THE BLOG

Venture Capital Investing -- Less for Your Dollars

05/28/2015 09:40 am ET | Updated May 27, 2016

Venture capital investing has a tendency to be boring. Unless you're a passive investor, it can give you a massive amount of work for a lot of risk with a diminished return. Of course as a passive investor, you merely just invest and sit back.

On the buy-side investing end (asset management), you meet many types of people and interact with some fabulous individuals. However, you see a lot of deals and there is carnage all around, coupled with brilliant ideas and rising ashes of failed startups.

Complications will arise and if the technology is the first to market type issue, you could be beaten and then basically be selling for pennies on the dollar, if anything at all. Same goes with biotech and medical devices. One can easily labor and seemingly waste funds on developing a product Philips can roll out in six months for 80 percent less due to infrastructure, et al. Perhaps the management, in particular the CEO, has stacked the decks with yes men, all who have invested and get to watch you witness a slow death, while they are brought down. Money lost is one thing, but time and talent towards efforts for nothing is truly tragic. True utter failure rarely happens and without failure you will not have success, but you should not go looking for it.

In a typical VC portfolio, most of the returns are from 20 percent of the investments. This is just a statistical fact -- a law of nature. Statistically, if a VC makes 10 investments, two will be winners and create most of the gains in the fund. -- AngelBlog

My point here is that if you have a passion for venture capital and you have enough wealth to allocate significant resources to get control and really work with them, then do it but it takes a load of work. If you are worth $10 million, allocate a little more. Become a GP. The risk reward can be slim and take a long time -- and 10x after 12 years is not good.

And if you're an investor worth less than $5 million you really need to look at VC as a small portion of your investment -- small as in 5 percent -- if not less. Early stage and angel investing is smart at this level.

After all, we are going for the 100x exit in VC!