Disadvantages of Investing in a Fund of Funds

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

While a fund of funds investment approach may have benefits, there are disadvantages.

Here is a list:

The returns on a fund of funds range widely.

It's rare that a fund of funds makes more than 25% IRR.

It's just difficult to do with the funds spread across so many investment theses.

Fund of funds are expensive.

Consider the management fees and carried interest before committing to one.

Too much access.

Some fund of funds offer access to anything and everything.

With so much choice, it can be difficult to build a winning fund of funds.

Exits often come through the secondary market.

These give very poor returns.

Before investing in a fund of funds, check for references with other investors who have been in the fund.

Talk with those who have been in it for a substantial period of time, say three years or longer.

This should provide guidance on how well they work.

A fund of funds has benefits and disadvantages.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let's go startup something today.

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