Guest post: Breaking down the barriers between private investors and VC funds

Venture capital (VC) has long been recognised as an elite asset class – and for good reason. Many private investors, who had to watch from a distance as venture capital outperformed most other asset classes over the past two decades, are now able to access best-in-class venture capital funds for the first time – writes Jonny Blausten

 
Top performing venture capital funds have demonstrated returns in excess of 35% annualised for over 10 years now. Yet well-established barriers remain between private investors and VC, not least because these funds are primarily accessed by a select group looking to invest significant amounts of capital, as determined by the funds, often in excess of £1m+.

The reality is that this threshold exists more for practical reasons than regulatory reasons. To be eligible to invest in VC funds, investors must qualify as Professional Investors, High Net Worth Individuals (e.g. earning over over a certain threshold – usually £100k, or have assets outside their primary residence above £250k), or Sophisticated Investors (e.g. working in finance and be actively investing in some capacity). A large pool of serious, motivated and eligible investors meet these criteria, but are not able to invest an amount that top VC funds consider substantial enough, and therefore remain excluded.

However, the market is changing. Other asset classes have faltered, most notably public markets, and inflation and the cost-of-living crisis is likely to encourage private investors to reconsider their options. Individuals may look to better diversify their portfolios or seek investment opportunities with potential for outsized returns – which VC can offer.

So, how do private investors access top-tier Venture Capital funds? And what do both sides stand to gain if these barriers are broken down?
 

Limited, overlapping existing options for private investors

 
Historically, private investors have been limited to traditional channels such as pensions and ISAs, most of which are ultimately linked to the stock market. Consequently, many are overweight on public equities, often more than they realise, and wish to diversify their portfolio. However, alternatives remain scarce.

More ambitious investors are seeking out the high risk, high reward outcomes from experimental assets such as cryptocurrency, property, or even wine. But these are unproven, volatile and often gimmicky. Investors must ask where these belong in a sophisticated portfolio, if at all.

New asset classes are not needed; investors deserve fair access to previously unreachable, existing asset classes.
 

VC as an elite asset class

 
Venture Capital is one of the highest performing asset classes, and one to which many of the most sophisticated investors, including large family offices, allocate a significant portion of their capital. There are plenty of benefits for choosing VC funds, most notably the returns profile and access to exclusive co-investment opportunities.

VC funds provide a lens into the developments and the companies that are shaping the world of tomorrow. They identify the next Uber, Facebook or AirBnB, and the benefit that comes from investing early in these industry-defining businesses.
 

Breaking down barriers

 
It’s important to reiterate that there is no regulatory barrier preventing an individual classed as a Professional or Sophisticated Investor, or a High Net Worth, from accessing VC funds. The gap between the two sides is often due to capital limitations, or a lack of awareness and understanding.

Venture Capital is not for everyone. But those who are eligible and who want to invest should have the access they deserve.

There’s a sizeable opportunity for portfolio diversification that comes with investing in non-traditional channels.

VC is not a new phenomenon; it’s just been inaccessible for so long that it isn’t front of mind for private investors. Platforms like Sprout level the playing field, unlocking the asset class for eligible private investors. The opportunities that await investors are reason enough for the market to drive change and alter the face of Venture Capital.
 
Jonny Blausten, Founder and CEO at Sprout >