One adjustment I'm making to my net worth asset allocation is reducing exposure to closed-end venture capital funds while increasing allocation to open-ended venture capital funds. Closed-end venture capital funds follow a traditional model: you commit capital, fund capital calls, and rely on the general partners to make great investment choices.
I invest up to 20% of my investable capital in private investments, as companies are staying private longer. This trend means more of the gains are accruing to private investors. There are four main reasons for this shift from closed funds to open funds, also known as evergreen funds:
- Lower Costs: Traditional closed-end venture capital funds charge 2% – 3.5% of assets under management and 20% – 30% of profits (carry). In contrast, many open-ended venture capital funds charge no carry and fees of less than 2% on assets under management.
- Greater Liquidity: Open-ended venture capital funds offer the flexibility to withdraw capital if needed. The DeepSeek panic was a good reminder that it's nice to have options. In contrast, withdrawing from a closed-end fund is either impossible or very difficult, making them less liquid.
- Visibility of Investments: With an open-ended fund, you can see the portfolio holdings before committing, giving you insight into what you're investing in. Closed-end funds, on the other hand, require you to commit capital upfront and hope the general partners make successful investments.
- Greater Simplicity: Closed-end funds often come with surprise capital calls, which can catch you off guard. Open-ended funds are more straightforward—you invest only what you're able to commit at the time, making the process simpler and more predictable. Further, some open-ended funds provide 1099s instead of more complicated K-1s for tax filing.
The Catalyst for Allocating More Toward Open-Ended VC Funds
At the beginning of 2025, I missed another $20,000 capital call from a closed-end venture fund I invest in. This marks the third missed capital call in just 18 months, highlighting that I'm falling short of my duties as a limited partner.
One of the main reasons for this is my struggle with managing email. Capital calls are always sent through email, and I get inundated with messages, largely due to running Financial Samurai. I'm currently a limited partner in eight private funds, seven of which are closed-end venture capital or debt funds. As a result, the capital calls can come in a flurry.
Fortunately, I had moved some cash into my Fidelity brokerage account and hadn't invested all of it. When the fund notified me of the missed call, I had to first send a test $100 transfer to the venture fund’s bank to ensure everything worked smoothly. After confirming that the fund had received the transfer, I then had to wire the remaining $19,900 balance.
What a hassle—especially while I’m on winter vacation with my family. The older I get, the more I want to simplify my investments by doing less for financial peace of mind.
Managing Cash Flow Can Be Tricky
Since my wife and I don't have day jobs, we also don't have steady cash flow. Therefore, investing in closed-end venture capital funds with hard-to-predict capital calls can be cumbersome to manage. As someone who likes to adopt the broke mindset, to stay hungry, I'm often finding myself without a lot of cash on hand to spare.
If you also find yourself without steady cash flow or a lot of cash sitting around, then investing in a closed-end fund might not be for you. The “problem” is, once you invest in one closed-end fund, you often get invited to invest in other ones.
The more passive the investment, the better. Investing in closed-end venture capital funds, however, is proving to be more active than I initially anticipated due to the sheer number of funds I am invested in.
A Discussion with Ben Miller, CEO of Fundrise, on Open-Ended VC Funds
During a recent conversation with Ben Miller about the residential commercial real estate investment opportunity, we continued to discuss the Innovation Fund and the successful IPO of ServiceTitan (TTAN), one of their holdings. I decided to split our conversation into two parts for easier digestion.
If I’m going to build a $500,000+ position in an open-ended fund to gain more exposure to private AI companies, I want to fully understand how the fund operates.
Here are some of the questions I asked during our discussion:
- What happens to a private company that successfully goes public, and how does this impact the fund?
- Is it harder to identify a promising company or to actually invest in that company?
- How does Fundrise and other venture capital firms compete to gain access to invest in private companies?
- How does Fundrise approach risk management in its investments?
- What’s the process for writing checks to invest in companies?
- If you don’t have cash on hand, how do you secure a line of credit to invest in a company?
- How do you provide liquidity to investors in the Innovation Fund?
- How do you determine the size of a fund you want to run?
Shifting More Capital To Open-Ended Venture Funds
I've been an angel investor and private fund investor since 2001. Since then, it’s been fascinating to witness the evolution of retail investor access to private investments, thanks to platforms like Fundrise, a long-time Financial Samurai sponsor.
Their venture capital product charges a 1.85% management fee (compared to 2%–3.5% from traditional funds) and no carry (versus the typical 20%–35% of profits). The investment minimum is just $10, a stark contrast to the usual $100,000 minimum required by most private funds. Finally, they send out 1099s not K-1s.
From now on, I’ve decided to stop allocating capital to new closed-end venture capital funds until my existing ones return their capital. If I continue investing in closed-end funds at my current pace, I could end up in 20+ funds over the next decade—a scenario that would drive me insane.
Managing my family’s finances already feels like a part-time job at times; adding more complexity doesn’t appeal to me. It's going to feel nice when each closed-end fund winds down and I no longer have to file their K-1!
Open-ended venture capital funds provide a much more practical solution. If I have the cash available to invest, I will. If I don’t, I’ll simply wait until I do.
Of course, if a top-tier venture capital firm like Sequoia were to invite me to participate in their friends-and-family round, I’d gladly accept. However, since such an invitation is unlikely, I’m committed to my new approach for investing in private companies going forward.
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