Investing in a series of venture capital funds is one strategy for venture investing.

This is a fund of funds investment strategy.

Venture funds give the Limited Partner access to the best VCs in the industry.

Each of the funds used will also bring a set of management and carry fees with it.

The goal is to model out a portfolio of VC funds that provide the best return.

The LP can expect a return of 20% IRR each year.

Here’s how to invest using fund of funds:

Choose from a variety of seed and growth funds.

Seed funds can have a higher return given the lower cost of entry.

Growth funds can return gains faster since they invest in later stage startups.

Diversify across sector, stage, and geography.

Within the investment thesis diversify across experienced and emerging managers.

Assign a numeric score to each facet of the fund and one for the overall score to rank order the funds.

Make the portfolio selection based on the rank ordering.

Choose funds to fill the gaps in the overall portfolio.

Consider these steps for investing in a fund of funds.

 

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.