strong private market growth, but underwhelming IPOs, include Slack, Lyft, and Uber. Today, it is not uncommon for companies to go public with valuations in the billions or even tens of billions of dollars. If an investor waits until the IPO to invest, it can be difficult to generate significant returns, notes Alumni Ventures. Venture capital allows investors to access private, pre-IPO opportunities when valuations are lower, potentially leading to higher returns.
2. Combat market volatility through portfolio diversification.
An investor may want to consider diversifying their portfolio by including alternative asset classes such as venture capital and real estate to leverage long-term, private investment opportunities that are less prone to market volatility. Historically, venture capital investments have had strong returns and have only had a weak correlation with stock returns. Cambridge Associates, a global investment firm that manages and advises on large institutional portfolios, advises that institutional investors allocate up to 15% of their portfolios to early-stage private companies with high growth potential. In fact, in 2022, U.S. venture capital firms raised a record $150.9 billion from their investors by the end of September 2022.
3. Get a front-row seat to the innovation economy.
Many investors find venture capital to be a thrilling and educational way to gain insight into emerging trends and technologies. By investing in venture capital, investors can fund and support game-changing startups and innovations that have the potential to disrupt entire industries. Luke Antal, Co-Founder of Alumni Ventures, notes the below companies are making an impact:
- Making leaps in technology: Capella Space is revolutionizing access to key Earth data with advanced satellite technology, while other companies explore the frontiers of quantum computing, 5G networking, and cutting-edge composite materials.
- Delivering treatment: Notable Labs and SHINE Medical are enhancing cancer treatment outcomes and efficiency, while others are transforming the delivery of care for addiction
and mental health.
4. Align investment strategies with values and interests.
Venture capital offers the opportunity for investors to align their values, beliefs, and passions with their investments through the use of thematic funds. These funds allow investors to focus on specific areas of interest, such as impact, AI, or seed-stage investing. This can make it easier for investors to invest in areas that align with their personal and professional interests and investment theses.
Venture capital investments also provide much-needed funding for entrepreneurs and innovators to pursue their creative ideas and projects. By supporting these ventures, the investor can play a role in helping entrepreneurs who are working on companies that have the potential to innovate. Venture capital funds are also available that focus on additional areas of interest, such as science, innovation, impact, or alumni startups, allowing investors to align their investments with their values and priorities. As Alumni Ventures CEO Mike Collins said, “The world today is really driven by the entrepreneurial economy. It has great power to do good.”
5. Reduce risk and improve chances for positive returns.
Investing in startups means that the investor is supporting companies that are young, privately owned, and often have lower valuations. If the company is successful in growing its customer base, increasing revenue, and potentially going public or being acquired, the value of the investment may increase significantly over time. It is worth noting that while most startups will not achieve significant success, a few “big winners” can generate the majority of returns for an entire portfolio. Therefore, it is important for the investor to have access to a diverse range of high-quality investment opportunities.
Some tech companies have generated extremely high returns for their early investors. For example, Zoom and Snowflake both saw returns of 6000x and 3000x-9000x, respectively, on the initial investments. While these types of extreme returns are outliers, having a portfolio of investments increases the opportunities for holding a portfolio company with a sizable return.
Venture capital can be a compelling addition to an accredited investor’s portfolio due to its potential for high returns and its ability to provide access to emerging companies that may not be available through traditional public markets. By gaining exposure to the best venture capital funds and top venture capital-backed companies, investors may be able to achieve top-quartile returns as well as contribute to the ideas, creativity, and forward-leaning energy of today’s innovators and entrepreneurs.
About Alumni Ventures
Alumni Ventures offers accredited individuals access to network-powered venture capital – a key asset class missing from the portfolios of many sophisticated investors.
SOURCE: Alumni Ventures