New opportunities to invest in professional venture capital

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Stocks, bonds and cash equivalents are the traditional building blocks of portfolio diversification, but sophisticated investors often seek out alternative asset classes for greater diversification and potentially higher returns. Venture capital (VC) investments fit this bill perfectly. However, historically, the venture capital industry has only catered to the needs of institutional investors and the ultra-rich.

This lack of access for most investors was a source of frustration and inspiration for venture capital industry veteran and serial entrepreneur Michael Collins. This led him to found the disruptive venture capital firm Alumni Ventures (AV) in 2014.

In just over seven years, Collins has come a long way towards realizing the vision of opening up the venture capital asset class. Alumni Ventures became the third most active venture capital firm in the world (PitchBook 2021) and was recently named to Fast Company’s 2022 list of Most Innovative Companies. By Q2 2022, Alumni Ventures expected to exceed $1 billion in capital raised and had invested in over 1,000 companies on behalf of its 7,500 investors.

Like many innovators, Alumni Ventures reshaped the existing industry model in several ways. But Collins attributes his company’s success to some key innovations. “I think Alumni Ventures has remade the business model in three critical areas,” he noted. “And that was by (1) addressing the unmet need of a large, underserved group, (2) creating a compelling product to meet those needs, and (3) building flywheels that made our powerful and empowering business model.”

UNSERVED INVESTORS

Speaking from his own experience, Collins noted, “I got my start in venture capital at TA Associates. The fact that as a professional VC I struggled to build a compelling portfolio once I left the industry told me how closed it was to all but a very small segment of people.

Michael Collins, founder of disruptive venture capital firm Alumni Ventures

While researching the opportunity, Collins discovered that her problem was not unique. “There are, by some estimates, nearly 10 million accredited investors in the United States,” he observed. “These people, as defined by financial regulators, have very healthy income and/or assets. But they were largely excluded from easy access to venture capital, with traditional venture capital funds setting investment minimums in the millions.

Do-it-yourself venture capital investment methods were also not attractive or feasible for Collins. Crowdfunding sites and angel investor groups were too labor intensive and didn’t offer the diversification or quality of investment opportunities he was looking for.

With a large target audience in mind and no competitor adequately meeting the need, Collins set about designing the experience and product he wanted.

DISTINCTIVE PRODUCT

Collins designed his company’s core offering with strong convictions. “Busy and sophisticated investors demand accessible, smart, simple and high-potential financial products,” he said. He knew that a highly professional venture capital fund product would be distinct and far more attractive than the angel or crowdfunding offerings on the market.

“The product formulation we ended up with was a broad portfolio, competitive investments alongside well-known VCs, and low minimum investments,” Collins explained. “Most of our funds start between $25,000 and $50,000. Diversification was another key factor for us. We strongly believe in this because it is so difficult to predict which sectors will find their traction and which startups will emerge as leaders.

The concept of connection was important to Collins and AV’s identity. “I recognized that by bringing together people who shared a common affinity and interest in this asset class, we could do better together than any of us could do alone. The alumni groups seemed to be a good starting point,” he recalls.

Collins pitched the concept with alumni from his own alma mater, Dartmouth. Today, Alumni Ventures has 18 alumni funds (all private, for-profit, and unaffiliated with their respective schools). The company has also expanded its reach to include eight focused venture capital funds, each with a concentration in an emerging technology sector or venture capital phase. AV’s signature Total Access Fund is its most diversified fund, providing exposure to every venture capital investment made by Alumni Ventures.

POWERFUL FLYWHEELS

Like other successful innovators, Collins found the true power of his model in flywheels. As Collins said, “Alumni Ventures is a network-powered venture capital firm, and that plays a key role in our success. He benefits from overlapping networks in many alumni communities where the business first started. But over the years, our network has grown to include 600,000 members who range from investors to innovation enthusiasts, entrepreneurs and VCs.

This network is a unique and invaluable resource for Alumni Ventures, as well as the heart of many AV flywheels. It can provide not only capital, but also investor referrals, trading solutions, verifications and portfolio assistance.

TO OPEN THE DOOR

Collins sees more innovation in AV’s future, but thinks the company is off to a good start in realizing the founding vision. As Collins observed, “The vast majority of credentialed Americans had not participated in this asset class until Alumni Ventures arrived. We still have more to do to increase this access. But, for now, we’re proud to have made real venture capital investing simpler and more accessible to millions of accredited investors in the United States.

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