Why should someone invest in the venture asset class? VC investments are risky and have a much longer return horizon than other types of investments. Historically, activity in the VC industry has been concentrated in a few core cities – namely, San Francisco, New York, and Boston – or in siloed networks that tend to be relationship driven. Unsurprisingly, it’s an environment that lacks transparency and diversity. Thankfully, the industry is slowly becoming more diverse, accessible, and geographically agnostic. My family office invests in VC and I believe everyone who has the means should do so. Here are four reasons why, in the history of the asset class, this is one of the greatest times to invest in VC.
In today’s world, everyone has on-demand access to unlimited information and education. Institutions and private networks can no longer gatekeep information as easily. The internet has allowed self-taught entrepreneurs and technologists to emerge from places and backgrounds that do not conform to the mold of a traditional startup. The universal adoption of smartphones has amplified this state of the world. Children and adults alike now carry a supercomputer in their pocket wherever they go. Younger generations are more familiar with swiping a phone screen than flipping a page. They will likely use digital currency instead of cash for almost all transactions. High-growth companies and the technology they create will continue to change the way people live and work for the foreseeable future.
The number of startups and funding rounds has been growing steadily over the last decade. More and more of these companies are becoming unicorns (value > $1B) and decacorns (value > $10B). According to a CB Insights report at the end of March 2021, there were 613 unicorns and 32 decacorns in the private markets. This is a massive increase from 2015, when there were only 76 unicorns in the private markets. When companies grow large and reach unicorn and decacorn status, they yield massive financial returns for investors. A $25K angel investment into the Uber seed round grew to $120M+ in value at the IPO. A $300K investment in the Coinbase seed round is now valued at $680M after their recent IPO. Modern tech giants, formerly startups themselves, are keenly aware of the potential that today’s startups possess to grow and disrupt incumbents. Category-defining companies such as Zoom, Stripe, Slack, Salesforce, and Workday all have corporate venture teams.
The Covid-19 pandemic and corresponding economic recession have altered human behavior and created new opportunities for startups to provide solutions in heavily disrupted industries such as fitness, travel, hospitality, corporate office, and remote work. Additionally, geography is becoming less relevant for investors and founders alike. There has been an exodus of founders and VCs from the traditional, densely populated tech hubs. These individuals who moved will have a huge impact on the budding venture ecosystems that they’re flocking to.
Venture capital investing can be simultaneously profitable and purpose driven for all parties involved. VC funding empowers founders to fulfill their vision to deliver solutions to customers at scale. These VC-backed companies create modern jobs that can transform a community. A VC investor can discover new technology solutions to enhance any existing businesses they are involved with. VC investing can provide an alternative path for the next generation of a family office outside of their family business. VC investing can create generational wealth for your family. These are just some of the ways that being active in VC can make an impact beyond financial returns.
We’re living through one of the greatest times to invest in venture deals. The number of deals and amount of capital being invested in VC are at historic levels. Many non-traditional venture investors –family offices, high-net-worth individuals, solo capitalists, athletes, celebrities, and online influencers – are getting in the game. Investors, especially family offices who have the means should no longer be asking the question “why VC or why should we invest in that asset class?”. Instead, they should be asking themselves, “how much are we allocating?”.