The Tortoise and the Hare: A Welcome Combination for Venture Capitalists’ Portfolios
By Sara Craven, CFP®
April 2, 2014
While attending a healthcare conference in San Francisco several weeks ago, I was struck by the excitement and passion venture capitalists have for their businesses. Many of those VCs will go on to successfully change health care and technology as we know it. With venture-backed companies contributing approximately 11% of the country’s private sector jobs and incremental revenues that account for 21% of US GDP, clearly their passion is having a profound impact on our economic prosperity.
Venture capital is an all-encompassing life. Your passion becomes intensely focused. Your professional life becomes your social life. And your financial life becomes dependent on your fund and its outcomes over time.
When we invest for our venture clients, there are many considerations including the need for liquidity; the high correlation between potential private market exits and current public market valuations; the need to balance the risk and reward characteristics of venture holdings with overall personal risk and reward objectives for your life; the ability to think about concentrated stock positions received in distributions; and the proper compliance procedures around restrictions tied to board and insider rule sets.
Your time horizon and your career stage are also critical. A highly seasoned professional, having seen the best and worst days of the venture cycle, is in a far different economic place than a newly minted partner just stepping up to their capital commitments. Building a portfolio that acts as a “barbell” (pairing your high risk venture holdings with a conservative public market portfolio) is a common approach we use to help protect your wealth and meet your future capital calls. As time passes and distributions outweigh capital calls, your needs are going to change and so should your investment strategy. This dynamic process is one of Sand Hill’s specialties.
In the fast paced world of venture capital, you need to think about the tortoise and the hare, working together in your portfolio to provide the right balanced outcome and, importantly, the right risk adjusted outcomes. The passion and speed of your professional life require the balance of a steady investment approach to meet the goal of crossing the finish line regardless of which part of your overall financial portfolio pays off in the end.
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