Seed / VC Investments

This probably belongs in the Investment forum that no one reads but here goes:

Has anyone ever raised significant capital through a seed deal or VC-style investment? Something like you have a “Really Good Idea” and a viable business plan that people want exposure to and they give you a huge lump sum of capital in return to execute that plan. I am specifically interested in whether anyone has experience in a hedge fund that was seeded by a wealthy individual or institution (on either side of the table, granting or receiving the seed deal).

This might not be a good topic for AF but there’s no way I am wandering over to the cesspool known as WSO. If there is a better venue for my question someone please let me know. Thanks!

Hey Brom, It’s JM.

I actually started my career (my prior life) in venture cap.

You would be surprised how much dumb money there is as long as the investment has a good story. It’s allot like the market I guess. Anyways, best use of your time is to network. My boss was always raising money because he hit a home run on his first project. Even thogh the following 10 didn’t work, he still had people lined up.

Do you know anyone with that profile willing to help?

Thanks for the reply JM.

I already have a soft offer with significant interest from a specialized type of FoF that wants to provide seed capital. This was an incoming request with no marketing involved – they found me and have gone to some length to woo me. It’s a “soft” offer because I don’t have a term sheet but given all the effort they have put in to talk to me so far I think they are sincere, and also because I am the only fund in the country that is running this strategy and accepting capital today. So basically I am trying to decide if I would take this type of deal. I have read everything on Google but there’s not much.

This is the fastest wasy to a fund with $100mm AUM but I am not sure what additional baggage (if any) this might create that I don’t actually want. It’s been flattering so far but the expectations are very high and I might not want the additional pressure.

I also wonder about this because it seems almost guaranteed to be a bad deal for someone. If the fund doesn’t do well, it’s a bad deal for the capital source. If the fund does very well, it’s a great deal for the capital source, but the manager gave up some of his equity to get the seed capital, so the opportunity cost to the manager could be enormous (like tens of millions of dollars potentially if things go absurdly well). There’s a middle ground in theory – fund does well, seed provides credibility and stability of capital, fund grows faster as a result, etc., etc. I don’t know how all that would play out in reality though.

On a side note, I agree there is a lot of dumb money floating around but it mainly seems to enjoy investing in bad VC deals and fraudulent reverse mergers, not emerging hedge fund managers. The problem with hedge fund capital raising is that no matter how well you’ve done or how good you strategy is, there’s always next year (no time pressure on the investment).

I’m wondering if you really need the home run. It’s been a year or two and you seem already self sufficient.

I’m no expert investor. But Ive been around the block in the VC hustle and in business. And by business standards, you already have tremendous success (if you’re self sufficient after such a short period).

That’s definitely no small feat.

Coming back to your thought process, you know better than i do that everyone looks to their own interests and everyone has their hands in other people’s pockets. I don’t think it’ll be any different here.

It’s a matter of how much you need the capital. If you don’t need it, I’d never give anyone leverage over what you do. It’s a unique, well thought out and niche strategy. So it’ll come down to the terms and to make sure that they can’t ever see what’s under the hood.That latter is the key I think.

Hey man, I don’t know much about VC but am planning on starting to explore Kickstarter/VC for a tech company a buddy and I are working on. But I wanted to just point out something you probably already know: it’s only really a opportunity cost if you could get the same level of funding some other way. At least that’s how I’d view it.

There is a time value of the money you do make it go absurdly well and you can easily do some calculations to determine how fast your fund would have to ramp up to compensate for the "cost’ of those funds under various situations. And if you did do that well, I’m sure then you’d be able to get even more AUM at better terms because of the assets you were able to manage. So I’d imagine there is some other factors to consider.

I think the wontons guy (MoreMoneyPleas) used or planned to use VC. May want to PM him

Thank you, I agree opportunity cost is the right way to view this but I doubt I could get a check this big any other way. I need to consider this carefully. At a minimum, it’s nice to know I have options… not a bad run for a kid from a state school with no mba. God bless America.

wonton guy here, recently worked analystforum back into my gig

I’ve raised capital from ff, angel and in the middle of VC.

I’m not really sure what you are asking here. Plus, I don’t know the market for investment hedgefunds… only techish companies.

If I were you, I’d start by googling “starting a venture captial firm” and use info from there as a proxie for your own venture. It sounds like you should be modeling your strategy off of how they scrape together there LPs and start investing vs. looking at yourself as a startup looking for money from VCs.

Also, typiically, you only bring in outside investors in high growth situation. You don’t raise venture capital for a “lifestyle business”. Most angels want a 10x return in 6-18 months. VCs want 5x+, late stage guys want 3-4x with little or no risk really. If you’re not pulling those returns (or rather, dont have the potential to), many angels/VCs may not be interested. On the other hand, they may be interested if the risk is signifacntly lower-- but normal tech angels/VCs would probably look at it as a curve ball.

www.VentureHacks.com

http://www.feld.com/

http://www.bothsidesofthetable.com/

some stuff on the above may be helpful, maybe.

Also, I wouldn’t worry about giving up equity if it boosts your total return.

the old adage, it’s better to own .001 percent of twenty billion dollars than 100 percent of 100 dollars.

If more money means your ownership dollar value will go up, then raise capital and sell some equity. If your returns are proportional, ie. your personal take home is the same amount whether you own 100 percent or take outside money and own 80 percent— in that case it’s not worth the headache. I feel like you know this already though.

Someone found me and wants to give me a large amount of money to run my strategy as a separate, newly created entity. This would involve leaving my current setup to launch a new fund. They would get a piece of the equity in exchange for perhaps a $50 million check (specific terms to be discussed but that is in the ballpark), as well as managing the entire back office and marketing aspects for the firm.

This would clearly be way faster than trying to cobble together small checks $250-500K at a time (which is what most funds do and is a huge headache) but there may be unwanted additional baggage from this type of arrangement, as well as giving up a portion of the equity.

^that would be sweet if it all came together

Hell yeah bro. Do your thing.

I work with a guy who ran 3 or 4 funds (1 vc and a couple pe), ranging from 100mm to 300mm. If you’ve got some specific questions that are quick hitter types I can hit him up.