Investors pride themselves on being independent thinkers. There are times, however, when even some of us in the venture capital industry are guilty of running with the herd.
As a limited partner, it's tempting to think you'll only succeed if you invest solely in the top firms. But data suggest investors should be more adventurous.
When Cambridge Associates looked over an 18-year period, it found that 60% of the total gains generated from the top 100 investment firms came from those ranked 11 through 100. The top 10 performed well — just not well enough to justify ignoring the rest of the field.
There's never been an easier time to find somewhere new to invest: diversity funds, frontier markets, and regions in the U.S., such as the Midwest, and other areas outside of the traditional Silicon Valley area hotbeds. Last year, the U.S. venture capital industry invested roughly $84 billion in 8,035 companies, making 2017 the busiest year for venture capital deployment since the early 2000s, according to the National Venture Capital Association. That money generated a lot of interest, and by September 2017 there were 590 first-time funds.
Of course, with more options comes more uncertainty. When investors are deciding whether to invest in a fund, they might ask these questions to make sure that the right fundamentals are in place.