Partner FundsCashmere FundInsights
The world of investing is a vast and dynamic landscape, offering a plethora of opportunities for retail investors to grow their wealth. Venture capital, alternative investments, and the like are increasingly gaining popularity among retail investors. However, diving into this asset class as an individual investor often requires extensive diligence and entails considerable risk. In contrast, public VC funds present a compelling alternative, offering professional management, diversification, and robust due diligence. Public VC funds stand apart from crowdfunding and angel investing.
Retail investors today are not just looking to traditional stocks and bonds for their investment portfolios. They are seeking diversification and exposure to alternative assets like venture capital. Data from Public’s The Retail Investor Report shows that retail investors continue to diversify their portfolios to include new strategies, asset types, and investment vehicles. Before 2022, few options gave investors access to venture capital. Often crowdfunding and angel investing were the only options available to even accredited investors' unprepared to write $250,000 checks to get access to venture funds. And retail investors only had access to crowdfunding. With the introduction of Sweater’s Cashmere fund in 2022, all investors now have access to venture capital and a fully diversified portfolio of investments. While crowdfunding and angel investing remain popular for now, each poses unique challenges.
1. Due Diligence and Risk: Retail investors are often required to conduct their own due diligence when investing in startups through crowdfunding or angel networks. This can be time-consuming and risky. But risk can go beyond just the terms of the deal. Trust and safety are crucial as back-end fraud prevention is not always guaranteed when investing in a deal in a marketplace as Forbes shared recently.
2. Lack of Diversification: Equity crowdfunding operates under RegCF and RegA+ exemptions, which don’t allow you to pool money into a fund. Constructing a diversified portfolio when investing individually in startups or early-stage companies requires years when you are personally sourcing deals, performing due diligence and managing investment strategy.
3. Limited Access: Opportunities are often sourced from a single platform, syndicate, or personal connections, leaving investors with a narrow pool of companies seeking funds to operate.
4. Post-Investment Management: After investing in a startup, retail investors are left to navigate the complexities of managing their investments with little to no professional guidance.
Public VC funds offer a refreshing alternative to these challenges. They provide retail investors with access to a professionally managed portfolio of qualified venture capital investments. Here's why public VC funds are different:
1. Diversification: Public VC funds pool investments from investors and diversify across a selection of companies, spreading risk and increasing the potential for high returns. This allows you to invest in the highest potential companies in the world, rather than being constrained to only companies listed on equity crowdfunding platforms, which are often deals that venture firms have passed on.
2. Full Sourcing: Public VC funds have access to a broad network of venture-qualified opportunities, not limited to a single platform, syndicate, or personal connections.
3. Due Diligence: Professional and rigorous due diligence is conducted on behalf of investors, lessening the potential risks associated with investing in startups to build a fully diversified portfolio of companies. This is beneficial for those who do not have the time or experience to do that due diligence, or for those who do not have access to venture-qualified investment opportunities.
4. Professional Post-Investment Management: Public VC funds take care of the ongoing management of investments, providing retail investors with peace of mind.
Just as there is a growing demand for actively managed exchange-traded funds (ETFs), retail investors are poised to seek out actively managed venture portfolios. Data shows that retail investors are increasingly looking for investment options that offer trusted professional management and diversification.
Monique Le, Head of the iShares Digital Wealth and Retail Investor Business at BlackRock, recently shared “retail investors are strategy seekers more than they are stock-pickers. We continue to be impressed by the evolution of individual investors and the ways in which they are identifying opportunities that meet their long-term investment objectives.”
Retail investors are increasing their focus on due diligence and diversification, and closely vetting sources for trust and credibility according to Public’s The Retail Investor Report. Most retail investors are confident in their strategies and prepared to take on more risk. Sweater’s platform aligns perfectly with this demand, providing a structured, professionally managed approach to venture investing.
In an era where retail investors are eager to expand their horizons beyond traditional assets, venture capital, and alternative investments have gained significant attention. However, the challenges posed by crowdfunding and angel investing can be daunting. Public VC funds emerge as a compelling solution, offering diversification, professional management, and rigorous due diligence. As the demand for actively managed venture portfolios continues to rise, Sweater’s public VC funds are well-positioned to bridge the gap between retail investors and the world of startups and innovation. In the quest for wealth creation, public VC funds offer retail investors a new avenue to explore the exciting and dynamic world of venture capital.
