Since its inception in 1946, venture capital has mostly been the playground of the wealthy and well-connected. Even in 2024, retail investors are still shut out from most VC investment opportunities.
Today, we’re looking at a company that’s trying to fix this: Doriot Venture Labs.
Doriot’s Founder & CEO, Gerry Hays puts it this way,
In the 85 years since the creation of the SEC, the landscape of the financial market has transformed in a myriad of ways. However, two policies remain untouched pillars of Securities Law: 1) The belief that increased disclosure facilitates informed decisions, and 2) The reservation of private capital markets investments for the affluent.
Doriot is the first platform democratizing VC investing through education and certification — potentially creating a pathway for millions of new investors to access the asset class.
Doriot isn’t just creating an exam – they’re pushing the SEC to create a true industry standard for investing in VC.
Note: This issue is sponsored by our friends at Doriot. As always, we think you’ll find it very informative and fair.
Let’s go 👇
Table of Contents
The evolution of VC
A brief primer on the evolution of venture capital…
The modern VC industry was born in 1946 with the founding of the American Research and Development Corporation (ARDC)
ARDC was founded by MIT president Karl Compton, Massachusetts Investors Trust chairman Merrill Griswold, Federal Reserve Bank of Boston president Ralph Flanders, and Harvard Business School professor General Georges F. Doriot.
Over time, investment in the VC industry has broadened beyond institutional capital to include angel investors, syndicates, and all sorts of new blood.
With more investors getting into the game, VC assets under management have ballooned, exceeding $1.2 trillion in each of the last two years.
VC has been instrumental in driving innovation and economic growth, responsible for producing many of today’s largest publicly traded businesses.
Here’s the problem: Unless you’re accredited, access to VC investment opportunities is limited.
In most cases, investors need to be accredited to invest in VC. In the US, the term is defined by the SEC under Reg D to refer to investors who have:
- An annual net income that exceeds $200,000 ($300,000 for joint incomes) for the last two years.
- A net worth exceeding $1 million (excluding the investor’s primary residence), either individually or jointly with a spouse.
At the end of 2022, the SEC estimated that just 18% of U.S. households qualified. While this figure has grown significantly since the definition was adopted in 1983, it means over 80% of the country is basically blocked from investing.
As VC continues to evolve, Doriot hopes to usher in the next wave of investors to the asset class – those who don’t meet the SEC’s accredited investor requirements but can prove their investment acumen by passing an aptitude test specifically designed for investing in private markets.
Access to VC is improving..
If history is any guide, the long-term trend is towards greater access and less friction:
- Most brokers now offer commission-free trades
- They have apps that essentially anyone can download to begin trading right away
- Many brokers now also support trading in fractional shares – benefitting retail investors that lack sufficient capital to purchase full shares of stocks with higher price tags.
Access to private markets is improving too. The 2012 JOBS Act mandated that the SEC write rules to allow non-accredited investors to invest in some private transactions.
- The SEC created the Rule 506(b) exemption under Reg D, which allows issuers to sell securities in unregistered (i.e., private) offerings to up to 35 non-accredited investors.
- Additionally, the SEC established guidelines for non-accredited investors’ participation in crowdfunding campaigns, setting limits on how much capital these investors can allocate to such campaigns.
The table below from the SEC illustrates the investment limits for non-accredited investors in crowdfunding campaigns:
The SEC’s crowdfunding rules also cap the amount a company can raise at $5 million over a 12-month period.
This is policed, too: In 2022, FINRA fined WeFunder $1.4m for exceeding this limit by approximately $20 million.
..But barriers remain
Despite providing a pathway for non-accredited investors to gain access to VC investments, crowdfunding is still just a small sliver of the market.
In 2023, U.S. companies raised $420 million via crowdfunding campaigns. That’s less than 1% of the $1701 billion invested into US startups that year!
Accredited investor requirements still block out a large swath of investors who don’t meet these requirements. And the barriers extend beyond investing in VC.
For those interested in starting their own VC fund, the path is often restricted to individuals with elite educations and/or extensive industry connections.
A 2018 survey of ~1,500 venture capitalists found that 40% of them attended one of just two schools – Stanford or Harvard!
Why is VC education important?
VC as an asset class has historically seen the highest gap between top-performing and bottom-performing investments, underscoring the importance of selecting the right companies and funds to invest in.
Doriot argues that access to venture investing knowledge would help new investors avoid potential pitfalls.
I’m inclined to agree.
This performance gap can be partly attributed to the investors’ willingness to prioritize hype over fundamentals. In the rush to invest in the next big thing, it can be easy to miss or dismiss obvious red flags.
Hays warns:
Investors must remain vigilant and strive to find the equilibrium between the allure of hype and the bedrock of fundamentals. This equilibrium, forged through critical analysis and due diligence, is the key to long-term success in the world of venture.
The goal: Establish an industry standard for VC education
So, how does the industry both a) provide more investors with access to VC; and b) help investors avoid getting burned?
As the potential for retail involvement in VC grows, so does the need for an industry standard to protect and educate this new cohort of investors.
This is where Doriot and their Qualified Accredited Investor (QAI) certification come in.
Doriot’s mission is to bring retail investors at or above the level of sophistication assumed under the Financial Means Test, and continue to educate them on changing dynamics of the private markets, so that they can safely participate in vetted, unregistered offerings with confidence.
Doriot isn’t just creating a test – they’re pushing to create a true industry standard for investing in VC.
What is the QAI certification?
QAI is the first “Venture Professional Certification” program to ever be introduced to the SEC as an alternative approach for accrediting individual investors.
They’ve had two Cohorts so far. Cohort #3 starts this month.
Course Details
- Cohort #3 starts Aug 12
- Doriot currently offers the exam and all study materials for $699
- Alts subscribers can use promo code Alts for a 15% discount
The curriculum is extensive. It covers the foundational concepts required to intelligently invest in VC, including:
- The rules and regulations related to investing in private markets
- Frameworks for evaluating early-stage investment opportunities
- Financial statement analysis and valuation
- Understanding the capital structure of private companies
- Negotiating pricing rounds
- Conducting due diligence
The course also comes with a slew of extras:
The QAI curriculum was developed and stress-tested by experienced VC investors, in consultation with industry contacts and legal experts, to provide an education for investing in VC that’s accessible to the masses.
Does passing the test make you accredited?
No, but as we discussed earlier this year, Doriot has petitioned the SEC to have the QAI program approved to certify individuals as accredited investors without meeting the current accredited investor income and wealth requirements.
This initiative aligns with concerns raised by FINRA regarding retail investors potentially getting in over their heads with complex products like options and leveraged ETFs. An exam like the QAI could alleviate similar concerns related to retail investment in VC.
Last year, the U.S. House of Representatives passed The Equal Opportunity for All Investors Act that would require the SEC to approve a program (administered by FINRA) allowing investors who can “demonstrate a certain level of investment competency to become accredited without having to satisfy any wealth or income requirements.”
This would be huge!
One of the benefits passing the QAI Exam is that if legislation does change, you’ll be first in line to be approved by the SEC.
But even in the meantime, it’ll set you up for future success in the world of venture investing, and you’ll get exclusive access to a network of individuals committed to building wealth through venture.
Who is Doriot for?
QAI is designed for VCs, Founders, Angels, and Advisors who want to be in the Top 20% in terms of venture knowledge and understanding.
Doriot wants you to be in that Top 20%.
- Aspiring angel investors looking to avoid costly mistakes
- Experienced angel investors looking to validate their expertise
- VCs: Perfect for those trying to break into VC, and VCs looking for a comprehensive training program for their analysts.
- Wealth advisors who want to provide valuable guidance to clients interested in alternative assets
- First-time founders: Great for first time founders hoping to avoid common mistakes
- Experienced entrepreneurs aiming to match the knowledge level of your investors
- Venture lawyers trying to build a stronger reputation among founders and VCs
Get 15% off with code ‘Alts’ →
Does Doriot have competition?
Some universities offer private equity and venture capital investing courses that anyone can apply to.
But they’re not cheap:
- Harvard’s Foundations of PE and VC course: $11,750
- UPenn’s VC Executive program: $15,000
- Columbia’s Venture Capital Private Equity program: $30,000
Even if you can afford the high price tags of the Ivy programs, there’s no guarantee you’ll be accepted.
Some VC training programs are very exclusive. Stanford’s VC: Unlocked program is invite-only, and Kauffman Fellows only accepts ~60 applicants per year.
See a common thread here?
While most VC investing programs are inherently inaccessible, due to high costs or exclusive admissions, QAI is designed to be accessible to anyone who wants a comprehensive understanding of the startup and venture markets.
To be clear: This test is very difficult!
But anyone can apply, and everyone is accepted.
Creating more than just a test…
While the QAI certification is at the heart of Doriot’s mission, the company provides a suite of products and services designed to educate and prepare investors for the world of venture capital:
Doriot’s Fantasy Startup game is a high-fidelity simulation that allows users to experience the true nature of private investing (without risking any capital).
Their First-Time Founder’s Equity Bible teaches how equity capital works.
The Doriot Venture Club offers bi-weekly due diligence reports on companies accessible via crowdfunding platforms.
And Doriot’s “Venture Weekend” networking events provide intensive, role-playing experiences that simulate the “harsh realities of venture” (e.g., wearing multiple hats) in a fun and high energy environment.
Closing thoughts
While reducing barriers to investing in VC will broaden access, it also raises legitimate concerns about investor protection.
Doriot’s QAI certification presents an interesting potential solution, aiming to ensure that investors are well-informed before they can jump head-first into VC.
But what if the SEC and FINRA decide to go in a different direction, one that doesn’t involve Doriot’s QAI?
That risk certainly exists.
However, Doriot benefits from its first mover advantage, as well the more than 150 investors (and growing) that have successfully passed Doriot’s QAI exam.
As rules and regulations continue to try to adapt to this evolving asset class, greater access to VC for educated investors has the potential to create transformational wealth for individual investors, venture capitalists, and the startups they invest in.
Ultimately, a thoughtful shift toward improved access to VC could help ensure the long-term health and sustainability of this increasingly important and growing segment of the investment industry – and Doriot is positioning itself as a beneficiary of this seemingly inevitable shift.
That’s it for today. Reply with comments, we read everything.
See you next time,
Mike
Disclosures
- This issue was sponsored by Doriot
- Neither the author, nor the ALTS 1 Fund, nor Altea holds any interest in Doriot
- This issue contains no affiliate links
This issue is a sponsored deep dive, meaning Alts has been paid to write an independent analysis of Doriot. Doriot has agreed to offer an unconstrained look at its business, offerings, and operations. Doriot is also a sponsor of Alts, but our research is neutral and unbiased. This should not be considered financial, legal, tax, or investment advice, but rather an independent analysis to help readers make their own investment decisions. All opinions expressed here are ours, and ours alone. We hope you find it informative and fair.
