Tue, 26 October 2021
Choosing the Investment Structure
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
In setting up an angel network, you need to choose an investment structure.
Here are some structures to consider:
Individual investments -- the members can each decide if they want to invest and how much to invest in each deal.
This allows for maximum flexibility for the members to invest in the deals they want.
The drawback is the administration is high, as you must work with each investor in determining their amount of investment and signing of the documents.
Group investments -- the members invest as a group.
In this structure, the investors can create a pledge fund so the group decides which deals to pursue.
The members have some decision-making control over the investment decisions.
This reduces the administrative overhead.
The group can also choose to create a fund in which a screening committee or manager determines which investments are made.
This requires the least amount of administration as the manager or committee makes the decisions on their own.
The group can also choose to create a sidecar fund that invests from a fund into deals the members have funded individually.
The sidecar fund provides members diversification on top of their individual investments.
This is also a low-cost administrative structure as the sidecar investment is typically a calculation based on the members’ investment and does not require a manager to run it.
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