Unlike most venture capital funds that invest in startups, a fund of funds invests in other funds that invest in startups.

Instead of investing in multiple funds, an investor can gain diversification by investing in a fund of funds.

As with all good VC funds, there’s limited availability for investors to join.

The standard return on a fund of funds investment is 10X.

There’s competition among the limited partners to get in.

There are challenges with a fund of funds.

To reach diversification, most funds will need substantial resources to fund it.

The management fees can be expensive.

Some funds have mediocre managers and the resulting returns to show it.

As with all venture funds, the money is locked up for six to ten years.

Also, the power law still applies.  

Only a small number of the investments in the fund will pay out to cover the overall expense.

Consider a VC fund of funds for your portfolio.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
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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.