It Makes Sense Even for Conservative Investors

. . . The question we need to answer here is, why should you invest in venture capital? While we’ve both made money at it, if anyone tries to sell you with promises of guaranteed wealth, don’t believe him. As we’ll remind you repeatedly, this is inherently a high-risk asset class. Nevertheless, there are sound, rational reasons for participating, even if you don’t consider yourself a big risk-taker.

. . . I’d characterize myself as being pretty conservative, a “belt-and-suspenders type” is how one of my longtime friends put it. Both my wife and our longtime financial advisor agree. I’d characterize myself as a value investor.

My interest in venture capital started after retiring from a career in Fortune 500–type companies. The retirement was fairly premature, as I was just in my mid-50s, when a serious heart attack scared me badly. . . . That triggered my decision to leave my career. I’d done well, and didn’t need to continue working to live comfortably. I hadn’t quite reached that proverbial gold ring and won the CEO lottery, so we’re not super-wealthy, but we’re comfortable.

. . .  So why did this conservative retiree decide to invest in venture capital? I’m the analytic and strategic type. Having a lot more time on my hands, and without more highly compensated work planned at the time, I began to think hard about how to manage our assets. I figured they needed to last another 30 or 40 years, at least for my wife and hopefully for me, too.

My reading on the subject kept bringing me back to the importance of asset allocation and the need for that asset allocation, notwithstanding my conservative personal nature, to include some portion invested in more aggressive growth vehicles. With the 2008–09 financial crisis upon us, the stock market plummeting, and interest rates heading rapidly toward zero, I recognized that long-term Treasury bills were certainly off the table and that I’d better find ways to hedge against a possible sharp run-up in inflation sometime in the future.

Fortunately, my financial advisor is very bright, competent, and truly focused on his clients’ financial well-being. When I asked him about investing in Batterson Venture Capital, even though his affiliation with a major brokerage firm precluded his benefiting at all from any such investment, he encouraged our jumping in.

He explained that venture capital doesn’t have a tight correlation with the stock or bond markets. He viewed it as he would look at other alternative investments as well—as an asset class that over the long haul can help smooth out the ups and downs of the stock and bond markets, effectively reducing overall portfolio risk, despite the inherent riskiness of each individual venture capital investment. He explained that this benefit would be present as long as we took a reasonably diversified approach to this different asset class.

 

Len Batterson is the co-author of:
Building Wealth through Venture Capital: A Practical Guide for Investors and the Entrepreneurs They Fund