Capital Q Ventures: Empowering Companies, Enriching Investors, and Fueling Entrepreneurial Spirit.

Reid Hoffman
Entrepreneur, Investor & Strategist

Reid Garrett Hoffman is an American internet entrepreneur, venture capitalist, podcaster, and author. Hoffman was the co-founder and executive chairman of LinkedIn, the business-oriented social network used primarily for professional networking.

Reid recently posted on twitter:

1. Be inclusive.
Many board meetings are dominated by one or two board members.
The best boards seek out the opinions of everyone in the room, not just the loudest.

2. Fundraise proactively. 
Most boards reactively raise money when the company runs out of cash.
The best boards proactively plan for fundraising opportunities like market shifts and inbound offers.

3. Advise, don’t pilot.
The worst boards can break a company by dictating priorities.
The best boards take a hippocratic oath of “do no harm”. They aren’t pilots. They’re front-seat advisors.

4. Hire for cofounder mindsets.
The best boards understand this secret to hiring great executives.
People with a cofounder mindset are willing to take risks when success isn’t guaranteed.

5. Invest in relationships.
Hollywood idolizes board meetings as the place where crucial decisions are made.
The truth is the best ideas, collaboration, and feedback happen outside the boardroom in informal 1:1 meetings.

6. Tap into individual superpowers.
Everyone has a superpower — a unique combination of skills, experiences, strengths, and networks.
The best boards leverage the superpowers of individual board members, to help the company navigate threats and unlock opportunities.

7. Send personal emails.
How would you feel if you got a personal email from someone on the board of your favorite company?
The best boards send personal emails to help the company sell, hire, and raise money.

8. Think big. 
The best boards are the CEO’s biggest cheerleader. They inspire the company to stretch the limits of what’s possible.
Airbnb famously did this by designing an 11-star experience for guests.

            Warren Buffet once famously said, “Diversification is a protection against ignorance; it makes little sense for those who know what they’re doing.” There is a long-held belief that diversifying your investment portfolio is one of the keys to reducing unsystematic risk. However, is there such thing as over-diversification? The short answer is yes. Studies show that you do not need thousands of companies in your portfolio to effectively allocate your assets.

            The question then, is how do you eliminate business risk without over-diversifying my assets? The truth is, is that most of us do not understand how too properly analyze investment opportunities, and even so-called financial experts get it wrong. This can pose another problem.

            When running the Oracle of Omaha, Buffett would frequently take large stakes in companies as a way to influence their management. With this style of investing, Buffett was able to unlock value in undervalued assets, and learn everything about every company he owned.

            The way that CAPQ mitigates this risk is through our creation of the Tri-Party Venture Funds®. We do this by seeking out high-performing special Venture Partners, who have verifiable, historical, and consistent business models. The way we monitor these assets post-investment is through specialized Deal Teams, who become experts and are able to dive deep into our fund activity. We see this method as superior because it does not rely on diversification, rather specialization. This does not, however mean that the model is perfect, as any investment has the potential to lose money.

            In conclusion, knowing what you are investing in is your greatest hedge against loss. Simply diversifying your assets with thousands of companies having done no prior research, may hurt your portfolio in the long run as it can hinder overall performance.

Demand for alternative strategies is growing as advisors seek to differentiate in an increasingly competitive market and investors look to maintain returns in a changing environment. Today, the traditional 60/40 portfolio comprised of public equities and fixed income is forecasted to generate about half of what it has historically, with significantly more volatility1, creating a pressing need for new sources of diversification and growth in high-net-worth portfolios.

Simultaneously, alternative investments such as specialty hedge funds, similar to Tri-Party Venture Funds®, private equity funds, other fund products, as well as direct private deals are becoming more mainstream. An October 2017 PwC industry report forecasts that alternative investments will surpass $21 trillion in assets by 2025, more than doubling in size in eight years and reaching 15% of all global assets under management2.

Much of this growth has been enabled by the rise of new technologies and platforms that have made it possible to efficiently aggregate thousands of individual high-net-worth investor commitments, thereby opening access to opportunities that previously were only available to large institutions. Advisors are increasingly taking advantage of these choices to offer a diverse range of alternative investments to their clients. However, certain obstacles to high-net-worth investment in alternatives identified in prior CAPQ research, such as illiquidity, high minimums, and access to high-quality offerings, still exist. Varying levels of obstructions with legacy institutional structures also create challenges in ease of access to alternative investments across traditional wirehouses, brokerages and asset management companies who support traditional and independent advisory firms.

What is clear is that all types of advisors are increasingly interested in alternatives and looking for ways to incorporate new exposures and strategies, particularly specialty hedge funds, into client portfolios. As increasing private wealth and an evolving alternative investment landscape continue to stoke advisor demand for these asset classes, we expect that innovations in technology and product offerings will further democratize alternatives for the high-net-worth market and serve advisors with more accessible solutions.

1. Can a 60/40 Portfolio Still Produce Solid Returns?, Financial Advisor IQ, July 5, 2017
2. Asset & Wealth Management Revolution: Embracing Exponential Change, PwC, October 2017; awm-revolution-full-report-final.pdf

Recent Trends in Wealth-Holding by Race and Ethnicity: Evidence from the Survey of Consumer Finances

By Michael Quatrini
Full Report

I recently read a disappointing report from the Board of Governors of the Federal Reserve System on Recent Trends in Wealth-Holding by Race and Ethnicity: Evidence from the Survey of Consumer Finances. The report showed newly released data from the Survey of Consumer Finances (SCF) showing that wealth rose for families in all race and ethnicity groups between 2013 and 2016.

Wealth rose for families in all race and ethnicity groups between 2013 and 2016.

The long-standing and substantial wealth disparities between families of different racial and ethnic groups, however, have changed little in the past few years. Wealth losses during the Great Recession, and the magnitude and timing of the recovery, also varied substantially across families grouped by race and ethnicity. This FEDS Note explores in more detail these patterns and average differences in financial and demographic profiles of families grouped by race/ethnicity.

Household financial profile
The detailed household balance sheet information collected in the SCF allows us to move beyond total wealth to explore differences in income and the types of assets and debt held by families within each race/ethnicity group.

Wealth tends to increase with income because of higher levels of saving among higher-income families, and because of the feedback effect on higher incomes from the returns generated by accumulated assets. In 2016, both median and mean incomes are higher for white families than for all other groups of families ($61,200 and $123,400, respectively). Median and mean incomes are considerably lower for black and Hispanic families, whose median incomes are $35,400 and $38,500, respectively. Median and mean incomes for other families fall in between those of white families and black and Hispanic families.

Full Report

Intergenerational Wealth

Intergenerational relationships can also influence how families accumulate wealth–for example, receiving assets from relatives in the form of inheritances and other major gifts. In addition, households are better able to maintain their wealth when they can count on help from family and friends to weather unexpected financial emergencies. White families stand out as the most likely to have received an inheritance or other major gift–26 percent of white families have received an inheritance, compared with less than 10 percent of black families and Hispanic families. Most white households (71 percent) report being able to get $3,000 from family or friends in a financial emergency, compared with less than half of Hispanic and black households (49 percent and 43 percent, respectively).

Our commitment to helping create your Family Office

From childhood, having grown up in a family without means, I have worked my entire life to ensure my future generations will never encounter similar hardships. My takeaway is no matter what ethnicity or economic situation every family from the earliest stage needs to work hard and set aside even the most meager nest egg with a goal to create a multi-generational Family Office, in an effort to help them not only save for their next-generation but also benefit from the tax laws thereby creating intergenerational wealth. And train their children it is their noble obligation to pass on more than they were given. CAPQ stands committed to educating Family Sponsors and helping folks organize the paperwork to create and manage their Family Offices in an effort to help them build their own legacy for their family’s future.

The legendary Warren Buffett has famously said he is against diversification. “Diversification is a protection against ignorance,” Buffett once said. “[It] makes very little sense for those who know what they’re doing.”  But then again Buffett has a huge capacity to read and interpret company public disclosures, analyst information, and financial statements that most professional and non-professional investors can do.  And due to his constant cash positions, as he digests so much market information, he can act on that information more quickly and nimbly than most investors.  More importantly, as opportunities are presented to most investors, as they tend to seek deployment strategies and rebalancing efforts of their portfolios, it becomes difficult for folks to take advantage of any non-diversified “best of breed” investments in each sector.  

Buffett is not wrong… but how do today’s investors seek and find stallions among the herds of donkeys.  

Let’s use that herd analog for the current ETF marketplace and the hugely diversified fund portfolios that so many investors have loaded up in their portfolios.  Sure, there are some great companies in State Street Global Advisors’ SPDR S&P 500 ETF, which is one of the largest and most heavily traded ETFs in the world, who offer exposure to one of the most well-known equity benchmarks the Standard & Poor 500 Index.  But even in this elite group of companies, there is at any given moment the #1 performing stock and the #500 worst-performing stock.  Just because you bought an index fund that is a mirror of the entire group of companies, does not take away from the fact that these stocks tend to be correlated and move in similar directions and there is no ability to flow money into the “best of breed”, in the entire group.  This is similar to every broad-based overly diversified investment, and just because the financial industry touts diversification as safe, it has only been the Alternative Investment community who has created hedges geared to cover when these correlated markets move adversely to their investors.

Capital Q Ventures finds the “best of breed” companies by following a strict disciplined approach when sourcing viable Venture Partners. From our intensive charrette process to our imbedded analysts within every Venture Partner, along with our steadfast requirements of twenty-five years successfully doing business with ten years of verifiable success, a need for capital on a long term, consistent basis, and Venture Partner exclusivity, among many other factors, allows Capital Q Ventures to provide an above market, risk adjusted return to the investors at an arguably lower risk factor than others in the same asset class.

While we understand the everyday investor may not have the time or knowledge to find the “best of breed” companies to invest in, we believe the Tri-Party Venture Fund® approach, that Capital Q Ventures has established, gives every investor the ability to have a true non-diversified, non-correlated hedge which does not move due to market sentiment and maintains a less volatile nature, as opposed to the broad stock market ETFs and indexes.      

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