Funds or Founders? Why Not Both

The battle cry of any new innovation often rings as an obituary for what came before it.

The dawn of television, for instance, was expected to spell the end of radio. After all, why would anyone listen to disembodied voices when you could see and hear the drama unfold right in front of you? And yet, despite its inevitable dip in mass popularity, radio found its own robust place. It adapted, transitioned, and uncovered niches, from morning commutes to background beats for small-town shops, proving that both mediums could thrive side by side.

In much the same way, fund investing and direct investing in startups are two routes that seem destined for competition but are better suited to peaceful — and profitable — coexistence.

Fund investing is often perceived as the safe, accessible option, aggregating investor money to give a slice of the startup pie without the need for direct selection.

But does that mean direct investment is losing its shine?

Paper, Pixels, and Portfolios

When Kindle was released, a similar narrative unfurled. Physical bookstores braced for doom, wondering if book covers and the smell of new pages were artefacts of a bygone era. And while Kindle’s success exploded, catering to minimalists and voracious readers alike, print books hardly vanished. In fact, physical books are still the rage, with each medium feeding a slightly different craving for readers.

In the investing world, fund investments are like Kindles: convenient, compact, and filled with a range of curated opportunities without the effort of each individual selection. An investor gains access to a carefully compiled set of startups managed by fund experts. Direct investing in startups, on the other hand, feels akin to holding a hardbound copy of a book. It’s the thrill of personally selecting and nurturing one story, knowing you had a say in its very existence.

The duality here is critical: Fund investing offers a diversified, lower-risk entry into the venture world, and direct investing lets investors connect with a select few ideas they believe in. As the Kindle didn’t kill the book, fund investing will unlikely make direct investing obsolete. Instead, both appeal to different investor portfolio goals.

Bull, Bear, and Beyond

Let’s turn our gaze to the stock market, where mutual funds democratized access to equities. For a long time, investing directly in stocks was seen as a mark of financial prowess. You picked, you won, you lost, and the rewards and consequences were your own. The allure of hand-selecting stocks hasn’t disappeared, and yet mutual funds flourished as they offered a less intense, community-like approach to wealth building. The two approaches share common roots, but still allow different levels of participation and risk tolerance.

This is the dynamic at play with fund investing and direct startup investments. Direct investing provides that all-in thrill, where investors connect with the startup’s mission, knowing both their reward and risk are their own to carry. Fund investing, meanwhile, is a smoother avenue, combining resources and expertise to mitigate some of the risks while allowing for collective growth.

Much like how both mutual funds and stock investments find a place in diverse portfolios, fund and direct investing can coexist within a single private market investment strategy. There’s no need for one approach to conquer the other when they each serve their purpose so well.

Curation vs. Control

The convenience of pooled investments echoes changes in everything from our food to our rides. Just as Uber revolutionized how we commute, fund investing has reshaped entry into venture capital and private equity, giving broader investor segments access to opportunities that would be harder to come by alone. It’s a curated approach that’s easier to navigate and more predictable.

However, the flexibility and thrill of handpicking investments — of being a direct player in a startup’s trajectory — appeal to investors wanting full control.

But who said it has to be an either-or decision? Just as the person who takes Uber occasionally still values their car, investors often find a blend of fund and direct investing gives them the right mix of convenience and control. A core, managed set of investments through a fund can anchor a portfolio, while a few carefully chosen direct investments let investors scratch that itch to steer the wheel.

So, what can we learn from these other fields?

Whether radio or video, books or Kindles, stocks or mutual funds, there’s a pattern here that speaks to the evolution of our preferences rather than the replacement of one option by another.

Fund investing and direct startup investing have followed these same principles. Fund investing offers a balanced, relatively lower-risk entry with curated selections and expert management — ideal for those dipping their toes into venture capital. On the other hand, direct investing in startups allows for a personal connection to each investment. Neither option is inherently superior; each serves a distinct purpose for investors at different stages of their journey.

Today, we’re standing at the cusp of a new era in private market fund investing. Just as mutual funds witnessed a 50x growth over the past two decades, fund investing in private markets is poised for a similar trajectory. But that doesn’t signal the end of direct investing. Both approaches will find their space, coexisting just as mutual funds and stocks continue to do in public markets. For investors, this means an evolving landscape rich with options—a balanced portfolio where fund and direct investments bring layered exposure and diversified growth opportunities.

In an age where we crave efficiency yet seek personal impact, blending funds and direct investments lets investors diversify their strategies without compromising the sense of involvement. This new financial landscape isn’t so much about one mode replacing another as it is about expanding the possibilities for everyone involved.

Just as the Kindle didn’t kill the print book, fund investing isn’t a death knell for direct investments. In fact, it’s extremely likely both will continue to flourish, each catering to the unique desires and strategies of modern investors.

After all, the best journeys in investing don’t ask us to abandon one route for another — but to chart a path that embraces the best of both worlds.

Frequently Asked Questions