Fund Structure
Alternative Assets
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Quick Answer
Investment categories outside traditional stocks and bonds — including venture capital, private equity, hedge funds, real estate, and commodities.
Alternative assets (or 'alts') are investments outside the traditional public market categories of stocks, bonds, and cash. For institutional investors, alternatives include venture capital, private equity, hedge funds, real estate, infrastructure, and commodities. Endowments like Yale and Harvard famously pioneered heavy alternative allocations in the 1980s-90s (the 'Yale Model'), generating substantially better returns than traditional portfolios. Venture capital is considered one of the highest-risk, highest-potential-return segments within alternatives. The illiquidity premium — extra returns for locking up capital for 10+ years — is a key rationale for LP allocations to venture.
In Practice
A $5B state pension fund rebalances its portfolio to include 15% in alternatives: 5% venture capital, 5% private equity buyouts, 3% real estate, and 2% hedge funds. The VC allocation goes to three funds — a top-tier early-stage fund, a growth equity fund, and an emerging manager program. Over a 10-year horizon, the alternatives sleeve targets 15%+ net IRR, compared to 7-8% expected from public equities.
Why It Matters
The flow of institutional capital into alternatives — particularly venture capital — has fundamentally changed startup economics. When pensions, endowments, and sovereign wealth funds allocate billions to VC, fund sizes grow, more startups get funded, and valuations rise. For founders, understanding the alternatives landscape explains why there's so much capital chasing deals in some cycles and so little in others. For aspiring fund managers, knowing how allocators think about alternatives is essential to raising a first fund.
VC Beast Take
Alternative assets sound exotic, but at this point they're anything but. The category has grown so large that 'alternative' is almost a misnomer — for major endowments and family offices, these are core holdings. The real distinction isn't traditional vs. alternative, it's liquid vs. illiquid. Venture capital sits at the extreme end of the illiquidity spectrum: 10+ year fund lives, no secondary market liquidity (until recently), and returns that take a decade to materialize. Allocators accept this because the best VC funds deliver returns no other asset class can match. But 'the best' is doing a lot of heavy lifting in that sentence — median VC returns have historically barely beaten public markets after accounting for fees and illiquidity.
Related Concepts
Further Reading
What Happens When a Startup Runs Out of Money: Every Option Explained
Running out of money doesn't automatically mean the end. But it does mean a founder faces a set of difficult decisions under time pressure. Here's every option available and what each one actually involves.
Startup M&A: What the Acquisition Process Actually Looks Like
Most founders don't learn how startup acquisitions work until they're already in one. Here's a clear, phase-by-phase breakdown of the M&A process — from first contact to closing.
How VC Exits Actually Work: IPO, M&A, and Secondary Sales
From IPOs and M&A to secondaries, here's how VC exits actually work — including cap table mechanics, lock-ups, and what drives real returns for fund managers and LPs.
Biotech Venture Capital: Navigating Long Timelines and Binary Outcomes
Biotech VC is a different animal: 10-year timelines, binary FDA outcomes, and massive capital requirements. Here's how the best biotech fund managers structure for success.
How to Structure Your First Capital Call: A Step-by-Step Guide
Your first capital call sets the operational tone for your entire fund. Here's a detailed walkthrough covering timing, notices, mechanics, and common mistakes to avoid.
What Is Venture Capital and How Does It Work
A comprehensive guide to venture capital — how it works, who the players are, and why it matters for startups seeking growth capital in today's market.
Frequently Asked Questions
What is Alternative Assets in venture capital?
Alternative assets (or 'alts') are investments outside the traditional public market categories of stocks, bonds, and cash. For institutional investors, alternatives include venture capital, private equity, hedge funds, real estate, infrastructure, and commodities.
Why is Alternative Assets important for startups?
Understanding Alternative Assets is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Alternative Assets fall under in VC?
Alternative Assets falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
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