Hedge Fund Seeding Terms
Whenever you are taking on seed capital the investor providing the capital is going to see this as taking extra risk because your business is less institutional and less "proven" than an institutional $100M+ in Assets Under Management (AUM) group. To balance this risk, perceived or real, the investor is going to ask for something you wouldn't normally give a normal investor. For example they will ask for you to put up risk capital so first losses in the portfolio are out of your own capital, or they may ask for an equity share in your fund or company. Some managers are taken back by offers they get, don't be. Expect something creative and aggressive to come with an early offer of a large injection of capital.
Even so most hedge fund managers should seriously consider seed capital sources to help them get to a respectable level of AUM, if they can do so without compromising the resources and loyalty of those who started the fund in the first place.
I wanted to share comments on this topic to help out those emerging managers and traders who are starting hedge funds who may feel a bit lost while exploring these ideas. Take care and perhaps we can meet in person at one of our future workshops or through the CHP designation.
