Alternative Investments for Entrepreneurs
Founders know what it’s like to create opportunities. Through their effort, ideas,
innovation and day-to- day work, they create companies out of nothing, employing people and generating innovative opportunities for investors who want to use venture capital as an alternative investment opportunity.
But more than that, founders are good at recognizing opportunities—after all, that talent is often what drives them to burst through obstacles and opposition to develop their own companies. This is why many entrepreneurs enjoy exploring alternative investments such as venture capital, hedge funds and futures.
Founders are often a perfect fit for alternative investments when trying to diversify their assets, but there are still things they need to consider before investing their capital.
Liquidity: Not all alternative assets are easily and quickly sellable. If liquidity is a concern, as it is for a lot of founders who fund their own businesses, then you want to stick with more liquid alternative investments and avoid or limit those that could create cash flow or redemption problems.
Risk tolerance: Alternative investments are not necessarily innately riskier than other investments, but they can be. Make sure you truly understand how much risk an investment presents and, if it’s uncorrelated, what unsystematic risks might be present and how you can best hedge against them.
Timeline: Even if you don’t have to worry about ongoing liquidity, you still need to consider your overall timeline. Make sure any alternatives you invest in will be likely to meet your growth, income and/or liquidation timeline.
Alternative investments can be a great addition to any investor’s portfolio. Just make sure you consider their role and the potential risks they introduce.
There can be no assurance that alternative investments will be profitable and will even outperform asset classes correlated to the stock and bond markets. Alternative investments may be offered only to clients who meet specific suitability requirements and are not suitable for all investors, as they involve specific risks that may be greater than those associated with traditional investments, including: limited liquidity, tax considerations, incentive fee structures, potentially speculative investment strategies, and different regulatory and reporting requirements.