RISK CAPITAL

  • ¨Risk capital is funds invested speculatively in a business, typically a start-up.
  • ¨Risk capital comes from private equity. Funds belonging to high net-worth individuals and institutions that are amassed for the purpose of making investments and acquiring equity in companies. Venture capital is a common type of private equity
  • ¨Risk capital is your home-run money. It refers to funds that are invested in high-risk, high-reward investments. That can mean alternative investments such as venture capital, hedge funds, or private equity; or it could be funds used to start your own small business. It can also just be a subset of your portfolio set aside simply for taking on extra risk.
  • ¨Generally speaking, risk capital is money that, if lost completely, would not have an overly harmful impact on you financially. It’s money you can afford to lose.
  • ¨The amount of risk capital at your disposal will change with time. When you’re young, you may not mind taking a few swings for the fences. If one works out, great. If it flops, you still have 20 or 30 years to earn and save.
  • ¨When you’re older, you may not want to put as high of a percentage of your hard-earned savings at risk. However, because your nest egg has probably grown larger in dollar terms, a smaller percentage could nevertheless work out to a larger dollar amount. If that’s the case, you could take more home-run swings without putting your financial future in jeopardy.
  • ¨No matter how old or young, rich or poor, all investors have some percentage of their portfolio that could be considered risk capital. We work hard to diversify our investments across industries, asset classes, and so on. Many of us fail to consider risk as a factor that should be diversified as well.
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