Making Money With Venture Investing
There is ample evidence that the share of total wealth in America held by the wealthiest Americans continues to grow – one reason for this is access. When someone has net worth in excess of $100 million, the investment opportunities afforded to them include easy access to early stage venture deals, the nation’s top venture capital firms, and high-performing hedge funds. Those with nine-digit net worth or greater are not limited to the usual slate of mutual funds, bonds, ETFs, and other products available to average investors. Wealth buys access.
Investment in American entrepreneurs is the single most effective wealth producer the world has ever known. American entrepreneurs solve the world’s big problems and generate tremendous profits doing so. Want affordable health care? Pick an entrepreneur. Want to improve education? Pick an entrepreneur. Want to create jobs? Pick an entrepreneur. The resilience of our global economy comes from customers eager for better answers, entrepreneurs bold enough to think differently, and investors willing to fund new ventures. Entrepreneurs make America great. Investing in entrepreneurs makes the wealthiest Americans even wealthier. iSelect broadens access to investment opportunities that previously were only open to the super rich.
Smart investors know if they invest in just one venture they will lose – but investing in a diversified portfolio of 20, 30, or more ventures achieves annual compounded returns greater than 20%. Research and fund performance represented by the Kauffman Foundation, Cambridge Associates, and 500 Startups all reach the same conclusion.
Modern portfolio theory teaches us that, by investing in more than one stock, an investor can reap the benefits of diversification – chief among them, a reduction in the riskiness of the portfolio. The same applies to early stage investing: when funding 20 early stage ventures, investors have a 99% chance of at least recouping their investment. At 50 investments, the chances of at least doubling their investment soar to 97%. And at 500, investors have a 96% chance of at least tripling their money.
Kauffman Foundation data clearly shows that success also requires extensive diligence and industry expertise. Further, the assets underpinning the venture must still be fundamentally valuable and the company’s progress monitored diligently. This is where iSelect shines: performing over 120 hours of diligence on each deal, leveraging expert Selection Committees in our investment review, and actively monitoring company progress post-investment.
Silicon Valley cultivates software, IT, media and entertainment ventures . But what about everything else? How can investors tap into the rest of America’s unique innovation engine? After all, not every big company is built in Silicon Valley.
iSelect estimates there is a shortfall of almost $8 billion per year in venture investment in the U.S. It’s not that these ventures are too risky; Kauffman Foundation, et al. show how to minimize this risk through diversification. The shortfall exists because it’s too hard for private individuals, wealth managers, and institutional investors to find, vet, and manage these investments. Until iSelect…
iSelect brings accredited and institutional investment to early stage ventures in Chicago, Cleveland, Denver, Houston, Indianapolis, St. Louis… and many more places. Why? Because that’s where new ventures in other industries exist. At iSelect, we focus on ventures that cure cancer, fight fibrosis, improve agriculture, reduce costs of energy efficiency, streamline telecommunications, increase enterprise security, wrangle with logistics, and create new retail solutions. In all cases these firms are customer focused and led by seasoned entrepreneurs. Want to invest in next generation agriculture companies, it better be in St. Louis. Want to find the smartest energy entrepreneurs? It’s a good idea to look in Houston. In short, we focus on need-to-have, not nice-to-have, opportunities. We invest alongside regional venture capitalists typically led by successful entrepreneurs and always with proven expertise. We diversify investment across companies and industries, because that’s the way to achieve higher risk-adjusted returns. We invest outside Silicon Valley because these locations offer cheaper operating costs, proximity to customers, excellent talent, rational valuations, and strong exit opportunities. Just ask First Round Capital, who found their portfolio companies based outside technology hubs performed better than their coastal peers.
We live in an age with unprecedentedly new and novel ways to access deals. iSelect’s investors know that innovation is not limited to Silicon Valley. Investing in American entrepreneurs provides great returns, and changes the world for the better.