WealthSimple launches venture capital investment fund for retail investors

Online investment manager Wealthsimple is now providing Canadian retail investors easier access to some of the largest venture capital firms in Silicon Valley that invest in health care and tech companies.

Through a partnership with Washington-based Accolade Partners, the company is launching the Wealthsimple Venture Fund I, a venture capital and growth equity fund that will be sold directly to retail investors. The fund will include firms such as Accel, Andreessen Horowitz and Kleiner Perkins – among some of Silicon Valley’s largest firms who put early bets on social-media platform Instagram, Airbnb and mobile payment provider Stripe.

The fund is one of the country’s first VC funds for retail investors, allowing for clients with as little as $5,000 to participate. Investors must lock in for the life of the fund, which the company estimates to be about 10 years. Funds can only be withdrawn in cases where it is legally required, such as death, divorce and bankruptcy.

Wealthsimple chief investment officer Ben Reeves said that it is an investment best suited for people who have a high degree of certainty that they won’t need to use their money for about 10 years.

Venture capital funds provide financing – typically raised through a group of institutional or ultra-high-net worth investors – to early-stage companies that have long-term growth potential. Traditionally, it is a market that has not been accessible to retail investors.

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Mr. Reeves said opening up access to the VC market for retail investors has been on the company’s radar for “quite a long time.”

“We know that in private markets there are some really great investment opportunities as long as you provide access to the right funds and in the right structure – so for us it was just a matter of making sure we could provide the really good high-quality access,” Mr. Reeves said in an interview.

“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, but high account minimums, net worth requirements, and arcane paperwork have made these opportunities out of reach for most investors.”

The access Mr. Reeves was looking for was found in alternative asset manager Accolade, which specializes in technology and health care-focused venture capital and growth equity fund investments.

Clients will be able to invest in the fund through the company’s robo-adviser platform, Wealthsimple Invest. Contributions to the fund will be invested with multiple venture capital and growth equity managers, allocated primarily to technology and health care companies.

Mr. Reeves said the venture capital portion will be invested across the full venture lifecycle – seed stage, early stage and expansion stage. Growth equity capital will be invested in two types of firms: “founder-led, bootstrapped software companies” that are at or near profitability, and would need to increase their scale or to invest in sales and marketing, and “companies with strong business models in fragmented industries.”

Clients will have to speak with a registered portfolio manager to ensure the investment – particularly the longer investment timeline – is suitable to their financial goals.

“When we looked at our investors, a lot of them are really disciplined and long-term investors,” Mr. Reeves said.

Similar to other products on the Wealthsimple Invest platform, investors will pay a management fee of between 0.4 per cent to 0.5 per cent, plus the cost of the underlying security.

For the VC fund, those underlying costs include three layers of fees: a fund administration fee covering costs of about 0.2 per cent; incentive fees paid to Accolade of about 10 per cent; and fees paid to the underlying fund managers – the VC and private equity firms – which could include up to a 2-per-cent management fee and 20-per-cent incentive fee. Like most VC funds, incentive fees are only paid if returns exceed a certain threshold, and the fee only applies to returns, not the total investment amount.

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