#REAL ESTATE VENTURE CAPITAL FIRMS SERIES#

#REAL ESTATE VENTURE CAPITAL FIRMS SERIES#

VCs make these investments through a venture fund (a pool of capital raised from a group of investors to make a series of investments into privately-held companies) or special purpose vehicle (a pool of capital raised from a group of investors to invest in a single company). With an equity investment, an investor receives a certain amount of shares in the company at an agreed upon per-share price in exchange for capital. A debt investment is a loan to the company that converts to equity upon a predetermined event, such as a priced financing round or acquisition. Venture investments usually get structured as debt or equity investments. To invest in privately-held companies, you generally have to be an accredited investor, which means you meet certain annual income, net worth, or licensure requirements. As the Uber example demonstrates, it also carries the biggest rewards. Venture is among the riskiest of any major asset class-since a significant portion of these investments produce no returns at all.

Venture capitalists (VCs) invest in private companies in the hopes of seeing sizable returns down the road if the company is acquired or goes public. In this guide, we’ll provide an overview of venture, publicly traded stocks, and real estate so you can understand the key similarities and differences between these asset classes. Before investing, it’s essential to consider all your options. Venture investors must be comfortable waiting years to see a return-if any at all-and navigate a different regulatory environment. Venture investment operates on long time horizons and requires a different approach than other asset classes. Still, venture investing isn’t for everyone. Anyone who invested in these companies pre-IPO almost certainly saw outsized returns assuming they held onto their shares. The top five companies by market cap in the S&P 500-the so-called “Big Five”-all started as venture-backed startups: Facebook, Amazon, Apple, Microsoft, and Google. The reason is that venture investing follows a power law curve, meaning a small percentage of deals account for a large percentage of returns. A recent AngelList analysis of more than 2.6k deals from 2013 to 2019 found that about 2.5% of companies reached a $1B valuation.Īt the same time, it takes only a couple of those big winners (e.g., Uber) for VCs to generate significant returns-so the bigger the risk, the bigger the reward. While more unicorns are being produced now than ever before, they are still incredibly rare. A Harvard University study of 2k venture-funded startups from 2004 to 2010 made a similar conclusion, finding that 75% of deals failed to produce any returns at all to investors. The vast majority-nearly 7 out of 10-ended up dead or self-sustaining (which doesn’t typically produce big returns for venture capitalists).

Stratospheric returns like that-though exceptionally rare-are usually possible only in venture investing.Īccording to one study, just 1% of seed-stage startups funded from 2008 to 2010 (the year Uber was funded) went on to become $1B companies. Uber offers a simplified and extreme example of the difference between investing in venture capital and other asset classes like publicly traded securities. Your $5k investment grew to $20M-a 4,000x return. Well done!Īnd your UberCab investment? That company went public in 2019 as “Uber” and is now trading above $40 per share. Your $5k investment grew to $56k-an 11x return. Your $5k bought you well over 500k shares.įast-forward a decade, and Microsoft’s stock is now trading above $280 per share (at the time of writing). You invested the other half in an early stage startup called UberCab, which was valued at $5.5M at the time. You invested half in Microsoft, a public company trading at about $25 per share. Suppose you had $10k to invest in late 2010. Alternatively, some VCs will invest in only a handful of deals-or even a single deal-if they have conviction that it’s a winning investment.

For this reason, they often aim to have a highly diversified portfolio of venture investments to increase their odds of making a winning investment.

Due to the high-risk/high-reward nature of venture, many VCs invest with the understanding that a majority of their investments will fail.

The return potential for venture is among the highest of all asset classes.

Venture is a high-risk/high-reward asset class with returns uncorrelated to returns from other asset classes.

Real estate venture capital firms