I 28 entrepreneurcountry
nvestor confidence in Venture Capital is at an all time high. The unusually strong Initial Public Offering (IPO) market and its pent up pipeline is due in part over the tremendous success of Venture Capital funded Linkedin’s recent public market debut. LinkedIn shares skyrocketed to a high of $92.99 per share from its opening of $45., establishing a market value of $8.9 Billion, virtually overnight. Other high
valued IPO candidates include Facebook, Twitter, Groupon, Zygna, to name but just a few. The markets have reinvigorated investor confidence in venture backed companies back to the levels of 2004 when the biggest Internet IPO, Google, followed by Salesforce. com, debuted.
This strong IPO pipeline in
conjunction with Microsoft’s acquisition of SKYPE for $8.5 Billion represents a significant liquidity window for Venture Capitalists and their Limited Partner investors.
Though
Venture returns have been relatively meager over the past 5 years, Venture Capitalists have been busy re-focusing their firms while continuing to invest and develop their existing portfolios.
The timing now seems optimal
for realizing liquidity and impressive venture returns.
A global revolution is changing the way serious alternative asset class investors view the venture capital industry. Discarding the old rules, a new, younger era of Venture Capital Fund Managers is re-inventing the venture capital industry. The traditional seed and early stage Venture Capital investing model has changed radically and Institutional Investors are seriously re-assessing the allocation method they once used for this asset class. Many are seizing the benefits of higher returns coupled with lower investment risk by utilizing the breadth and depth of expertise, knowledge and resources that an experienced Fund of Funds (FoFs) firm provides.
Simply stated, a FoFs is a multi-manager investment strategy of holding a portfolio of other investment funds rather than investing directly in private equity, shares, bonds, or other securities.
There are different types of ‘Fund of Funds’, each investing in a different type of collective investment sectors, such as Hedge Fund FoFs, Mutual Fund FoFs, Investment Trust
Invest in Vent
Capita Limited Partner or Fund of Fund
By Igor Sill
FoFs, Real Estate Trust FoFs, and for the purposes intended here, Venture Capital and Private Equity FoFs. Venture capital investments are, by their very nature, a long term higher risk, illiquid asset class. Its historical returns, however, have out- performed other investment types. Via a Limited Partnership (LP) arrangement, an investor is typically committing funds in the $500,000 upwards to $10 million range for 10 plus years. Redemption liquidity via after market (secondary) sales are limited and generally require prior approval by the fund’s General Partner (GP), thus are generally considered illiquid during the fund’s term. This suggests
that venture capital fund
investments are better suited for investors with much longer investment time horizons such as Foundations, Pension funds, Family Investment Offices and Endowments.
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