New fund lets individuals invest like VCs
Individuals can now join the mega-rich in the most treacherous but potentially lucrative of investments: high-tech start-ups.
The $330 million MeVC Draper Fisher Jurvetson Fund began trading today on the New York Stock Exchange, allowing individuals with only modest wealth to invest in privately held start-ups.
"This is the first major investment vehicle of its type, bringing venture capital investing to the masses," said George Nichols, a stock analyst at mutual fund research company Morningstar. "There is a huge market demand for investors wanting to get into the ground floor of promising start-ups. I think other venture capitalists will be looking closely at this one."
The MeVC fund is a closed-end fund trading under the ticker "MVC." Shares in the fund were initially sold to investors in March for $20. In their first day of public trading today they dipped to $19.25, slightly higher than the fund's net asset value of $19.04 per share.
Rather than investing in publicly traded companies, MeVC invests in emerging companies that have not yet gone public.
MeVC plans to invest primarily in technology companies, including those involved in e-commerce, telecommunications, networking and information services. The list of young companies MeVC has invested in includes online auction company AuctionWatch.com, Web-based advice company Exp.com, and Folio(fn), a creator of financial services products.
No matter how well respected a venture capital firm's track record may be, the risks associated with this kind of investing may not be for everyone. Many start-ups simply fade away, unable to survive long enough to go public or be acquired. Venture firms normally have enough diversification to write off these failures, as one successful IPO can offset several losing investments.
"Investing in start-ups isn't always a good roll of the dice--it's more like playing the lottery," said Robert Sterling, an analyst at research firm Jupiter Communications. "The payoff can be tremendous, but the odds aren't good."
Still, venture capital firms keep raising unprecedented amounts of cash--more than $12.4 billion in the first quarter of this year, an 85 percent increase over the same period in 1999, according to a recent study by the National Venture Capital Association.