Venture capital

Venture capital (VC) is private equity's higher-risk cousin. Instead of buying mature companies, VC funds invest in young, fast-growing startups — often before they are profitable, sometimes before they have meaningful revenue — in exchange for an equity stake.

The power-law reality

VC returns follow a power law: most startups in a fund will fail or merely return the capital, and a tiny handful of huge winners produce nearly all the gains. A fund does not need most of its bets to work — it needs one or two to become enormous. This makes diversification across many startups essential, and makes single-startup bets a near-lottery.

The risk and return profile

• Return: the highest potential of the mainstream alternatives — and the widest range of outcomes, including a total loss.
• Risk: extreme. Startups are fragile; most fail. Valuations are uncertain and infrequent.
• Liquidity: among the worst. Capital is tied up for many years until exits via acquisition or IPO; there may be no secondary market.

How a retail investor can access venture capital

1. VC funds — gated to qualified/professional investors, high minimums, long lock-ups (often structured as FIPs in Brazil).
2. Equity crowdfunding platforms — regulated platforms letting smaller investors back individual startups. Accessible, but each deal is a single concentrated, illiquid bet — diversify across many and only with money you can lose entirely.
3. Listed proxies — shares of public companies that themselves invest heavily in startups (an indirect, partial route).

VC is best understood as the most speculative end of the alternatives spectrum: small slice, broad diversification, long patience, and an acceptance that individual bets may go to zero.