His firm, Draper Fisher Jurvetson (DFJ), has just announced that it's helping to create a $500 million venture fund for those who want to invest as little as $5,000. Internet startup MeVC.com (a DFJ investment) of San Francisco will be responsible for raising the money and dealing with the Securities and Exchange Commission to establish a closed-end mutual fund labeled MeVC Draper Fisher Jurvetson Fund I.

Mr. Draper says he became involved in this fund because "venture capital has historically only been available to millionaires and large institutional investors. We want to allow the small investor a chance to participate in this important driver of the U.S. economy."

But seriously, what's really the reason? Why would a VC firm go to all this trouble when it can raise money for a fund from institutional investors in a matter of months or even weeks? Industry watchers are dubious. Michael Murphy, editor of the California Technology Newsletter and comanager of a few mutual funds, says, "When I've talked to VCs, they all tell me, 'We have all the money in the world already coming in, why would we need to go elsewhere?'" Neither DFJ or MeVC.com could comment because of the SEC-imposed quiet period.

FUND IN THE SUNIn its initial filing, the MeVC Draper Fisher Jurvetson Fund is being created as "a business development company (BDC) under the Investment Company Act." Essentially, it's a closed-end mutual fund used to fund information technology startups in the Internet, telecom, networking, and infrastructure industries.

DFJ will identify and negotiate investments, and in return will receive a 2.5 percent managing fee and 20 percent of any profits, like any other superstar VC firm. MeVC.com will act as the advisory firm, managing day-to-day operations. This San Francisco startup, launched in June, received $4.5 million in funding from DFJ, its so-called "sub-advisors."

Prospective investors need at least $5,000 to invest as well as a net worth of $150,000 to qualify. They are also restricted from investing more than 10 percent of their total net worth.

Even though this fund will not be operational for at least another three months, small-fry investors are expected to pay and play. The VC industry overall has beaten the S&P 500 by a mile, with a ten-year annualized average return of 27 percent compared with the S&P's 19 percent. And with investments like Kana Communications, which has generated 100-percent-plus returns for its investors, DFJ certainly has a track record to boast about.

REMEMBER THESE THINGSBut investors should remember a few things. For starters, closed-end funds differ from open-end, or mutual funds, because they trade on the stock exchange. They also historically trade at a discount to their net asset value, making it sometimes difficult to find a buyer who's willing to take them over. And whereas mutual funds continually issue new shares to investors, closed-end funds do not. DFJ/MeVC opted for a closed-end fund, stating in the prospectus, "The continuous inflows and outflows of assets in a mutual fund can make it more difficult to manage the investments ... by comparison, close-end funds are generally able to stay more fully invested in securities that are consistent with their investment objective." In short, investors should be in this fund for the long haul.

What happens when the market tanks? Not that all investors are panicky but, according to Kunal Kappor, an analyst at mutual fund tracker Morningstar in Chicago, closed-end funds are easier to get in (and out) of because they can be traded at any time of the day, whereas mutual funds can only be traded at the end of the day.

Closed-end funds are difficult to sell through stockbrokers, according to California Technology Newsletter's Mr. Murphy. "These funds usually trade at a discount in the early years as companies performing badly get written down," he says. "The net asset values go up from them as companies go public, but in the meantime, brokers get an earful from irate investors who lose 10 or 20 percent of their money from day one."

MARKETING ADVICECharlie Kokesh, managing partner of Technology Funding, an investment adviser that runs a few BDCs, gave DFJ some advice from his company's experience with VC-6, a similar fund that takes initial investments of $500 (investors can even charge shares on their credit cards). "We made the decision to market the fund over the Internet and not involve brokers or dealers so as to lower commission fees," he says. "What we found was that it's hard to market an Internet product on the Internet. We passed on our conclusions to Tim that marketing would be very difficult and that it would require some sales to get active brokers to sell funds like this to their retail clients." In the prospectus, the DFJ/MeVC Fund states that it will entreat brokers. Unlike other BDCs, which have not done so well, this fund might because, after all, it is Draper Fisher.

Mr. Kokesh, for one, thinks Mr. Draper is participating in the fund out of the goodness of his heart. "He believes in letting individual investors participate," he says. "It's a mission for him. And DFJ is the only VC group willing to take on the additional burden."

Sean Foote, a director at Labrador Ventures, agrees. Even though Labrador shares office space with DFJ, they don't share the same views. "I don't think other VC firms will head in this direction because of all the administrative headaches," he says. "And for most top-tier VC firms, money is certainly not an issue."