Welcome to our Venture Capital Resources Guide for Investors page! At Florida Funders, we believe in sharing our knowledge and expertise with our investors to help them make informed decisions. On this page, you will find a variety of resources to help you better understand venture capital, including definitions of key terms, links to helpful websites and influential figures in the industry, and information on due diligence.

To kick it off and set the stage, some investors might ask…

Why should I invest in venture capital?

Venture Capital as an asset class is one of the best-performing assets if you invest the right way. Let's take a step back and first ask, why do you need to invest in multiple asset classes? Investing is all about diversification. If one sector of your portfolio is hurting, like your real estate assets, you want to ensure that some of your other assets perform well and vice versa. When looking at your total asset allocation strategy, most experts would tell you that Private equity should be a substantial portion of your portfolio. When we talk about Private equity, we are talking about private investments invested in private companies, typically to help with growth. Venture Capital is a type of private equity, so your venture capital allocation should be a piece of your total private equity allocation.

Venture Capital is a great way to invest in early-stage companies that have the opportunity to provide outsized returns compared to traditional assets like the stock market or fixed-income assets. Venture capital investments typically follow a particular pattern and have specific characteristics that are unique to these investments. Some of these characteristics are:

  1. These are long-term illiquid investments.

    1. Most venture capital funds have a time horizon of 7-10 years, and most companies in a venture capital portfolio have a time horizon of 4-7 years for a liquidity event. These investments typically cannot be sold or traded until a liquidation event, such as an IPO, strategic buyout, or a financial buyout, where a later-stage investment firm comes in and buys out the initial investors. If you, as an investor, can afford the illiquidity, meaning you do not have an immediate need for the money invested, your risk of capital will typically be rewarded with outsized returns.
    2. The way that venture capital should work follows what we call a J curve model, which means that for the first five years of a 10-year fund, your money is being called and invested. Most venture funds follow a capital call structure where you, as an investor, commit a certain amount of capital, and that capital commitment is drawn down in chunks during the investment period. Then typically, during the second half of the fund, the fund begins to harvest returns through sales of portfolio companies. At year 5, a fund typically starts to return capital. By year 7, you should be close to being made whole on your investment, and years 7-10 are when your investment gains occur. It's common for venture funds like Florida Funders to have later-stage buyout funds step into any remaining portfolio companies that may still not have sold after ten years. These are typically done to close the fund and provide maximum returns to the limited partners within the targeted timeline.
  2. These are risky investments because of the term and illiquidity. However, the risk and illiquidity provide the opportunity to create significant returns above and beyond the stock market.

    1. When we, as Florida Funders, are looking at our total portfolio, we have a return model that follows a strategy where as many as a third of our investments will fail to return even the initial capital we invested, and some sell for less than we invested at. Another third of our portfolio companies will return 1-3 times the invested capital. The final third will return more than 5x+ our total investment, with some being as much as 10-50 times. It's common in early-stage tech investing, where a given fund has 30-50 investments for one company to be sold at a multiple that returns the entire fund. Venture capital investing works best when you build a portfolio of these companies or invest in a Fund to diversify your risk and put yourself in the best position to be successful.
    2. The risk is worth the reward. The top quartile of best-performing venture capital funds will return 2.5 to 4 times your invested capital, this equates to a 15-35% annualized return on your money. In some cases, the annualized return can be even higher, as it depends entirely on the time your money has been invested. We have had some companies return 10x or more in three years, so it's hard to predict annualized return or IRR, but much easier to predict 2.5 to 4 times your invested capital. As a reference point, the S&P since 1928 has returned an average of 9.82%, so we in the venture capital industry are looking to beat the return you could get in the market over time.

Take a look at the resources below, and let us know if you have any questions. At Florida Funders, we make it easy for individuals to invest in venture capital by allowing investors to invest in our Funds or through our Investor Network. We want to help you succeed in your venture capital investment journey!

What is Venture Capital?

The Key Terms of VC Deals

How and Why to Perform Due Diligence in VC

The Largest Voices In VC