The Wealthsimple Venture Fund I offers a way for more Canadians to participate in venture capital and private equity investments.
Wealthsimple Venture Fund I will invest in funds managed by Accolade Partners — one of the top-performing fund-of-funds managers. The fund includes investments by firms such as Accel, Andreessen Horowitz, and Kleiner Perkins. Past investments by these firms include Instagram, Stripe, Airbnb, and Instacart.
Venture capital — and other private asset markets like private equity, credit, and real estate — have been a core part of successful investors’ portfolios for years. These opportunities have historically been off limits to most investors, due to prohibitively high account minimums, multi-million dollar net worth requirements, and arcane paperwork processes.
Wealthsimple is removing these barriers so more Canadians have access to this type of investing.
Frequently asked questions
Why do people invest in private markets like venture capital?
Private assets like venture capital offer the potential for high returns, and can be a good diversifier to traditional equity-concentrated portfolios. These assets are less liquid, but investors have historically been compensated for taking this risk. Many clients have long enough investing horizons to make this risk/return profile attractive.
How do I know if this investment is right for me?
Private investing is not right for everyone. An investment in Wealthsimple Venture Fund I and any underlying Accolade fund is illiquid, meaning that it cannot be readily sold at a current market price.
Assets that are less liquid generally carry more risk — particularly the risk that you won’t have access to the money if you need it. This type of investment is typically suitable for investors who have a long enough (approximately 10 year) horizon to make this risk/return profile attractive.
There are a couple other inputs to consider: the amount you’re investing, and how much of your total investment portfolio is being allocated to private assets.
There are some fixed costs associated with private investments, which can eat into returns at small dollar levels. That’s why our advisors typically recommend an investment of around $5,000 at minimum. We’re also capping our clients’ allocations at 10% of their investable assets to make sure they have enough flexibility to meet any unexpected cash flow needs that come up.
If you’re interested in this investment opportunity, a Wealthsimple portfolio manager will discuss it with you, will update your “know-your client” information on file with Wealthsimple and will determine whether the updated investment portfolio is suitable for you.
What kinds of returns should I expect?
Like all investments, nothing is guaranteed.
Over the past 25 years, an index of private equity and venture capital has returned 15% (net of fees) per year, offering returns 5% above the S&P 500*. Accolade has historically outperformed public markets by even more, with its longer tenure funds outperforming public U.S. stocks by 7 to 21% (net of fees), depending on the fund**
With any investment, your capital is at risk. The value of your portfolio with Wealthsimple can go down as well as up and may result in significant investment losses. Past performance of an Accolade fund or other security or strategy is no guarantee of future results. Read our investment risk disclosure for more information.
*Source: Cambridge Associates Venture Capital and Private Equity Index as of 9/30/2021
**Source: Accolade Partners
What will my money be invested in?
Most of the contributions will be invested in venture capital and growth equity managers, and will be allocated primarily to technology and healthcare companies.
On the venture capital side, the capital will be invested across the full venture lifecycle in technology and healthcare companies: seed stage, early stage, and expansion stage. Most of the capital will be invested in three managers with long track records of strong performance: Andreessen Horowitz, Accel Partners, and Kleiner Perkins. The fund will allocate to about 10 venture managers in total.
Growth equity capital will be invested in two types of firms. The first are founder-led, bootstrapped software businesses that are at or near profitability. These firms need capital to grow and reach their full potential, and are typically minority investments. The second are companies with strong business models in fragmented industries. These firms grow with add-on acquisitions to increase scale, and operational improvements, with hands-on private equity managers that assume control of the businesses.
When will I start seeing my investment pay off?
Not for a while. With private investing, patience is not just a virtue, it’s a requirement. It takes a couple of years for venture capital investors to find the companies to invest in, and several more for the companies to grow. So, venture capital investors typically don’t report big gains until 7—10 years in. That’s why investors tend to say the path of private investments looks like a “j—curve” - shallow then steep. That doesn’t mean your money isn’t at work, it’s just that without people buying and selling shares in these companies all the time, like they do in public markets, it’s harder to know how much money you’re making until you’re closer to the end of the fund.
Who will manage the fund?
The underlying investments are selected by Accolade Partners, a fund of fund managers based in the United States with a twenty-year track record of performance that is in the top quartile of venture capital fund returns. Wealthsimple will manage a fund that gives our clients access to the investments selected by Accolade.
What are the fees?
An investment allocation to Wealthsimple Venture Fund I and its direct and indirect underlying funds will be subject, directly or indirectly, to management fees, incentive allocation and other fund expenses.
Fees for funds of this type are a little more complicated than for our standard investment portfolios. Just like for our other Invest products, Wealthsimple charges a management fee of 0.4-0.5%, and the client also pays the cost of the underlying security.
In this case, there are three layers of fees clients will pay for those underlying securities: a fund administration fee covering costs of about 0.2% (this goes to things like audits and custody); fees paid to Accolade; and fees paid to the underlying fund managers – the VC and private equity firms.
The underlying fund manager fees will vary based on the particular fund and its performance, but industry standard is roughly a 2% management fee and 20% carry, or share of profits above a certain hurdle. Accolade’s fees are a 10% carry, and go up to 15% above a 2.5x return, net of the underlying manager fees. Accolade will not charge a management fee.
A Wealthsimple Portfolio manager can help you understand the approximate fees you could pay based on the size of your investment and potential returns.
Can I use my RRSP or TFSA to invest in this fund?
No. It is against Canadian law to hold illiquid securities, such as venture capital, in registered accounts.
Can I sell or transfer my investment?
No. We will make transfers in cases where it is legally required, like death, divorce, and bankruptcy. But we will not be able to facilitate sales or transfers for any other reason.
How do the underlying venture and private equity funds decide which companies to invest in?
Accolade’s venture capital managers typically invest at the seed and Series A stages, where companies may not have found product-market fit or are in the early stages of generating revenue. Managers making such investments tend to focus on the team behind the startup and the size of the market opportunity they are going after.
Accolade’s growth equity managers typically invest in revenue-generating companies that are profitable or near profitability and which have not previously raised institutional capital. These managers are assessing potential synergies, process improvements, and growth initiatives in order to determine the likelihood of successfully realizing a gain on the investment over a relatively short holding period.
Can you share any more info on the size of the fund, and what Accolade's areas of focus are for this particular fund?
Accolade’s focus is on investing in top-tier, US-based venture capital and growth equity firms. Accolade has a long track record of securing allocations with some of the most sought-after managers in the industry and has not significantly altered their strategy over the two decades they have been managing fund-of-funds. The Wealthsimple Venture Fund I will invest in three Accolade funds: Accolade IX, Accolade Growth III, and Accolade Venture I. Across the three funds, Accolade is targeting approximately $1.3B for their fundraise. The size of Wealthsimple Venture Fund I will depend on client demand.