How Everyday Investors Can Think Like a VC

Most investors build their portfolios around public markets, stocks, bonds, and index funds. These assets are liquid, relatively predictable, and easy to trade. Venture capitalists, by contrast, back early-stage startups that may take years to prove themselves. Their model looks riskier and less familiar, but the thinking behind it offers lessons any investor can apply.

By borrowing a few core ideas from the venture playbook, everyday investors can reframe how they evaluate opportunity, risk, and patience.

Patience and illiquidity‍

Venture capital is a long game. Startups typically take seven to ten years (or longer) to reach an exit through IPO or acquisition. Investors know their money may be locked up for a decade, and they build portfolios with that in mind.

For retail investors, this idea may feel uncomfortable. Liquidity is often seen as a safety net: if markets fall or needs change, investors want the ability to sell quickly. But illiquidity has benefits. It forces a long-term perspective, prevents knee-jerk selling during downturns, and provides businesses the space to grow without constant pressure from public markets.

The takeaway isn’t that every investor should embrace illiquidity, but that allocating a portion of a portfolio to longer-horizon assets can complement traditional holdings. The key is ensuring you invest only what you can afford to leave untouched for years.

Power-law outcomes‍

Unlike a stock index fund, where many holdings contribute small, steady gains, venture returns are concentrated. A few big winners drive the majority of results. One study found that only about 6 percent of venture deals generate roughly 60 percent of all profits.

The implications for investors are clear: Most startups fail outright, some achieve modest success, and a handful create outsized gains that make the portfolio work.

This dynamic is what makes venture so different. A traditional investor might panic at the sight of multiple “losers” in a portfolio. A venture investor expects them. The strategy is built on the assumption that one or two extraordinary companies can outweigh dozens of failures.

For individual investors, adopting this mindset means reframing expectations. Losses aren’t always mistakes, they’re just part of the model when you’re targeting outlier returns.

Diversification as risk management

Because the power-law dynamic is so strong, VCs don’t put all their money into a single startup. They spread it across dozens or even hundreds, knowing most will not succeed. Diversification is their main risk management tool.

The same principle applies to individual portfolios. Chasing one “next big thing” is risky, whether that’s a startup, a hot stock, or a trendy sector. Spreading exposure improves the odds of capturing a winner without letting one bad bet erase years of gains.

For retail investors, this doesn’t require building a hundred-company portfolio. It can mean balancing across asset classes, sectors, and investment vehicles. What matters is creating enough breadth so that no single outcome dictates your results.

Spotting industry tailwinds

Venture capitalists don’t just back clever products. They look for businesses aligned with larger structural changes, what investors call tailwinds.

Consider a few recent examples:

• The rise of smartphones enabled entire categories of mobile-first businesses like Uber, Instagram, and DoorDash.
• Streaming platforms exploded as consumer behavior shifted away from cable television.
• Fintech startups flourished alongside younger generations’ preference for digital-first banking.

McKinsey’s review of private markets highlights that industries benefiting from secular, long-term shifts are much more likely to generate outsized returns.

Retail investors can apply this thinking by asking: Is this investment moving with a broader cultural, demographic, or technological wave, or is it swimming against the current? Companies with momentum behind them don’t avoid risk, but they’re more likely to find the customer adoption, regulatory support, or investor attention needed to scale.

Direct bets vs. pooled exposure

Historically, investing in startups was out of reach for most people. Accreditation rules and million-dollar minimums kept venture capital limited to institutions and the wealthy. That’s changed in recent years. Today, there are two main avenues:

• Direct startup investing. Platforms allow individuals to back companies at an early stage. The upside is the chance to pick a breakout story early. The downside is the risk: without experience and diversification, most direct bets don’t work out. Investors must be ready for a binary outcome: spectacular success or complete loss.
• Fund-based investing. Pooled vehicles, like Cashmere, spread capital across many startups. This aims to reduce the risk of betting on one company while providing diversification across sectors and stages. For individuals, this structure also removes the burden of sourcing deals, vetting management teams, and managing concentrated risk.

Each approach has trade-offs. Direct investing can feel more exciting, but is highly uncertain. Fund-based exposure smooths that uncertainty but requires trust in the managers selecting and monitoring investments.

The venture mindset for everyday investors

Thinking like a VC doesn’t mean turning your personal portfolio into a startup lottery. It means adopting a perspective built on patience with illiquidity, acceptance of uneven outcomes, diversification as protection, and awareness of the big forces shaping industries.

Even if you never invest directly in a startup, these principles can change how you approach markets. They encourage long-term thinking, discipline, and the ability to sit with risk without panicking. And for those who are curious about early-stage opportunities, there are now more ways than ever to put these lessons into practice.

The venture playbook isn’t about betting on everything and hoping for luck. It’s about understanding that the biggest rewards often take the longest to materialize, and that a few extraordinary successes can outweigh a field of failures. Everyday investors who internalize this perspective may find themselves not only better prepared for new asset classes, but also more resilient in how they approach their overall financial future.

— 

This communication and its contents are for informational purposes only and do not constitute an offer to sell or a solicitation of an offer to buy shares of the Sweater Cashmere Fund (the “Fund”). The Fund is managed by Sweater Industries LLC (“Sweater”) as the investment adviser and Forma Cashmere LLC (“Forma Cashmere”) as the sub-adviser. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectus contains this and other information about the Fund and can be obtained by calling 1-888-577-7987 or by visiting the Fund's website at https://www.thecashmerefund.com. Please read the prospectus carefully before investing. All investments involve risks, and past performance is no guarantee of future results. The content herein is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation with respect to any products or services for any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile, or residence.