« Am I In Trouble If I Don’t Raise Money From Kleiner? | Is Dilution Considered When Talking About Equity Ranges? »

How Can I Invest In A Venture Capital Firm?

Q: Your site talks a lot about VCs investing into companies but I can’t find any information online (even on the VCs websites) about how VCs solicit investors to their funds.

I want to invest with a VC but I don’t know what is the minimum VCs accept. Who in the firm should I contact to invest? What kind of terms should I expect? What kind of returns does an investor normally expect? How soon would I get my money back with the profit? Would I be in a position to make demands and say "I want a fourth of my investments to go to XYZ company that is looking for VC funding"? etc.

A:  (Jason) Most venture firms do not take individuals as investors unless they have a pre-existing relationship with them.  Most VC investors are institutions, endowments, pension funds and other corporate entities that professionally and regularly invest in VC funds  As an individual, your best way of investing is either through high net worth family office organizations or through your financial broker, if they participate in these types of offerings.  Because of this, and because of securities laws that I won’t bore you with, you’ll never find information on VC websites on how to invest. 

As for your ability to control terms or designate investment particulars, this probably won’t happen.  The large institutions that invest in funds drive terms, not individuals, so if you do decide to invest, you’ll piggyback off the terms the VC fund and it’s largest investors negotiate. 

July 30th, 2008 by     Categories: Fundraising, Venture Capital    
  • http://www.onlineaspect.com Josh Fraser

    Sounds like you should get into angel investing. That way you can choose 100% of where your money goes.

    • Jim K.

      Angel investing might be the way to go – but not in terms of anything under $25K. If you know some of the VC's/Angels/Bankers/Attorneys/CPAs – then it might help to let them know your interest in investing equity into deals. Early Stage/Angel investing isn't for the faint of heart, must be willing to lose the investment pretty quick or be asked to invest in your pro-rata amount as needed.

  • http://richard-wilson.blogspot.com Richard Wilson

    Looks like you have a very well developed site here on Venture Capital. I blog only on hedge funds with 500 articles and 2,000 subscribers to my blog. Do you think it would make sense to link our blogs up?

  • Tony Huang

    Minimum investment amount depends on the total fund size. For the larger funds, I'd say its almost impossible for individuals to get in unless there is a prior relationship. For example, if you are a successful entrepreneur and the VC that backed you before is raising a new fund, they might invite you to participate in a smaller, dedicated side fund that will co-invest with the main funds. Usually the minimum for individuals is $500K to $1MM though I've seen $250K levels for smaller funds. There are plenty of angel and early stage funds that are open to taking individual money at even $100K level. For regulatory reason, VCs will never openly solicit individual investors who may not be “qualified” or “accredited” investors.

  • Tony Huang

    As a small investor, you will not be able to dictate any terms and conditions though 2 to 2.5% annual management fee and 20% carried interest is fairly standard in the industry. The General Partners will always have complete and sole discretion on the fund's investment activities. Investors, or Limited Partners, do not have any say in how the GPs invest the money. Your best bet is to invest through a professionally managed fund of funds that aggregates money from private and institutional sources, then invest the money into venture funds that pass the due diligence. You'll pay about 1% annual management fee and 5% carried interest to the fund of fund managers, on top of what the fund of fund will be charged by the GP of the funds it invests in, so you'll be double charged.

  • Tony Huang

    There are also new outfits like Advanced Equities that allow individuals to select, and invest in venture deals directly.

    http://www.advancedequities.com/

  • http://www.iinvestcapital.com Aaron

    One option to invest directly into venture capital deals is by working with an affiliate of the venture capital company who allows individuals to invest in the companies that they are raising money for. You need to be an accredited investor though and meet the minimum requirements. See http://www.asmglobalventures.com for details on how you can get involved even if you do not have millions to invest by filling out the enquiry form on the 'contact us' link. This site will give you information on if you qualify and then you can get involved in a smaller way along side other like minded investors.