Why venture capital

Venture capital funds vs direct, early-stage company investments

Most serious investors like you have previously invested in direct opportunities

 
1) Deal flow & coinvestment opportunities
Professional investors dedicate time to building their presence in the ecosystem and multiple avenues for a repeatable and scalable route to deal flow – often seeing over of 1,000 opportunities per year – while individuals rely on their close networks and see limited opportunities. Additionally, venture capital funds often offer coinvestment opportunities their deals, providing individuals access to deals they ordinarily wouldn’t see.

2) Superior network, infrastructure and due diligence
Venture capital funds are purpose built to source, invest in and support the most exciting companies. Top funds pride themselves on their ready made support network and infrastructure giving their portfolio companies the best chance of success, and prior to investment undertake detailed due diligence to make sure they know what’s “under the bonnet”.

3) Active vs Passive
When investing in companies, funds often take a board seat or active role, whilst also negotiating particular consents or rights. Individual direct investors into companies are often price takers with little or no say in the direction of their investment.

4) Portfolio construction and allocation
Top funds understand that not every investment will be a winner. Understand that the majority of their returns will typically come from a handful investments, and portfolio construction is vital to their returns. Typically funds allocate c.40% of capital for initial investments, with 60% held back to increase their investment in the winners in their portfolio. Individuals are often more opportunistic, not thinking about allocations in this structured way, leading to a lower probability of doubling down on the best investments.

5) Ability to exit
When making an investment, VC funds consider thet likely route for an exit, and importantly, how they can help facilitate this process. VC funds may also have particular rights to facilitate an exit, or improved opportunities to exit their position prior to a full exit for the company.