Venture Capital: How Some Invested in SpaceX and Others Like it Before the Debut
SpaceX listed its IPO June 12th, and it went down as the largest transaction in market history. Many early investors and early employees experienced a record financial windfall. This left many people wondering how they could have invested earlier and benefited from it’s record valuation. Others may be wondering if now is the time to buy and what upside remains. While I don’t know what a new investor today will experience, I would like to speak to those wondering how they could have participated earlier. Because, for those early participants, the gains have been life changing. So how could you have gotten involved earlier? For most, early involvement means investing in Venture Capital and I will cover that here.
According to Registered Agents, Inc. business formation report, more than 5 million new businesses were formed in 2025. That is a lot of new businesses and a sign that the spirit of entrepreneurship is alive and well in the United States. The odds that any one of these businesses will become the next SpaceX? Without doing the math, let’s just say that it’s small, very small. However, many will experience varied levels of success and may seek financing along the way. This financing is where the opportunity for outside investors to participate lives. Let’s walk through those stages.
Startups raise capital in stages as they grow:
Bootstrapping
I’m sure you know at least one person in your life who started their own company and poured all their own money into it. This is referred to as bootstrapping. Bootstrapping means funding the business with personal savings, revenue, or debt without outside equity investors. At this stage, the only form of outside investment comes in the form of debt; a bank loan, credit card balance, HELOC etc.
Friends & Family Round
When a company achieves some level of success and believes there is more upside, they may pursue funding from outside investors. The funding may be necessary to support growth or get themselves out of a cash flow crunch. Naturally, it is easiest to ask friends and family for some money. This is a less formal process and can strain some relationships. Proceed with caution.
Angel Investor
This is the first step in a more formal process. Most people have that one relationship with someone who has been very successful and has excess capital to invest, or you may know of someone. They may even have some operational expertise in the business they’re running. Angel investors can write larger checks and will formalize the agreement with an ownership stake in the company. They may even be familiar with the next step in the process, Venture Capital.
Venture Capital Funds
The most common way for investors to participate in private company ownership is done through a venture capital fund (VC). Access to top-tier funds is often through wealth advisors, family offices, or specialized platforms. Minimums and availability vary significantly. Before getting involved, it’s important to understand a couple terms.
General Partners (GPs) manage the fund, source deals, conduct due diligence, and support companies. They typically have direct industry experience in the areas they invest.
Limited Partners (LPs) like you provide the capital.
What you should know about General Partners:
While you will not directly bid on companies you like, the general partners you work with will. The general partners typically have strong industry experience for the market they are serving. Shark Tank is a great show for understanding what role the General Partners play. You can check out the most successful investment from the show in the nearby video. In the Scrub Daddy pitch, Lorie Greiner pursues the deal most aggressively. She is the QVC queen and is very familiar with consumer products like Scrub Daddy. Money matters but her industry experience makes her best suited for that type of product. This also impacts what kind of opportunities they invest in. I want to clarify that she is investing her own money and not on behalf of a VC fund but the process is indistinguishable from a VC.
Entrepreneurs are looking for the best partner to help them, not just the money. Queue the old Visa commercials “Receiving $200k? Helpful. Having the buy in from an investor like Lorie who could launch your product into the stratosphere with her network and expertise? Priceless.” Access to a network is a huge motivator for an entrepreneur and this means the top VC’s tend to see the best deals. There are always outliers, but generally the best companies to invest in will approach the best firms first because they know the value of the network. These same venture firms also experience high demand from investors trying to get in which leads to higher minimum investment requirements.
The numbers:
When a VC invests, they will ask for a % of the company at a given price. $200k for 20% would be an example. This places the value of the company at $1M, if 20% of the company costs $200k then 100% will cost $1M.
How do you, as an investor in a VC, benefit?
A VC will buy shares in numerous venture stage companies. Unlike public stocks, they are expecting most of the investments to be complete failures. By failure, I mean going out of business. However, up to 10% may be complete rockstars. This is where they earn most of their returns for you as a limited partner in the fund.
The Risks First: What You Should Know
High failure rate: Approximately 75% of VC-backed companies return little or no capital, with many going to zero.
Power-law returns: In a typical fund with 20-30 companies, 1 to 3 will be home runs and generate most of the return. The remaining companies deliver modest returns or no return at all, losing money.
Illiquidity: Your money is usually locked up for long periods of time, 5 years or longer.
Poor early years: Returns in the beginning tend to be poor due to fees and company write-downs.
High minimums and barriers to access: Typical investment minimum is $250,000, with top funds requiring more.
The payoff
VC investments that turn into complete homeruns will go through an initial public offering like SpaceX. This gives the fund access to the largest market in the world and allows them to exit at the highest valuations. “SpaceX went public via IPO on June 12, 2026, in what became the largest IPO in history. It raised approximately $75 billion at a valuation of $1.77 trillion. Early investors, including Elon Musk’s initial capital and early backers like Founders Fund, saw extraordinary returns as the company scaled.
While an IPO is the ideal exit, there are other exit opportunities.
Acquisition by a larger company.
Secondary sale to another investor.
A private equity firm may buy the company, providing shareholders with an exit. They may also sell to another company that could be publicly traded or private. Companies like Medtronic are always shopping for healthcare startups that have been successful. This holds true for most large companies. Find an early-stage company with success that is ready for a larger investment.
Who can invest in VC funds? For starters, not everyone is allowed to participate. VC is a risky business and 75% of companies invested in go bankrupt. Given the risk level there are legal safeguards in place to ensure those who get involved are financially able to take the risk and understand what they are getting into. There are two general titles an investor needs to qualify under to participate in VC. They are accredited investor and qualified purchaser. Definitions follow.
Accredited Investor: Income of $200k for individuals or $300k jointly for past two years that is expected to continue or $1M net worth, excluding primary residence. Certain professionals also qualify with direct industry involvement. Think analyst at the VC fund or licensed securities professional.
Qualified Purchaser: Typically, $5M+ in investments with higher thresholds for some vehicles.
So you qualify for investing. What else should you know?
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Fee structure:
The typical fee structure is known as 2 and 20. Broken out, this means you will pay 2% annually on your investment independent of how the fund performs. 20 means you will pay 20% of all profit on winning investments to the fund’s general partners. Given the high fees and low success rate for investments, this is not easy money.
How do you find the best venture fund?
Typically, the better the venture fund the higher the requirements to participate. The best funds typically carry high investment requirements. Minimums tend to start at $250,000 and go up from there. One of the top firms out there, Founders Funds, has a minimum of $10M. In addition to the numbers, expertise of the general partners is important. Have they launched successful companies themselves? Do they have access to top tier deals through their network?
Risk management:
You should never put all your eggs in one basket and that is especially true with VC. Typically, VC is an allocation within a portfolio, similar to an individual stock. 5-10% might be a typical weighting. While this may be a rule of thumb, it is important to consider your unique goals, risks and circumstances.
Taxation:
There is a tax benefit for those who invest early in a startup. IRC section 1202 provides qualifying investors with the ability to pay no tax on their gains if they meet certain criteria. I won’t include all the criteria here, but I have summarized the key points below. Requirements are complex and have been updated; always confirm current rules with a tax professional.
Must have acquired shares directly from company
Issuer must be domestic C corporation
Corporation’s assets must not exceed $50M prior to OBBBA, $75M after
5+ years, 100% of gain excluded
Cap on gain exclusion up to $15M
Not everyone will hold shares qualifying for this special tax treatment and it depends on each arrangement with the VC you invest with. For everyone else who does not receive the preferential tax treatment, they will likely pay preferential long term capital gains tax rates on their gains. This does not apply to investments done through retirement accounts which have their own set of rules. Roth accounts pay no tax and IRA accounts pay their standard tax on distributions, independent of gains from investing.
Is VC Right for You?
The only way to appropriately answer this question is to consult with your financial professional. Every investment carries with it unique risks and it’s important to consider those risks within the context of your overall financial goals. There are plenty of successful investors that never touched VC and there are those who only invested in VC. There is no one right answer when it comes to investing but it’s important to understand what you are getting into.
Hopefully, this article will benefit you, a friend or family member.
Thank you for taking the time to read this planning commentary. I pray it helps you or someone you care about.
Kyle Lottman, CFA, CMT, CPA
Wealth Management Advisor
Elevate Capital Advisors
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