May 27, 2008 |

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For most start up managers, the most difficult part of starting a hedge fund is raising investment capital.  Im hoping you have read our previous posts about how to start the hedge fund .  Without a sound foundation for your business, it wont matter how much investment capital you raise if your business is plagued with problems.

1. Rarely does someone invest their hard earned money with a manager solely based on theoretical results.  Therefore, you will have to put some skin in the game and invest your own money and demonstrate results.  If your strategy is working and you begin to talk to others about your success, you will begin to attract interest and investment capital.  Ask yourself, how much of my own capital am I willing to invest?  As my fund grows, what percentage of my own capital will I keep in the fund?  Tip: keep a substantial portion of your own money in the fund it demonstrates your confidence in your strategy and abilities.

2. Make a detailed list of relatives, friends and business contacts who might be interested in making an investment. These people are warm contacts and are already comfortable with you. Contact them and tell them about your new venture and why you think you will be successful. Be sure your fund is equiped to accept investment capital immediately.  This goes back to my preface to this post do you have all the necessary pieces in place for your fund?

3. Develop your pitch.  Keep it focused. Most likely you want to put together a Power Point presentation about your fund and strategy, so be sure to keep the number of slides to a maximum of 10.  I like to refer people to Guy Kawasaki about how to keep a pitch focused .  Kawasaki explains about how to put together a pitch for investors.  He offers great advice that applies to both high net worth investors as well as institutional investors.

Stay tuned.  We will  be publishing more tips on this topic in the future.

4 Comments so far

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Tim on August 7, 2008 1:41 am

When does something actually become a hedge fund? For example, if I get a number of family and friends to invest a few thousand dollars each and we form an LLC to operate under, is that a hedge fund? Does that mean that they have to be accredited investors?

Ive had a lot of success investing my own money over the years and have considered setting up a company with some people to invest their money. But, I dont know if the simple act of puting peoples money together and then charging fees constitutes an investment company according to the Investment Company Act of 1940.

Any comments or guidance would be helpful.

Thanks

admin on August 11, 2008 6:45 am

If you are soliciting a few friends and family you likely would be exempt as a investment adviser at the state level. However, many states have very strict limits (i.e. if you engage in this activity, you have to register).

Based on what you are saying above, you would not meet the definition of investment company under the Investment Company Act of 1940. However, if something goes wrong and someone sues you, consider that they could claim that you were operating as an unregistered investment advisor, even if you went through the trouble of setting up an LLC. Most brokerage firms are wary of setting up LLC accounts and generally would not accept an account knowingly.

john neville on April 13, 2009 5:49 am

hi, i want to set up a business model where i can raise funding for my corporation. I want to be able to soliclit the propsal for potential investors online, but want to know the best way to go about doing so. I guess I dont want this to be technically a investment fund or firm because from my knowledge that entails alot of legal works at the state and federal level. I want this to be a professional legal project so Id like some guidance and advice on which direction I should head