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Direct venture investing is gaining traction among sophisticated investors who seek direct exposure to startups without relying on traditional venture capital (VC) funds. This hands-on approach enables individuals to invest directly in early-stage companies, often resulting in higher potential returns but also greater risks.
Unlike public markets, where investors can buy shares in established firms with clear financials, venture investing embraces uncertainty, betting on unproven business models in exchange for the possibility of outsized gains.
In his recent article with the Business Post, Joe Bergin, MD, Wealth Management for Elkstone, discusses the three primary ways to engage in direct venture investing:
Angel Investing & Co-Investing: Individuals can invest in early-stage startups independently or alongside venture capital firms. Co-investing allows investors to leverage the expertise and deal flow of established VC firms while retaining more control over their capital allocation. Many investors adopt an "opt-out" approach—participating in most deals unless they identify concerns.
Investing in Venture Funds: Instead of managing direct deals themselves, some investors choose to invest in a managed venture fund. This provides diversification and professional management while still granting exposure to startup returns. Fund managers handle deal sourcing, due diligence, and portfolio management, reducing the burden on individual investors.
Independent Deal Sourcing: Investors with strong industry connections and expertise may choose to source deals themselves. This "opt-in" model involves selecting investment opportunities based on personal due diligence. Some investors operate solo, while others join investment syndicates or angel networks to pool resources and expertise. Specialized platforms have also emerged to streamline access to direct deals while managing legal and operational complexities.
Risk & Reward Dynamics:
Direct venture investing offers the potential for high returns, but it comes with substantial risk. Studies show that 50-70% of startups fail within their first five years. However, a small percentage (10-15%) generate exceptional returns, driving overall portfolio performance.
A well-structured venture portfolio typically consists of 10-20 investments across various sectors and stages to maximize diversification. Investors also need to reserve capital for follow-on investments to maintain their ownership stakes in successful companies and avoid dilution in future funding rounds.
The Long Game:
Unlike public markets, where investments can be liquidated quickly, direct venture investing requires a long-term commitment of 5-10 years before an exit via acquisition or IPO. The psychological challenge of this strategy is its J-curve effect—failures often happen early, while successful startups take years to mature. This requires patience, discipline, and emotional resilience, as investors may experience losses before seeing any significant gains.
Key Takeaways:
Direct venture investing provides hands-on exposure to startups with high-risk, high-reward potential.
It requires significant capital, expertise, and time commitment—not just financial investment.
Diversification is crucial: at least 10-20 investments are recommended.
Investors should prepare to hold their investments for 5-10 years before seeing returns.
Following winners and reserving capital for follow-on rounds is essential to avoid dilution.
As direct investing continues to grow in 2025, those who approach it with strategic planning, patience, and risk management stand to benefit the most from this evolving investment landscape.
Speak to
our team
Contact us today to learn more about Elkstone's investment opportunities for diversified wealth expansion.
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