Inversiones Maslosa / Insights / Blog / Venture Capital FundsBlog
Diversification, Profitability and Added Value
Inversiones Maslosa / Insights / Blog / Venture Capital FundsBLOG
Opinion and economic analysis
VENTURE CAPITAL: INVESTMENT OR BET?
Investing is not the same as gambling. Before choosing a Venture Capital fund, I always recommend evaluating risk tolerance, the investment horizon (at least 7-10 years), and liquidity needs. Ideally, one should look for funds with experienced managers, a clear strategy, and a solid track record of returns. It’s also crucial to understand which types of startups to invest in (early stage, growth, specific sector) and the fund’s terms (fees, timelines, capital structure).
From my experience, I cannot emphasize enough the growing relevance of Venture Capital in the current investment ecosystem. The promise of returns higher than 15-20% annually over 7-10 years is undoubtedly attractive. However, we must not lose sight of the nature of this type of investment: high volatility, illiquidity, and significant information asymmetry. Venture Capital is not a simple bet on growth, but a game of patience, strategy, and knowledge. In the last decade, global returns have been remarkable, but we’ve also witnessed periods of sharp corrections and startups that, despite expectations, ended up in total failure.
One of the key aspects of these funds is their management model. Venture Capital managers must not only identify opportunities but also add value to the startups they invest in. This means the success of the fund largely depends on the management team’s experience and execution capabilities. The fee structure, with an annual management fee of 1.5-2.5% and a Carry of 10-30%, may seem high, but it is the price to pay for expertise that, if well applied, can generate outstanding returns. However, there have also been cases where some managers have prioritized capital raising over the actual profitability of their investments, something we, as investors, must closely monitor.
Another critical point is the illiquidity inherent in these funds. Unlike tradable assets such as stocks or bonds, stakes in Venture Capital funds cannot be easily liquidated. Although secondary markets have emerged in Europe to provide an exit for these assets, their depth is limited, and resale discounts can be significant.
Furthermore, the influx of less sophisticated capital into this market raises concerns about the sustainability of certain valuations. In recent years, the overabundance of capital has inflated the prices of many startups, which could result in lower returns in the future if companies fail to meet growth expectations. Venture Capital works best when the investment is disciplined, with rigorous analysis and a meticulous selection of opportunities. In this sense, it is essential for each investor to understand how it works, the risks involved, and, above all, to be able to assess wisely and prudently what and who they are investing in.
