Joe Hede, an investment banking professional with more than 24 years of experience, has worked at several top institutions, including Roth Capital Partners, Wachovia Securities Network, and Paulson Investment Company. The co-founder of Rocket Strategies, Joe Hede helps CEOs, CFOs, entrepreneurs, and other executives participating in venture capital funds.
Although both hedge funds and venture capital funds have the primary goal of making money for participating investors, the way these two funds accomplish good returns varies significantly.
Most hedge funds focus on investing in one or more asset classes, such as stocks, commodities, foreign exchange, or distressed debt. These investments are made using a pooled fund created by every investor involved in the hedge fund. Once investors put money into the fund, that money must remain for at least one year before the investor can make a withdrawal.
To ensure their investors enjoys good returns, hedge fund managers use multiple strategies designed to increase investor alpha, or active return. Since these funds have fewer SEC regulations applied to them than other funds, fund managers have greater flexibility to grant investors high returns. However, it also means that only accredited investors can participate in a hedge fund.
Meanwhile, venture capital funds focus on investing in small and startup companies, particularly those operating in the technology industry. Once the investment is made, venture capital funds generally receive a significant stake in ownership of the business, ensuring they receive sizable returns when the startup is sold or files an initial public offering. This method also means investors in venture capital do not receive returns for several years.
