To be clear, neither of your authors is suggesting that you should invest a large share of your net worth in venture capital. It is inherently a high risk/high reward potential proposition. You shouldn’t invest more in venture capital than you can afford to lose without meaningfully changing your life.
If you are an accredited investor, and most venture capital firms limit their investor rosters to accredited investors due to the strict restrictions in dealing with those who are not accredited investors, you should be able to risk, say, 5% of your net worth without potentially jeopardizing your financial health and future. If you’re not an accredited investor, the SEC limits your venture capital investments anyway, precluding you from taking undue risks in this asset class.
. . . (But) aggregate returns for the (venture capital) asset class have historically been outstanding, and there’s no sign that will change anytime soon.
This is demonstrated well by the Thomson Reuters Venture Capital Research Index, launched in 2012 to replicate the venture capital industry as a whole. Based on that index, venture capital investment has on average returned 19.7% per year since 1996, notwithstanding the 2000 dot-com collapse, versus modest single-digit returns for traditional equities and bonds.
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