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One of the biggest hurdles of starting a Fund?
MONEY.
Many of us don’t have the capital to be able to start large funds when we are first starting out.
I know I didn’t.
My first fund had less than $49K ,
But that didn’t stop me!
There are ways to get started with little money in the Fund business and today I want to talk about one of my favorites…
INCUBATOR FUNDS.
Starting Small
Now this is a strategy that is lucrative.
One of the best things about starting these funds is the low legal startup costs,
Usually anywhere from $500 – $4000.
You might think that’s a lot but compared to larger funds that cost $30K+… this is a steal.
With an incubator fund you can build your track record with other people’s money and you don’t even have to be licensed either…
Yes this is legal!
How does it work?
Just like a hedge fund, we will take money from a General Partnership (Manager) and invest it into a Limited Partnership (Fund).
The difference, is that instead of raising money from external investors, you just invest money from inside the General Partnership.
Now you’re saying,
“Bridger I thought you said I didn’t need a lot of money? I don’t have $50k to start my LLC and invest.”
That is a great point and that is where the difference comes into play.
When you raise money from investors they don’t become “partners” in your General Partnership,
They are typically just investors which comes with all sorts of extra fees and legal documents.
What we are doing instead is going to friends, family, or others and allowing them to be general partners in our fund for a percentage of equity.
This makes the money internal and in doing so allows you to invest without all of the extra legal fees and documents needed for outside investors.
However, with this I would not go with more than 10 people MAX.
Quick Example
Let’s say I want to start with $100K.
So I will be the trader and as the trader I want to retain 20% equity.
Well now I have 80% of my equity left to divvy out to other general partners in exchange for capital.
Now if I have a family member who wants to invest $50K I would give them 40% equity (or half of the remaining equity.
I would continue to do this until all of the equity is split and I reached my $100K goal.
THE BIGGEST compliance thing you need to be aware of – is that the General Partners need to play an active role in fund.
Make sense?
Incubators aren’t intended to last forever though.
Let’s say we run this fund for 3-6 months, maybe even a year.
We use this time to:
- Build a track record
- File for documents
- Study and take license exams
- Practice raising money
- etc.
After this we are now even more prepared to start a larger fund.
This makes it easier to raise outside dollars and boosts your confidence.
Conclusion
Starting a Hedge Fund is much easier when you have something to show potential investors.
By using this simple, legal loophole you are able to trade an actual fund and get audits and stamps of approval showing your validity.
This is personally one of my favorite ways to do start and takes off a lot of the pressure.
This is scalable and something that you can do.
If you have more questions about this feel free to check out my YouTube channel or my course.
I’d love to connect with you and help you.
Follow me on social media and let me know how I can help!
Take care,
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DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.
