Ask Titan Anything: Venture Capital Edition

Q: I know the ARK Venture Fund is new, but do you have data on the historical returns of other venture funds? It’s hard to find anything online. 

A: It’s safe to say that we are certainly experiencing a new market regime. A long-term time horizon is key when it comes to venture capital and we believe that for investors that have time on their side, venture capital can help to further diversify a portfolio.

Q: Why will the ARK Venture Fund also include public companies?  We can hold ARK ETFs or stocks directly. Why include in the fund and pay higher fees? 

A: Great question there are two main reasons i) owning public stocks enables ARK to offer the potential for quarterly liquidity and. As a reminder, ARK aims to have ~80% of the fund invested in private companies.

On liquidity – typically venture funds have 7-10+ year lock-up periods; this is something that doesn’t necessarily work for everyone. In contrast, the ARK Venture Fund will offer investors quarterly liquidity, although quarterly liquidity is not guaranteed. To do so, they’ll own public stocks which can easily be converted into cash to buy back ~5% of the fund each quarter. These holdings will be large-cap (highly liquid) companies that follow the innovation theme as well.

On deal flow – startup founders are generally seeking VC investors that have a very long time horizon. They want the time and space to build a big business on their terms, and rightly so. When your VC backer has effectively an infinite time horizon because they’re able to be an investor even after going public, that can be seen as a major value-add to the founder/company. We believe this should lead to the ARK team winning allocations into high-quality private companies. 

Q: Will IPO arbitrage really be an effective strategy, especially after a year where SPACs attempted to capitalize on arbitrage and were crushed? 

A: The ARK Venture Fund is meaningfully different than the SPAC strategies employed through the second half of 2020 and 2021. While the private and public markets might seem at odds right now, in our view, the truth lies somewhere between the two.

Important ARK Venture Fund Risk Information. You may view the ARK Venture Fund prospectus here. 

An investment in the Ark Venture Fund is subject to, among others, the following risks: The Fund has no operating history. There is not expected to be any secondary trading market in the Shares. Unlike an investor in many closed-end funds, Shareholders should not expect to be able to sell their Shares regardless of how the Fund performs. An investment in the Fund is considered illiquid. Unlike many closed-end funds, the Shares are not listed on any securities exchange. The Fund intends to provide liquidity through quarterly offers to repurchase a limited amount of the Fund’s Shares (expected to be 5% of the Fund's Shares outstanding per quarter). There is no guarantee that shareholders will be able to sell their shares. There is no assurance that distributions paid by the Fund will be maintained or that dividends will be paid at all. The Fund’s distributions may be funded from unlimited amounts of offering proceeds or borrowings, which may constitute a return of capital and reduce the amount of capital available to the Fund for investment. Any capital returned to Shareholders through distributions will be distributed after payment of fees and expenses. The Fund invests in private, early-stage companies that may be considered highly speculative. As a result, investment in Shares of the Fund involves substantial risks including risks associated with uncertainty regarding the valuations of private company investments, high rate of failure among the early-stage companies, and restricted liquidity.