We Made It So You Can Be a Venture Capitalist Even if You Don’t Have a Billion Dollars

Raise your hand if you’ve ever thought, if only I’d gotten in on the ground floor of Airbnb, Instagram, or any of the scads of breakthrough tech startups. Now lower your hand and give yourself a break, because even if you’d had a pile of cash to invest, you still probably wouldn’t have had any way to get in before those companies went public.

Why is that? Because putting money into venture funds is almost exclusively available to institutional investors, or industry insiders with the right connections and a lot of cash to plunk down. Until now! Wealthsimple is proud to introduce you to our newest financial superfriend: the Wealthsimple Venture Fund I.

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With the Venture Fund I, you — a perfectly nice non-billionaire — can finally invest in startups before their IPOs (maybe even before Ashton Kutcher knows about them), as well as some fancy private equity funds. And it’s managed by a company with a track record of exceptional returns. No one has been more instrumental in creating this fund than our Chief Investment Officer, Ben Reeves. Now that it’s finally ready, he’s excited to talk about it. Which is good, because that’s why we’re here.

Andrew Goldman: Okay, so you’re excited about this and Wealthsimple is excited about this. Why do you think other people will be?

Ben Reeves: Private investments, meaning investments that aren’t available through public stock and bond markets, have long been part of many successful investors’ – well, successful wealthy investors’ – portfolios. Things like real estate, venture capital and private equity can help diversify a typical equity portfolio and provide attractive returns, but they often aren’t available to those who don’t have millions to invest. Our whole reason for existing is to make the tools of wealth broadly accessible, and so just as we’ve made sophisticated public market investing available through our Wealthsimple Invest portfolios, it made sense to do that with really high-quality private investment opportunities too.

You had me at “attractive returns.” Tell me more.

Over the past 25 years, an index of private equity and venture capital has returned 15% per year, net of fees, delivering returns 5% above the S&P 500. And while that may sound good to you, that’s just average performance. The fund manager we’re working with, Accolade Partners, has consistently earned top-quartile returns. Since 2005, Accolade funds have outperformed the S&P by between 7.5% and 21%, net of fees.

Sounds like they’re pretty good at their jobs.

They are. And not just in finding venture capital opportunities. Accolade fund managers are also excellent at identifying growth equity investments, which is another piece of the Venture Fund I. Growth equity involves investing in bootstrapped, founder-led companies that need capital to scale or to make operational improvements, often with hands-on managers with experience helping these kinds of businesses grow. It’s lower risk and investments typically pay out sooner than venture capital, which makes them an excellent way to diversify our fund.

I’m sold. Can I sign up now?

That depends. This fund is best for clients who are able to have their money tied up for about 10 years.

Ten years? That’s a long time to wait to get my dough back.

This kind of investment takes patience. Venture Fund I is what’s called a “fund of funds.” That means Accolade chooses funds managed by VC and private equity firms like Andreessen Horowitz, Accel Partners, and Kleiner Perkins, and those funds are invested in a bunch of different companies. The first three years are mostly spent transferring your money to the various funds as managers need it. Distributions — when your money starts coming back to you — start in the fourth year, as managers sell the companies they’ve invested in. That process continues, with you receiving more and more of your capital back (plus, ideally, more) until the end of the life of the fund, which is typically about 10 years, or how long it usually takes for the companies the funds invest in to be acquired or IPO.

That sounds like a lot of different people taking a cut of my profit.

There are fees, of course, but we think they’re very fair. Accolade won’t get paid a cent until you get at least a 50% total return. After that, they take what’s called a “carry” of 10% of your returns until you’ve recouped two and a half times your money. Then they take 15% of any profit beyond that.

That’s…complicated.

It is a little complicated, but a good baseline thing to know is that you pay more when you earn more. The exact amount you pay in fees will depend on the size of your investment and your total returns, which our advisors can walk clients through individually when they’re assessing whether the fund is a good fit for them. Also keep in mind that all those performance numbers we talked about are net of fees, so investors historically have done quite well on these funds after paying all the fees.

With potential returns like this, I imagine some cowboy types may want to go all-in on this. Do you recommend doing that?

Absolutely not. For a long-term investor who has a high risk tolerance and long timeline, your investment in the Venture Fund should be at minimum about $5,000 and max out at about 10% of your entire portfolio. That way, if performance is a total disaster — which we don’t expect — your portfolio will still be okay. But if it does do well — and, while we don’t quite expect recent returns to persist, given the current market, having top-quality managers like Accolade gives us plenty of reason for optimism — 10% is enough to have a meaningful impact on your overall holdings.

OK I’m in. What do I do?

You can add your name to the waitlist here. You’ll be sent a questionnaire to complete, and if it looks like the fund is a good fit for your financial plan, a Wealthsimple advisor will get in touch.

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