Venture Capital has long been a bastion of gated access to once-in-a-generation tech entrepreneurs building tomorrow’s market leaders. By design, the insiders running the storied franchises that line Sand Hill Road cornered the market for this cottage investment industry. Those precious handful of limited partners fortunate to be along for the ride were more than happy to pay the price of admission, whatever that price, and with no questions asked.
In the last decade, the balance of power has noticeably shifted. As it got cheaper to start and scale a startup, a new class of angel and seed-stage investors have asserted their position in the ecosystem as first-check writers. With private companies staying private longer (8.2 years for an IPO according to VentureBeat), a veritable fleet of Brinks trucks have backed into venture capital, with hedge funds, mutual funds, insurance companies and other investors with a lot and lots of money jumping into the VC fray trying to secure a toe-hold position before companies went public.
The storied VC franchises of yesteryear are being squeezed from both sides -- no longer the preferred investor at the earliest stages and investing out of too modest a fund size to compete with the late-stage capital. Welcome to venture capital today, a bona fide asset class where unique risk-return-liquidity profiles have emerged across the full life cycle of investing from early to growth to late stage.
Thus, it begs the question why hasn’t there been more innovation with respect to how investors, institutional allocators and advisors access venture capital? To some extent there has, but it has been confined to the retail channels, which have embraced the democratization models pioneered by crowdfunding, angel networks and other investment platforms that allow for more of a self-service, syndication approach. However, there has been little effort directed towards developing sophisticated and institutional-grade tools that can be fully utilized by a professional investor or institutional allocator.
What if I told you right now that your investment options in venture capital generally comprise:
- Established fund managers that are earning tens of millions of dollars off management fees regardless of how their funds perform.
- A plethora of investment firms and consultants that serve purely as access gateways to name-brand and oversubscribed funds, offering little in the way of transparency into underlying positions and opportunities to build direct relationships. Oh, and many of these structures they proffer come with two layers of fees for this "access" and have a steep J-curve to boot.
- Trying to find a secondary opportunity________ (pick any hugely popular name like SpaceX, ByteDance, Stripe, etc.) and paying off the 45 or so middlemen all taking their cut of fees...from you, the buyer!
- A do-it-yourself approach that requires piecing together an investment memo from a 20 page deck and a vividly-spun narrative around “game-changing” technology. And if you are investing in funds, your email inbox is likely exploding with another new fund coming to market looking to pitch you with the same boilerplate messaging.
- Entrusting your capital -- should you attempt to outsource -- to a community run by a very homogenous group of insiders where diversity and inclusiveness are paraded around in trendy sound bites and social media posts but...that’s basically it.
Not a pretty picture. But the picture we paint is the general and current state of venture capital.
SO what next?
“Complaining about a problem without posing a solution is called whining.”- Teddy Roosevelt
Instead of whining, we started Revere to be the solution: to identify these rooted pain points and begin the conversation on what ideas would solve these problems. The first step was to re-define, re-educate and re-program what the word “access” means. We threw out the old definition: trying to get something that you can’t have, and started a dialogue around understanding something that is inherently hard to understand. In doing so, we found an audience of investors from around the world -- of all shapes, sizes and backgrounds -- who were willing to listen, and this is the message we delivered:
Productization. This is the natural next stage of evolution from the current stage of democratization. We know this to be the tail end of this current stage because venture has become mainstream and the price of admission has come down across the board, so much so that anyone can invest in a great startup idea on a variety of open-access platform. Soon, with the overabundance of choice, investors will start to optimize for convenience and credibility, as long as they trust the brand behind which they are investing.
Revere aspires to be that trusted brand by empowering investors with the ability to build custom venture portfolios with the comfort of knowing that there is a robust platform ready to service those decisions, managed by a team of experienced asset managers. It should go without saying that in building economies of scale through productization, expenses and fees will come down while transparency to what is actually in one’s portfolio will go up.
In summary, it is not too much of a stretch to imagine a world where venture capital is bought like other asset classes. Investment products should incorporate index and ETF-like methodologies to give investors thematic, sector and geographical exposure. Essentially it is a “choose your own adventure” of whatever flavor of venture capital investments that an investor cares about, allowing them to express a holistic view towards innovation investing. In addition to already building the world’s first fund product that adopts an automated, index approach to early growth venture capital, Revere also believes in the customized, thematic basket approach, which we are currently building with several strategic partners around the world.
Curation. To get from Point A (today) to Point B (full fledged productization), we need to take baby steps. The first, most critical step is to develop a process through which to find the signal from the noise. With so many new fund managers coming to market, all specialized and differentiated in their own right, we must emphasize curation. Because it is anyone’s guess as to which fund managers will truly be great, we must start with narrowing the pool of investible opportunities. We have already built the infrastructure to do this through the Revere Portal, which serves as a “marketplace” for discovering curated funds and direct deals. In a few short months, Revere has on-boarded over 500 high-net worth and institutional investors, while showcasing some of the most incredible emerging managers and proprietary direct investments.
Through curation, we allow investors to focus on the portfolio construction framework that drives risk-adjusted, while retaining the element of choice and customization.
Community. If you go to our website, you will see prominently in our heading that we are a purpose-driven asset management firm. Over the next decade, there is no greater opportunity for driving impact in this asset class than influencing and driving capital to VCs that bring unique perspectives, diverse backgrounds, and value-add to how they invest and work with startups. This includes diverse and underrepresented fund managers and founders, along with supporting startup ecosystems outside of Silicon Valley and outside of the United States. The Revere community also includes those individual investors, institutional allocators and advisors that have historically been shut out of VC for a number of reasons, both structural and financial. These communities are what fuel the Revere way.
Call to Action
Venture capital is the final frontier for untapped investment returns within alternative assets. For too long the wealth creation has been controlled and concentrated in the hands of a few. Simply opening up access for all (democratization) is a good start, but it is just a prelude to something bigger. We need a new breed of asset management firms that can productize the asset class: ones that can develop and deliver innovative venture capital investment products that offer customization, open new funding mechanisms, and promote avenues for liquidity. Only then will investors, institutional allocators and advisors have the right tools to confidently include venture capital as part of their long-term asset allocation strategy.