Hedge Fund Seeding
Free Video on the State of Hedge Fund Seed Capital
I often talk to emerging managers and investment professionals looking to obtain seed capital for a hedge fund start-up. In the following video I give you a quick overview of the current state of the seed capital industry. I recorded this video in Nice, France as I was speaking at investment conferences in Europe. Are you looking for seed capital? Click here to apply using our Seed Capital Application.If you are reading this via RSS or e-mail, please click here to watch the following video definition of the hurdle rate:
Transcript of this free hedge fund video, Hurdle Rate Definition:
Hello, this is Richard Wilson and today I’m going to talk to you about the state of the seed capital industry. I just finished listening to a panel of 5 hedge fund seeders. I’ve also been helping an institutional investor find emerging managers to invest in. And I thought I could update you guys on how the industry is going, what’s changed and really what it looks like for those seeking seed capital. There used to be around a hundred seeders out there mostly backed by big banks. Nowadays, there’s 20 to 30 well-known ones, maybe 5 or 10 that are kind of hiding in their shadows at the industry but there’s really about one-third and one-half of the amount of seeders that there were pre 2008 crisis.
Typically now most seed deals are for $10M to $30M and the seeders are asking for more than they used to and really the managers don’t have any room to negotiate because they’re lucky if they can get one or two seeding deals, where in the past some managers would get 5 or 10 seeding deal options, then you kind of pick and choose and pick people against each other and get a great seeding deal out of it.
Next, typically each seed provider will only seed 2 to 4 hedge fund managers a year. It’s very rare for them to put $50M or $100M then, usually like I said, it’s $10M to $30M and they’ll only work with 2 to 4 managers a year, so they’re pretty selective and it’s very hard to get a seed capital right now.
Team is still the number one deciding factor when people are getting seeded. That’s been my experience and the experience of the institutional investor I’ve worked with. It’s been the experience of family offices I worked with. That’s also been the experience of these seeders I just listened to on the panel. The team you have and their deep experience related to your investment strategy is a number one thing that people are going to look at more than anything else regardless of what strategy you have. So getting a great team in place is going to give you more bank for your buck than doing anything else while starting up your hedge fund.
The last tip here is just that there’s diverse business models in the seeding business right now. Some of the seeders would force the person getting seeded to move to a place like Amsterdam or London or some place in Switzerland. Other seeders will want you to put up risk capital so they’ll match $1M with $9M of their own so you can get up to $10M very quickly. Other seeders will want equity ownership in your company or in your fund. Others will want to feed breaks plus equity. The options are really very diverse. But it’s not really your option as a fund manager, it’s really the seeder’s option and you really don’t have much negotiation power. You’re basically turning down the offer if you try to negotiate more than just a little bit with them.
So I hope this update on the state of the seed capital industry is helpful if you are searching for a seed capital. This is Richard Wilson coming to you from Nice, France and I’ll see you again soon.
If you are looking for seed capital, please click here to apply using our Seed Capital Application
