Where can I find Seed Investors?
From my experience working with emerging hedge fund managers and especially from a recent Terrapinn conference I attended as a speaker, I discovered a very grave question raised by aspiring hedge fund managers:
“Where can I find Seed Investors?”
This question is prima facie an innocent, practical question that one must ask prior to starting a hedge fund business. Looking deeper however, I realized that individuals who ask this question are all set to build a house of cards, not a long-term business. Seed investors are everywhere. Your family, friends, colleagues, ex-boss, ex-wife, heck, even you could possibly be your own seed investor. By my definition, a seed investor is anyone who provides significant risk capital to a new venture. To be much more precise, institutional seed investors typically are made up of Funds of Funds, Family Offices and High Net Worth Individuals, more so than pension and endowment funds.
A point that I feel must be put across to emerging fund managers is this:
“It is as important for you to select and monitor your investors,
As it is for your (potential) investor to select and monitor you.“
The same laws of the markets that govern hedge funds also govern their investors. It is important for emerging managers to compare and constrast the various investors available to them, by comparing the investment size, time horizon, deal structure and the business sustainabililty of the investor. This is especially important when selecting a seed investor. Depending on the expertise of the team put together by the Emerging Manager, the requirements from seed invesotrs will range from operational support, marketing support, risk monitoring support and so forth. It is important that such support is provided for the right reasons (i.e. provided because the Emerging Manager actually needs such support, and not because the seed investor requires it by protocol).
A thin line separates between “value-adding” and “getting in the way”. Regardless of the deal put together, the Manager must seek to maximize the control he has on his business (read: not his investor’s business). Nobody – not even the seed investor – knows his portfolio better than the Manager does. Will having an institutional seeder influence the investment decisions of other investors? As long as herd behaviour drives the human society, this will always be true.
Felix.
Related Posts
Tags
Share This
