In Silicon Valley Frenzy, VCs Create New Inside Track

Silicon Valley insiders are taking advantage of soaring values for technology startups by creating a potentially lucrative side business. Venture-capital firms such as Andreessen Horowitz and FirstMark Capital, along with a cast of prominent entrepreneurs and executives, have each raised tens of millions of dollars for impromptu funds that take a direct stake in a single startup.

These funds, which often come together in a matter of days, give institutional investors, friends and business associates exclusive access to highflying companies. The funds also let the venture capitalists invest far more money in a company than they otherwise could. In many cases, the funds are blessed by the startups, which see them as a way to raise big sums quickly. While the investments are usually billed as exclusive, can’t-miss opportunities, the funds aren't without risk.