AngelList’s Newest Experiment: a $25M Fund to Invest in Angel Investors
blogs.wsj.com
blogs.wsj.com
Seems like Silicon Valley financiers are beginning to think like Wall Streeters.
I meant what I said. Why are you reading so much into it?
There are plenty of people who fully understand the risks involved who want to engage in high-risk high-return investment (especially ones where the risk profile is significantly different from their other investments to provide hedging).
There are risks with this model (for example there may be less due diligence then you traditionally get with VCs) but the overall risk model probably isn't hugely different from a seed stage fund.
They'll work for a while, but as soon as the underlying assets stop acting according to the 'rules' upon which the original correlations were calculated, disaster strikes.
That turning point always occurs--it's not a matter of 'if' but 'when' and 'how severe'.
FTFY ;-)
BTW, in finance terminology this is called a fund of funds (FoF). Fees on top of fees. Warren Buffett has been warning against these types of structures for years, but both professional and individual investors have always had an appetite for them since they are the closest thing to a privately held ETF.
Speaking of ETFs, here's a quote from the man behind the company from the article:
> “Some day you’re going to sit at your Schwab account or your Fidelity account and you’re going to say, ‘I’d like to take 1% of my net worth and put it into angel deals,’”
Schwab and Fidelity target upper middle class individuals, who loooove ETFs (or should love them, since, as a group, they are not very good investors).
Also this fund might charge a 30% carry, but at least there is no management fee.
Footnote: I know that there are exceptions to every rule. So please no N=1 anecdotal replies.
1. Your "unregulated market" claim is baseless. This fund, which is no different than any other venture capital fund, has registered with the SEC in accordance with Regulation D. You can find the filing on the SEC website.
2. Angel investing is not exactly "high-return" these days. See http://gust.com/blog/2012/03/27/the-reality-of-returns-on-an... and http://rightsidecapital.com/assets/documents/HistoricalAngel... for some data points. For reference, the S&P 500 gained nearly 30% last year.
3. In regards to your overall concern that people are being sold "volatile high-risk, high-return investments", consider that there are variety of leveraged products, including triple-leveraged ETFs and double-leveraged ETNs yielding 15-20% annually, that retail investors can purchase on major stock exchanges. Notwithstanding the fact there's nothing inherently wrong with "volatile high-risk, high-return investments" and there is a place for them in many portfolios, picking on a tiny pseudo-fund of funds targeting accredited investors is not the most effective way to make your argument.
4. As for "Silicon Valley financiers are beginning to think like Wall Streeters", the notion that Silicon Valley venture capital has somehow existed in isolation until now is simply not accurate. That said, my personal take is that this fund, when compared to some of the exotic financial instruments developed/popularized by "Wall Street" in recent years, is more novelty than anything else. I wouldn't even call it innovative, let alone exotic.
It'll get really interesting when someone creates a derivatives fund on angel investing performance.
These high-skill investors often add significant value through mentoring, introductions, and so on. Anything that encourages that and gives them more ability to do that is a very good thing in my view.