by Manuel Stagars, CFA, CAIA, ERP

Abstract

This position paper introduces assimilation funds as a new approach to invest capital in startups. Instead of funding startups and hoping for extraordinary returns, an assimilation strategy recommends diversifying early stage capital across the strategic value chain of selected portfolio companies. Such an asset allocation allows investors to reap rewards when investee companies perform strongly while capping downside risk through diversification and collateral. The paper provides the underlying theory of these financial instruments, their asset allocation, and their return characteristics. It shows how the approach is helpful for venture capital firms and other investment firms. Finally, it compares the approach to traditional venture capital and points out its advantages and disadvantages from different viewpoints.

Keywords

Venture capital, early stage investment, blended fund, investment theme, startup

Full paper in the Alternative Investment Analyst Review, Winter 2015 Issue