June 30, 2022

More and more women are embracing their economic power and tackling the fundamentals of personal finance either by investing with the help of specialized professionals or by themselves. Still, the majority of them were never presented with an opportunity to invest in a women-owned venture capital fund since less than 2% of funds are in this category.

To help those women who are already part of this growing movement or even those who are taking the first steps towards educating themselves financially, Executive Women In Bio-Capital Region, brought Michelle Colucci, Founder and Managing Member of DigitalDx Ventures for the session Demystifying Fund Investing. She shared her journey while walking the participants through questions such as what a venture capital fund is, how fund investing works (amounts, timing, stage of investment, strategy, expectations), and why women need access to this type of wealth creation opportunity.

As Michelle pointed out, women are just not exposed to many of these opportunities, either because the barriers to entry are high or because findings are often shared between men first. So how does the venture fund work? It starts with someone making an investment. Usually, they have traditional minimums and a limited partnership agreement, meaning that the investor is a limited partner and the general partner is the fund.

Fund your favorites
For Michelle, the first thing to consider is the focus of the funding, choosing industries or sectors that are meaningful to investors. As an example, she used DigitalDx Ventures, which invests in AI and data-enabled diagnostics. This means companies that want to help doctors make better decisions and identify illnesses earlier are developing less invasive, less expensive, and more accurate products. “It is important that you always want to be investing in an area that has the wind beneath its sails, as you really want to be in an area that’s growing. You have to drill down into each one and ask why each one of these areas is important to making money,” she says. So based on this premise, investing in companies that are under the healthcare category makes a lot of sense since it is an area that has a lot of potential for growth.

Stage component
To that point, the stage of the fund is also important to be considered. Smaller funds, for instance, might have a really hard time raising money because there is a high barrier to entry. “Chances are, they’re really doing well, are really accomplished, and really know what they’re doing, and that’s why I believe the smaller funds, which are usually people who start a small fund for their first fund, really knocked it out of the park because they’re looking to create a legacy and so they’re very, very careful with their investments,” she explains. According to Michelle, there are different levels and strategies of engagement. “When a fund is in its early stage like we are, we really spend a lot of time with the companies that we are investing in. We’re on the board, and we are the catalyst that helps them grow.”

Time horizon
When talking about the strategies considering timing, Michelle advises that generally a term is for ten years, money that primarily the investor should not count on for this period. Given the horizon, it is worth keeping in mind that investing in early-stage companies is rarely a quick path to riches. The returns only come at the end when someone or another company buys out the shares in the funded company. Understanding what it takes to have a successful exit with companies in your portfolio is a critical skill that all funds need to develop.

Despite those factors, some others should be considered, such as track record, the rules, connections, and location. The important thing is always to acquire the knowledge and, as a woman, change the paradigm and get access to this way of building wealth.

*This article was first published at Women in Bio website.