Popularity of Late Stage, pre-IPO Ventu T
he US venture capital industry is experiencing a euphoric period as Wall Street embraces dozens of new initial public offerings (IPOs) and corporate titans acquire venture-backed technology
companies. As a result, hopeful alternatives investors are now flocking to this asset class. These venture investments continue to deliver positive returns at a better rate than public market indexes such as NASDAQ or S&P. The venture-backed technology sector led on trading volume with 44 companies going public last year as public market valuations more than doubled since 2009.
As pensions, endowments, Family offices, foundations and institutional investors increase their venture allocations, they are also applying closer scrutiny to return performance rates, fund investment periods, fund liquidity strategies and risk/reward components. These investors are realizing greater opportunities to generate excess returns via the best-performing venture funds.
With over 3,500 venture capital funds competing for the most promising start-ups, a focused Fund of Funds approach is an efficient and risk adjusted means to construct a balanced portfolio for investors seeking to participate in this market segment through the very best performing venture funds.
There
Preference for a venture FoFs is based on the premise efficient and risk adjusted means to construct a balan investors seeking to participate in this market segment t best performing venture funds. The rationale behind the is simple; there are only 14 venture funds which h delivered consistent out sized returns.
FoFs represents a means by which an investor can rea high minimum capital commitment ($1M+) through investment with others, thus gaining access and broad select group of funds. In addition, a FoFs typically scru capital general partnerships for accuracy of repo performance and value creation of invested entities, am good FoFs may also provide access to the very best per venture funds.
A venture fund of funds approach can
mitigate risk by investing in late stage venture technology funds. Their premium valuations are typically discounted from their capital markets counterparts where tech companies continue to outperform.
is a great deal less downside in technology when economic growth decelerates in other cyclical sectors and when growth begins, tech tends to lead the charge.
The rationale behind this approach is simple; there are only 14 to 16 venture funds which have historically delivered consistent out sized returns. Makes sense, as the smartest and most capable entrepreneurs will only seek the top tier venture partners before pitching the remaining venture “herd”.
After 2 decades of direct venture investing and more recent 14 years as a LP in many top venture funds, it has become obvious to me that a venture Fund of Funds invested in the very top performing venture capital partnerships historically out-performs the Venture Capital index.
All financial market signals point to a very good year for tech initial public offerings. Ernst & Young’s most recent report predicts that IPO activity in both the financial services and technology sectors increasing, with greater upward momentum occurring in the second half of 2013. Most research firms point to cloud computing, Big Data and mobility companies as the ones to watch. CB Insight’s Tech IPO Pipeline report notes that 80% of tech IPO prospects are geared to businesses versus the consumer segment much as the case in 2012, when 80% of the biggest IPOs were business-focused companies. Some Analysts are now covering some 500 IPO-ready companies, all of which are valued at $100 million or more.
Realistically, single strategy venture funds are notoriously a “hit or miss” gamblers bet despite the exceptional track record of a very few funds.
44 entrepreneurcountry
Institutional investors are rightfully concerned with fiduciary duties by selecting specific venture funds and with proven market segment expertise. Understandin sectors are most likely to outperform, coupled with ide fund managers to exploit those opportunities are a crit of the investor’s decision making process. The goal re the benefits of higher overall returns coupled with lower
The reasons for the impressive growth of FoFs is th diversity among the very best venture fund managers performing funds, reduce risk and hold out the promis higher than the average venture capital return rates.
Essentially, FoFs can offer an investor access to the top best venture capital fund managers not otherwise acce
Though there are certainly “pockets” of venture investme epicenter of premier technology innovation continues Silicon Valley. This is a very unique place with a suppo ready to back entrepreneurs’ requirements for laun successfully. The weather is excellent, the lifestyle is wo scenery exquisite. Stanford University, UC Berkeley, US of Santa Clara provide an abundance of research spin off new patents along with a steady flow of bud entrepreneurially driven graduates. Hence, 80% of ven angel investors operate in Silicon Valley, and, not surp the highest venture returns occur here. I believe there i reason that venture backed Apple, Cisco, Facebook, Ora Linkedin, eBAY,
Salesforce.com, Twitter, Netflix, Zyg etc. are all thriving and located within close proximity venture funds.
This continues to be a period of transformative innovation extraordinary venture investment opportunities and inve
Igor Sill is MD of Geneva Venture Group. He is a Silicon capitalist, Angel investor and founder of Geneva Ventur
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