It would need to be structured not as an ETF or Mutual Fund but rather as a corporation whose charter is to buy and hold seed stage investments, somewhat like a REIT. REIT owners don’t redeem their stock for cash from the REIT, they simply sell it to somebody else.
The valuation of the company at inception would be exactly the amount of money raised. So if it was a $500M fund it would be a publicly traded company worth approximately $500M. As those startups raise further rounds, the valuation of those rounds would drive the total paper value of the portfolio held and would (in theory) increase the stock price. If and when a startup achieves an exit, that cash goes back into the corporation for reinvestment, not for distribution to anybody. It should be highly liquid just like any stock. A more practical example might be Yahoo’s ownership stake in Alibaba. The shareholders of Yahoo did not get a cash payout when Alibaba went public, even though Yahoo itself did collect lots of cash.
Lots of VCs have written about the need for the 2/20 fee structure and that the reason for the requirement of home runs is the structure. Here is one article and here is another. Most startups don’t fail, they just don’t achieve velocity.
The first article does a good job of explaining the rationale for investing in the seed stage at all, it’s all about the pro-rata rights. The PSIF would exercise it’s pro-rata rights so a lot of the returns would come from doubling down on those companies who do succeed, not just from investing in 1000 startups and hoping for a return on those.
Anyways, great questions and I think some of your arguments hold merit. It’s all just theory unless somebody decides to go take this concept and run with it :)
Thanks for commenting, I appreciate the feedback.