Stocks, bonds, and cash equivalents are the traditional building blocks of portfolio diversification, but sophisticated investors often seek alternative asset classes for greater diversification and potentially higher returns. Venture capital (VC) investments fit that bill nicely. However, historically, the VC industry has only catered to the needs of institutional investors and the ultrawealthy.
That lack of access for most investors was a frustration and inspiration for VC industry veteran and serial entrepreneur Michael Collins. It led him to found the disruptive venture capital firm Alumni Ventures (AV) in 2014.
In a little more than seven years, Collins has gone a considerable way towards realizing the vision of opening up the venture asset class. Alumni Ventures has grown to be the third most active venture firm in the world (PitchBook 2021) and was recently named to Fast Company's 2022 list of Most Innovative Companies. As of Q2 2022, Alumni Ventures expected to surpass $1 billion in capital raised and have invested in more than 1,000 companies on behalf of their 7,500 investors.
Like many an innovator, Alumni Ventures reshaped the existing industry model in multiple ways. But Collins attributes his firm's success to some key innovations. "I think Alumni Ventures remade the venture model in three critical areas," he noted. "And that was by (1) addressing the unmet need of a large, underserved group, (2) creating a compelling product to meet those needs, and (3) building flywheels that made our business model powerful and reinforcing."
Speaking of his own experience, Collins noted, "I got my start in venture capital at TA Associates. The fact that, as a professional VC, I was struggling to put together a compelling portfolio once I left the industry told me how closed it was to all but a very small segment of folks."
In studying the opportunity, Collins found his problem was scarcely unique. "There are, according to some estimates, close to 10 million accredited investors in the U.S.," he observed. "Those folks, by the definition of financial regulators, have a very healthy income and/or assets. But they were largely shut out of easy access to venture, with traditional venture funds setting investment minimums in the millions."
Do-it-yourself methods of venture investing were also not attractive or feasible for Collins. Crowdfunding sites and angel groups required too much work and didn't offer diversification or the quality of investment opportunities he was seeking.
With a large target audience in mind and no competitor adequately solving the need, Collins started designing the experience and product he wanted.
Collins crafted his firm's core offering with strong convictions. "Busy, sophisticated investors demand financial products that are accessible, smart, simple, and high potential" he maintained. He knew that a highly professional venture fund product would be distinct and significantly more appealing than the angel investing or equity crowdfunding offerings in the market.
"The product formulation we ended up with was a large portfolio, competitive investments alongside well-known VCs, and low investment minimums," Collins explained. "Most of our funds start at $25,000 to $50,000. Diversification was another key factor for us. We're big believers in that because it's so hard to predict which sectors will find their traction and which startups will emerge as leaders."
Importantly to Collins and the identity of AV was the concept of connection. "I recognized that by bringing together people with a shared affinity and interest in this asset class, we could do better together than any of us could do on our own. Alumni groups seemed a good place to start," he recalled.
Collins launched the concept with alumni from his own alma mater, Dartmouth. Today, Alumni Ventures has 18 alumni funds (all of which are private, for profit, and not affiliated with their respective schools). The firm also expanded its scope to include eight focused venture funds, each with a concentration in an emerging technology sector or venture stage. AV's signature Total Access Fund is its most highly diversified fund, offering exposure to every venture investment Alumni Ventures makes.
Like other successful innovators, Collins found the real power of his model in flywheels. As Collins said, "Alumni Ventures is a network-powered VC firm, and that plays a key role in our success. It benefits from overlapping networks across many school alumni communities, where the company first got off the ground. But over the years, our network has grown to include 600,000 members who range from investors to innovation enthusiasts, entrepreneurs, and VCs."
That network is a unique and invaluable resource for Alumni Ventures-- as well as the heart of multiple flywheels for AV. It can provide not only capital but investor referrals, deal souring, vetting, and portfolio assistance.
Opening the door
Collins sees more innovation in AV's future but believes the firm has made a solid start in delivering on the founding vision. As Collins observed, "The vast majority of accredited Americans hadn't participated in this asset class until Alumni Ventures came along. We have even more that we want to do to increase that access. But, for now, we're proud to have made true venture capital investing simpler and accessible to the millions of accredited investors in the U.S."
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