5 Reasons to Diversify Your Portfolio with Venture Funds
Fewer than 3% of women-led businesses receive venture capital funding.
One reason for the small percentage is because women are more likely to start businesses in “non-traditional” sectors for VC investment, such as healthcare and consumer products.
So, how do you find these innovative ventures founded by women and gender-diverse founders? One way is to diversify your portfolio through venture funds.
Diversification means mixing different types of investments into a single portfolio, and it is a cornerstone of sound investment strategy. While traditional assets like stocks and bonds have long been the go-to choices for investors, venture capital (VC) funds are emerging as a compelling addition to diversified portfolios.
Venture capital offers a unique blend of potential for substantial financial returns and exposure to cutting-edge innovations. Here are five reasons why you should consider diversifying your portfolio with venture funds:
1. Access to Innovation and High-Potential Startups
Venture capital allows you to invest in early-stage companies with groundbreaking ideas and immense growth potential. These startups are often at the forefront of innovation, disrupting industries with unique solutions, and creating new markets.
By diversifying through venture funds, you gain exposure to a dynamic portfolio, increasing your chances of being part of the next big success story.
Consider the venture bet placed on Canva, the now popular Australian graphic design company. In 2007, Melanie Perkins, wanted to create an online tool for anyone to make great designs, regardless of experience. While clearly a worthy goal today, people initially met it with extreme skepticism. But when firms realized its value, those who got in on the ground floor reaped the rewards.
Melanie faced 100+ VC rejections over three years before securing her first investment. Canva is now one of the world's most valuable women-founded and women-led startups.
With Australia’s three largest venture capital firms—Blackbird Ventures, AirTree Ventures, and Square Peg—on the cap table, their foundation funds are on track to deliver investors a return of 10 to 34 times their initial investment largely thanks to Canva's growth. The same article quotes: “If Canva were removed from Blackbird’s first fund, its return would be 5.4 times invested capital, rather than 33.8x.”
Early exposure can lead to unique investment opportunities that may not be available in more traditional asset classes, potentially putting you on the rocket to major returns.
2. Portfolio Resilience
Venture capital funds can invest in a diverse range of industries and sectors. In the case of The51, our Feminist Funds back a broad spectrum of innovation from enterprise and consumer digital platforms, fintech, healthtech, cleantech, agtech, and more.
Through our pooled fund, we make investments in women and gender-diverse-led early-stage innovative companies based primarily in Canada.
Diversification is a proven strategy for mitigating risk and enhances the resilience of your portfolio. While VC investments are inherently riskier, their performance often has a low correlation with that of traditional assets like stocks and bonds, acting as a hedge against sector-specific risks and helping buffer your overall portfolio against market downturns.
By investing in venture funds, you can spread your risk across multiple industries, reducing the impact of poor performance in any one sector.
3. Expertise, Networking, and Collective Intelligence
Limited partners (LPs) committing capital to a venture fund gain access to the firm's network and team of experienced professionals who specialize in identifying and nurturing promising startups. Rather than the lift to discover and diligence companies on your own, you're connected to valuable resources and opportunities. This expertise can complement your investment strategy and improve your overall decision-making.
The team behind The51's Feminist Funds Series brings a wealth of experience and knowledge to the table. Our expertise as trend-spotters, venture capitalists, entrepreneurs, and corporate leaders can provide you with insights and connections that go beyond traditional investment opportunities.
By diversifying into venture funds, you tap into a network that can enhance your investment acumen and open doors to potential co-investment opportunities.
4. Co-Investment Opportunities & Deal Flow
Speaking of co-investment opportunities…
Diversifying your portfolio with venture capital funds opens doors to co-investment opportunities and an enhanced deal flow. Venture capital firms often collaborate with other investors, including angels and institutional investors, to fund promising startups.
LPs in venture funds gain access to a network of like-minded co-investors who share your interest in innovative ventures. A growing strategy that many LPs are adding to their portfolios—jumping from just 24% in 2021 to 71% in 2021—co-investment opportunities expand your network to participate in deals that align with your investment objectives.
Additionally, venture funds maintain a robust deal flow, constantly sourcing, screening, and evaluating potential investments. As an investor in these funds, you benefit from this steady stream of investment opportunities, increasing your chances of discovering the next game-changing startup. You also benefit from the due diligence and assessment conducted by a professional investment team, which is a heavy lift!
5. Potential for Personal and Professional Growth
Venture capital investments offer more than just financial returns. Beyond the bottom line, many VC firms provide opportunities for active involvement in their portfolio companies.
Looking at our own approach as an example, we have a high-touch, high-impact mentality to managing our funds. Our investors are engaged through our learn-by-doing approach that's managed through our investor membership model.
Active engagement not only enriches your experience and insights, but also enhances your skills as an investor. It's more than just a learning opportunity to boost your financial acumen, analytical skills, and decision-making abilities; diversifying through venture funds also allows you to align your personal and professional interests
Have a passion for entrepreneurship, technology, or innovation? Investing in a fund that aligns with your values makes investing more fulfilling and can lead to better investment decisions.
Diversifying into VC funds allows you to participate in the success of innovative startups, contributing to economic growth and also hitting your own personal and professional goals.
Diversifying your investment portfolio with venture capital funds can provide a well-rounded approach to wealth management. It offers the potential for high returns, portfolio resilience, access to community and connections, deal flow, and opportunities for personal and professional growth.
If you’re ready to consider adding VC to your portfolio, we’d love to connect. We look forward to discussing how The51 can fit into your portfolio and how we can build the Financial Feminist™ Economy together.
*Please note that the information provided in this blog post is for informational purposes only and should not be construed as investment or financial advice. It's important to conduct due diligence, seek professional advice, and evaluate the suitability of investment opportunities based on your individual circumstances and risk tolerance.