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- Alternative investments in India are gaining prominence, and some, in particular are vying for their turn in the spotlight. As you might already know, alternative investments are new age investments that differ from the timeless traditional investments such as mutual funds, stocks, and so on.
- Among these, real estate, venture capital funds, and private equity funds are taking center stage among investors looking for high return alternatives to traditional investments.
- In this article, we’ll dive into the nuances of venture capital funds and private equity funds, and see which one is the best alternative investment for you.
What Are Venture Capital Funds
- Like mutual funds pool money from various investors and invest in stocks, bonds, and other financial instruments, venture capital funds are similar investment vehicles. Except, they pool in money from various investors to finance early stage startups and companies that have high growth potential.
- Venture capital funds focus on startups with creative business models that provide innovative solutions to important real world problems.
- These startup companies are in need of capital to grow and expand their business, and in return, investors get equity in the company or interest on the money they invest.
How Venture Capital Funds Work
- The General Partner or GP of a venture capital fund manages the fund and has the responsibility to identify investment opportunities, conduct due diligence, and manage the fund’s investments.
- The fund’s investors, who provide the capital and have limited liability, are the limited partners (LPs).
- The GP is typically a dedicated venture capital firm with experience and expertise in venture financing, while high net-worth individuals or institutional investors such as pension funds, insurance companies, or family offices can be LPs.
- Different venture capital funds invest in different stages of financing. They might be all about the Seed stage, where they invest $3 million or less into those super early-stage startup companies.
- And as things progress and startups grow, there’s also Series B, C, and so on – cash injections aimed at taking product development and company expansion to the next level.
Venture Capital Funds Market Size in India
As per a report from EY, total venture capital funds raised in 2023 were US$5.6 billion.
In January 2024, a total of 77 VC deals were announced in India, and the disclosed funding value of these deals stood at $382.9 million.
What Are Private Equity Funds?
- Private equity funds are investment vehicles that pool money from investors to invest in private companies. These funds are managed by a private equity firm, which actively manages the companies it invests in to increase their value.
- Private equity firms often take a controlling interest in the companies they invest in and may provide them with additional capital and resources to help them grow.
Features of Private Equity Funds
- Private equity funds are typically accessible to accredited investors and qualified clients. Private equity firms oversee multiple funds and portfolio companies, legally obligated to prioritize each fund’s best interests.
- However, conflicts of interest may arise between managed funds and invested limited partners. Private equity firms can manage multiple private equity funds and oversee several portfolio companies.
- These investment vehicles pool capital from various investors to invest in privately held companies, while portfolio companies are businesses in which the firm holds ownership stakes.
- The private equity firm receives payment from funds for advisory services and portfolio companies also compensate them for various services.
- Affiliates of the firm can act as service providers to both funds and portfolio companies, offering expertise in areas such as legal support, back-office functions, and technology infrastructure development.
- Advisers must make full disclosure of all conflicts of interest with the funds they manage to gain approval from investors as fiduciaries.
Venture Capital Funds vs Private Equity Funds
| Parameter | Venture Capital Funds | Private Equity Funds |
| Investment Stage | Early-stage startups | Established companies |
| Investment Focus | High-growth potential, disruptive technologies | Growth potential, operational improvements |
| Risk vs Reward | High risk, high potential returns | Moderate risk, moderate returns |
| Investment Horizon | Longer term (5-10 years) | Medium term (3-7 years) |
| Investment Size | Typically smaller investments | Larger investments |
| Control and Influence | Minority stakes, limited control | Majority stakes, significant control |
| Sector Focus | Technology, biotech, innovation-centric industries | Diverse sectors including healthcare, consumer goods, infrastructure |
| Investment Strategy | Nurturing innovation, mentoring entrepreneurs | Restructuring, operational improvements |
| Exit Strategies | IPOs, acquisitions | IPOs, acquisitions, secondary sales |
| Investor Involvement | Active involvement in strategy and operations | Active involvement, but less hands-on than VC |
| Risk Management | Emphasis on diversification, portfolio management | Due diligence, risk assessment |
| Return Expectations | Potential for exponential returns | Steady, consistent returns |
| Deal Flow | High volume, selective investment criteria | Lower volume, deeper due diligence |
| Liquidity | Longer time to liquidity events | Shorter time to liquidity events |
| Regulatory Environment | Less regulated, more flexibility | More regulated, compliance requirements |
| Networking Opportunities | Access to startup ecosystems, tech events | Networking with industry leaders, corporate partnerships |
| Geographical Focus | Concentration in tech hubs (e.g., Silicon Valley) | Global reach, investment in emerging markets |
Invest with Assetmonk
The modern day investment world has drastically changed over the last few years. The alternative investment fund (AIF) industry has seen remarkable growth, even achieving higher growth rates than traditional investment options such as mutual funds.
Investors also are becoming more empowered. More and more investors are seeking higher returns and opting to invest in hedge funds, private equity, venture capital, and alternative real estate.
Through Assetmonk innovative approach to fractional ownership, investors gain access to premium real estate assets without bearing the weighty upfront costs.
The minimum entry ticket to invest in our fractional ownership models is Rs 25 lakh. Our model allows investors to diversify their portfolio and achieve higher return rates at the same time.
Assetmonk is an alternative investment platform that offers a transparent and seamless process. We empower investors with real time updates on the property, monitoring capabilities, and customised participation in the decision making processes related to the property.
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