Union Square Ventures is killing it.
With investments in such winners as Twitter and Tumblr, Union Square (“USV”) is one of the top-performing venture capital funds in the world.
Across their funds, they’ve earned average annual returns of 61.12%.
To put that in perspective, a 61% annual return would turn a $100,000 investment into $1,085,794 in just five years. In seven years it would turn into $2.8 million.
What's the secret to USV’s success?
Many believe it has to do with their investing style – something known as thematic investing.
Let me explain what this means – and then show you how you can replicate it.
Thematic investing is about anticipating a trend that may happen in the future – an emerging market, technology, or need – and investing early to capitalize on that trend.
It’s a “top down” approach, and requires a relatively long time horizon.
An investor will identify a theme, then invest in several start-ups that stand to benefit.
In USV’s case, this has proven to be an effective strategy. It’s helped them gain a deep understanding of specific sectors.
One of USV’s current themes is new forms of payment mechanisms – mechanisms like Bitcoin that are divorced from any centralized government.
They invested, for example, in Coinbase and Dwolla, companies that stand to benefit from recent global excitement around Bitcoin and other digital currencies.
As a speculative investment, Bitcoin has had a wild ride. A year ago, it was trading at about $20. Since then it’s traded higher than $1,000. It’s currently at about $500.
But USV isn't in the business of currency speculation – they invest in operating companies that can capitalize on the overall theme.
Now It’s Your Turn
Recently we came across a new way for investors like you to do thematic investing.
It’s an efficient way to invest in a basket of start-ups focused on a theme. They’re like thematic mutual funds.
The baskets are created by a crowdfunding platform that we cover here at Crowdability. It’s called FundersClub.
So far, FundersClub has built an impressive track record. Although it’s early days for them, they currently top the venture charts alongside USV, with reported annual returns of 41.2%.
FundersClub is putting together 3 themed funds you can invest in.
Let’s take a look.
Three Themed Funds From FundersClub
1. Innovative Payment Systems
FundersClub shares USV’s excitement about new payment solutions.
In fact, they’ve already funded several start-ups in this area.
Now they’re launching a fund dedicated solely to Bitcoin-focused companies and other “cryptocurrencies” and payment mechanisms.
They’ll raise capital from 95 investors, then they’ll invest that capital into numerous businesses that fit the payments theme. As an investor in the fund, you’d receive a stake in each business.
2. Health and Wellness
A second fund revolves around the theme of Health and Wellness.
This trend is often called the “quantified self” – using data to improve your health and wellness.
3. “Connected” Hardware
And their third fund is about “smart” hardware --
Hardware like home thermostats – or even drones or robots – that can be connected to the internet to make them more “intelligent.”
What’s The Catch?
Thematic investing is a strong strategy…
And given the risks of early-stage investing, a themed fund is a good way to get diversification.
So what’s the downside?
Well, to begin with, certain themes might not work out as planned. For example, venture capitalists poured billions into clean-tech – and haven’t made much of a return yet.
And even if a theme is spot-on, the specific companies in the fund might not work out.
Furthermore, these funds aren’t traded on a market like the Nasdaq, so there’s no way to sell your shares if you need money to pay the mortgage. You won’t receive a return unless one of the fund’s companies is acquired or goes public.
Here’s some of the fine print for the FundersClub funds:
- Investment Minimum: $5,000
- Average management fee of 0.5% over the fund's expected ten-year life
- FundersClub will keep 10 cents of every dollar of net profits
If you’re interested in taking a look, you should move quickly:
There are only 95 spots in each fund.