Buzz Archive:
Should a Venture Capital Fund Act More Like a Hedge Fund? Maximizing Private Equity Returns.

by Bill Hilliard and Charles Baden-Fuller, 7/25/2006

The venture capital industry has remained largely unchanged in its investing style since the industry's birth. VC's raise risk capital from our limited partners, take positions in pre-public firms, and ride those positions until an eventual exit. Essentially we act like mutual funds, buying low and (hopefully!) selling high.

Is this the optimal trading philosophy for maximizing returns? This paper will make the case that VC's can increase internal rates of return (IRR's) and cash-on-cash returns by acting more like "Venture Hedge Funds™." Just like hedge funds, venture funds should identify opportunities to invest in short positions that relate to their long positions so as to increase returns from profitable investments.

Is this heresy or is this the future?