Fifteen years have passed since Naval Ravikant popularized a novel way for angel investors to break into a startup funding system ruled by the clubby VC industry. Following the paradigm shift that Ravikant’s AngelList helped launch, today, scores of innovative asset managers and fintech platforms are raising billions of dollars from wealthy individuals who seek access to the once-exclusive private markets.
As high-net-worth individuals make bigger forays into this opaque domain, the majority of their cash is ending up in semiliquid fund strategies covering private credit, real estate, and infrastructure.
By contrast, wealth-focused fundraising for vehicles with exposure to the VC asset class is being left in the dust—an ironic twist of history for the industry that broke ground on opening its market to a new breed of investor. “The reality is it is small today, and it’s probably not going to grow in a significant fashion anytime soon,” says Kunal Shah, managing director at iCapital, a marketplace of alternative asset strategies for wealth managers and their clients.
In a survey earlier this month by iCapital, 26% of wealth advisors said they’re interested in making VC allocations for their clients, versus 56% for private credit and 66% for private equity.
Semiliquid Funds Are Growing
Taking a broader view of all asset classes, individuals are clearly diving into alternatives. Assets in funds offering limited liquidity and exposure to private assets approached net $350 billion at the end of 2024, up from $215 billion at the end of 2022, according to Morningstar research. Those semiliquid funds are generally sold through financial advisors, with limited direct access for individuals.
Even as the wealth channel has begun to embrace alternative assets, the venture category has been eclipsed by its more staid and stable cousins, especially private credit and real estate. Both have the advantage of generating cash flows, and often shorter time horizons, which help them meet individuals’ liquidity and income needs.
While VC makes up a tiny fraction of the frenzy for so-called alts, some high-profile managers are defying the headwinds by offering new venture vehicles that target wealthy individuals.
Products for All Levels of Investors
Coatue, a large hedge fund manager that invests directly in VC-backed startups, recently launched a wealth-focused tech fund that will reportedly deploy 20%-50% of its portfolio in private investments with a $50,000 minimum. In addition, in May, asset manager Hamilton Lane, a longtime private market investor through direct deals and backing GP funds, unveiled a new evergreen vehicle for individuals that is dedicated to venture and growth-stage investments in companies and other VC funds.
Coatue and Hamilton Lane’s offerings add to a cohort of a few dozen VC-themed products that have taken aim at all levels of the investing public. These products cater to a range of market segments. At the high end, private banks serve the super-rich with minimums of $250,000. At the low end, everyday investors can participate for as little as $500 in vehicles like Ark Venture, an interval fund led by Cathie Wood that holds high-growth private and public shares.
A variety of semiliquid funds cover the asset class spectrum, from pure play to multistrategy, which blend allocations in private credit or real assets with a modest exposure to VC.
Partners Group Growth Fund, which manages assets over $100 million, invests from seed to late stage, but also participates in PE growth and expansion rounds. The $4.8 billion StepStone Private Markets Fund has a 76% deployment to private equity, which includes an undisclosed VC allocation, with the remainder in real assets and private debt. That fund operates alongside the StepStone Private Venture and Growth Fund, a $2.2 billion evergreen vehicle. Meanwhile the Connetic VC Access Fund focuses on venture-backed companies, taking a multistage approach, and it has an AUM of about $38 million, according to the firm.
Venture’s ability to penetrate the $150 trillion global wealth sector is no trivial matter at a time when all but the largest asset managers face resistance in raising capital from tapped-out pensions, endowments, and other institutions that were the industry’s bedrock in its boom years. Many venture firms are eager to broaden their investor base. Heavy hitters like Coatue, Hamilton Lane, and StepStone have an advantage, reaching wealthy clients through existing relationships.
“I think the vast majority of smaller managers are the ones that are having trouble,” says Samir Kaji, a former venture banker with Silicon Valley Bank who co-founded Allocate, an alts platform for the wealth channel with $1.3 billion in AUM. “In some ways, it is very much hand-to-hand combat. It’s hard to do efficiently.” Allocate pools its ultra-high-net-worth clients’ investments into feeder vehicles so it can write a single check to a GP, typically between $10 million and $15 million, which is well above many VC funds’ minimum investment. The entry point to become an Allocate investor is $100,000.
Changing Views of Wealth Platforms
According to Kaji, just a few years ago, most venture firms would be reluctant to offer access to their funds through private banks and other wealth platforms like Allocate. “Now it’s different,” he says, “primarily because they see the size and scale and they see that many of these platforms—including us—act similarly to an institutional investor.”
For GPs in a tough market, the good news is that because of a dwindling supply of public market opportunities, many of the 17,000 financial advisory firms in the United States are looking to get their clients into alternatives to remedy shortcomings seen in the conventional allocation of 60/40 stocks and fixed income.
But until recently, alts of all types have been unappealing to the private wealth channel because of the expensive management fees, high minimum tickets, complex structures, long investment periods, and cumbersome paperwork associated with institutional-style fund management. That’s especially true of private equity funds and the VC subset, whose portfolios tend to be hard to trade.
Private fund managers have had breakthroughs reaching smaller investors in the past few years, and the trend has only gained velocity lately. Much of that came after an explosion of evergreen fund structures featuring more affordable fees, low minimums, quarterly redemptions, and more simplified cash flow and tax reporting.
The High Stakes of Manager Selection
But VC remains a challenging sell to many registered investment advisors and their clients. More than most asset classes, the dispersion in fund performance among VC managers is especially wide, underscoring the high stakes of selecting top managers.
One asset manager who has had success connecting private wealth to venture is StepStone Group, whose sixth VC secondaries fund closed on a record-setting $3.3 billion last year. Its strategy is similar to Hamilton Lane’s newly launched fund. StepStone’s vehicle buys direct, secondhand shares in private companies along with LP stakes in other venture funds. The fund’s hefty scale speaks to a hot strategy for LPs in general and the wealth channel specifically, as it emphasizes faster returns and relatively lower risk by targeting mature startups nearing an exit.
The key to making VC more friendly to the wealth channel boils down to solving its liquidity dilemma when so much capital is locked up in illiquid holdings. That’s why so many players have focused on expanding the secondary market, especially when exits via IPOs and acquisitions are harder to come by. As Kaji puts it, “We have to normalize early liquidity so that people can invest in the VC asset class category without this concern that the time to liquidity continues to protract.”
Another solution may be investing in an index for the asset class, rather than direct exposure to private company stock. That strategy is being developed by Forge Global, a secondaries brokerage platform that offers its own index-pegged fund. “We think that index investing, rules-based investing, access to diversified low-cost, exposure—those are all the things that are going to come,” said Howe Ng, Forge’s chief strategy officer. “I think that is actually fitting really well into the wealth channel.”
