Establishing a Small Fund (or Investment Club)
March 18, 2024
by a searcher from Dartmouth College - Tuck School of Business at Dartmouth in Princeton, NJ, USA
As I look at acquisitions, I have been getting requests from friends and family to make small investments with me (nothing major). And I want to explore setting up a small fund (or investment club) to accomplish this. My initial thought is to do this via an LLC with operating agreement specifying mandate, percent ownership, term of investment, and fee (performance based).
Any thoughts on this? I would greatly appreciate feedback.
from University of Notre Dame in New York, NY, USA
(1) an SPV fund (independent sponsor) structure where your investors commit capital on a deal by deal basis and share in equity of the “GP” entity with the sponsor vehicle (you).
(2) a classic GP/LP fund structure (albeit on a smaller scale) where investors commit capital upfront to the LP (fund) and you have broader discretion to invest …. Need separate managementco and carry vehicles formed in addition to the GP and fund.
(3) a more bespoke structure (some independent sponsors utilize this structure to avoid being considered a “private fund” at all, based on the SEC’s definition) where investors pay an “annual fee” to have the right to participate in investment opportunities and then have a ROFR as deals are sourced by you.
(2) is probably the most complicated structurally especially for what you’re trying to do; (1) is probably the most common; (3) is the easiest to set up and execute in a short turnaround time.
I’ve set up all 3 for clients and have spent a number of years in private equity myself (at a $3B AUM shop) where I saw in practice how different structures were utilized… Happy to chat more… shoot me a DM or email redacted
from Massachusetts Institute of Technology in Portland, OR, USA