Venture capital investing for the masses
- June 1, 2023: Vol. 10, Number 6

Venture capital investing for the masses

by ARK Investment Management

Venture capital and retirement funds share long-term investment time horizons, making them ideal complements to one another. Individual retirement accounts (IRAs) are long-term investment vehicles, and venture capital aims to earn outsized returns over the long run.

For decades, venture capital has catered primarily to endowments, universities, institutional investors, and high-net-worth investors. Most individual investors have had no choice but to seek exposure to innovative strategies in the public equity markets. Now, thanks to fintech platforms like Titan, individual investors can access venture capital for their retirement portfolios, diversifying beyond public equities and bonds.


Two common retirement accounts are the traditional IRA and the Roth IRA, the former funded with pre-tax income and the latter with after-tax income. Both encourage long-term investing. If beneficiaries are younger than 59.5 years old, for example, the IRS penalizes redemptions by 10 percent and demands immediate payment of any income taxes due.

Venture capital funds typically invest in early-stage private companies developing exciting new products, services or technologies that, in the short term, have little or no revenues and steep losses but, in the long term, have the potential for outsized returns. Increasingly these days, they stay private for longer. One reason is the regulatory burden associated with going public has increased over time — exacerbated by legislation like the Sarbanes-Oxley Act of 2002 — and has increased the expense and time to go public. Another reason is that the U.S. tax code has favored private “carried interest” over public equity returns, so much so that venture capital firms, private equity firms, institutional investors and secondary markets have been burgeoning.


Historically, only institutions and wealthy individuals have enjoyed direct access to venture capital. The SEC has limited access to venture capital funds to accredited investors with the financial resources to weather the risks — individuals or institutions that meet asset and/or income thresholds such as net worth of $1 million and/or annual income of at least $200,000.

A key risk associated with venture capital is illiquidity, which we believe is a feature, not a bug, for investors with a long-term investment time horizon. By committing capital to venture funds, investors are placing bets on the future success of early-stage companies that have the potential to deliver significant returns through liquidity events such as initial public offerings or acquisitions. During the past 20 to 30 years, some endowments have capitalized on this opportunity:

  • Harvard University’s endowment had allocated 36.7 percent of its assets to private equity as of June 2022.
  • Stanford University’s endowment allocated 32.3 percent to private equity investments as of August 2022.
  • The University of California system also has delivered significant venture capital returns, thanks to stakes in venture capital funds like Sequoia Capital. Generally, 11.9 percent of University of California’s investments are held in private equity.

Such large institutions invest a portion of their overall portfolio because they can take on risk to potentially achieve higher returns. According to a study by Cambridge Associates, venture capital investments had an average annual return of 22.1 percent from 1990 to 2019, significantly outperforming the 9.9 percent annualized return of public equities.


We believe individual investors should be able to potentially benefit from the exposure to venture and other private funds that were previously limited to accredited investors in private equity and venture capital funds. To democratize venture capital, in partnership with Titan, the ARK Venture Fund is enabling investors to allocate a portion of their retirement and other savings to venture capital through an app. The ARK Venture Fund is an “interval fund” to which investors can contribute daily and redeem quarterly, subject to the fund’s repurchase terms that limit the amount of outstanding shares that may be redeemed each quarter as described in the fund’s prospectus.

Although venture capital is a high-risk investment, ARK believes the potential for high returns over the long term may be suitable for retirement accounts diversifying beyond traditional stocks and bonds. With a minimum investment of $500 on the Titan app, individual investors can access opportunities in private equity for both traditional IRAs and Roth IRAs.

In our experience, most investors who have expressed interest in investing in startups understand the risks associated with such investments.

This article was excerpted from a report written by ARK Investment Management. The full version can be read on the ARK website here.

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