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Alternatives to Venture Capital Investing | Woodbridge Wealth

09 19 2016

Woodbridge Wealth offers financial alternatives that are lower risk compared to venture capital investing. Contact our finance experts today to learn more.
The unprecedented growth of wealth coming from new business start-ups has led many wealthy investors to providing venture capital monies to a variety of business ventures. They do so in the same fashion that prospective gold miners flocked into Northern California after news spread of James Marshall discovered gold at Sutter's Mill in 1848. Investors have pursued this avenue as a means of adding uncorrelated alternative investment to their portfolio with the hope of expanding their fortunes further. However, this strategy is not without its risks. According to a Wall Street Journal article, which cited Shikhar Ghosh, a lecturer at Harvard Business School, 3 out of 4 Start-Ups do not return its investors capital.

Besides becoming a venture capital investor, there are other financial alternatives available to those wealthy investors seeking investment options beyond the more traditional stocks and bonds.

Top 3 Investment Alternatives

Private Equity

High net worth investors can provide capital commitments to a private equity firm with the purpose of investing in and acquiring equity ownership in companies that are not publicly traded. The level of equity ownership in a company that a private equity firm seeks can be a part-ownership, controlling interest or be an outright purchase of the target company. Limited partnerships, pension and retirement funds, insurance companies, and endowments are typically larger sources of capital that also participate in private equity placements. These groups' capital commitments to private equity firms can often be in the hundreds of millions and even billions of dollars.

Real Estate

In the alternative investment space, according to a Morgan Stanley's Wealth Management Investor Pulse Poll from 2014, which was independently conducted by GfK Public Affairs, there is no better investment rival to investing in the stock market than investing in real estate. Regardless of special risks associated to real estate investments, such as interest rate risks, property value fluctuations, and economic conditions; according to the survey, upwards of 77% of millionaire investors own real estate property(ies).

Unlike liquid assets such as mutual funds, ETF's, stocks, and bonds, cash flowing investments like real estate can provide its owners with a consistent income stream, a historical record of value appreciation that can create a significant growth of net worth, as well as certain tax advantages.

Private Placement Debt

In low-yield environments, investing in private placement debt has helped deliver value to its investors. Like private equity, private placement bonds are not publicly traded but rather are securities that are offered through private offerings. Private placement debt has played an ever-growing role in the way companies and institutions acquire the funding they need to finance their operations. PPD's are subject to the Securities Act of 1933. However, most Private Placement Debt is offered under Regulation D and therefore exempt from registering with the Securities and Exchange Commission. Although accredited investors with a net worth of over one-million dollars, who demonstrates an annual income of $200,000 or $300,000 join income, can participate in private placement debt, this alternative investment is predominately utilize by life insurers, and in smaller parts, by pension funds, asset managers, banks and hedge funds.

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