Spinning Up a Fund: The Insider’s Playbook to Getting It Right

By May 23, 2024No Comments

Hey there, savvy entrepreneurs and business leaders! Today, we’re diving into the nuts and bolts of spinning up a fund—yes, it’s about getting those big bucks organized and ready for action. There’s a bit to cover, from initial costs to structuring, so let’s break it down without getting too tangled in the weeds.

Understanding the Initial Costs

First up, let’s talk money—specifically, the costs of getting a fund off the ground. Typically, you’re looking at about 5-8% of the total amount you aim to raise. This isn’t just some arbitrary fee; it covers essential services that lay the foundation for your fund. You’ll need a top-notch securities design team to craft your offering and prepare a Private Placement Memorandum (PPM). Don’t forget the heavy hitters like SEC and tax attorneys who ensure everything is on the up and up with regulations.

The Structural Playbook

Now, onto the structure—it’s like setting up a sports team where every player has a crucial role. You’ve got the holding company at the top, holding down the fort. Then there’s the operating company, where all your day-to-day business magic happens. But the real MVP here is the Special Purpose Vehicle (SPV). This entity is what your team will take to market, pitching it to allocators who can funnel those big institutional funds your way.

Hitting the Market

When it comes to getting these allocators on board, timing is everything. If they’re not allocating that quarter, you’ve gotta have a backup plan. That’s where tapping into your PE 300 contacts comes in—these are your go-to folks when you need to expand your reach and find willing investors quickly.

Capital Stack Strategy

Layering your capital stack is where things get really interesting. Start with senior debt—it’s your stable base, offering less risk and a reliable return. Then, spice things up with some institutional mezzanine debt to add a bit of kick (and potential returns) to the mix.

Enhancing Liquidity in Secondary Markets

One of the strategic advantages of setting up a fund is your ability to increase liquidity in secondary markets. This is key for keeping your assets fluid and maximizing investor confidence. By engaging in secondary market transactions, you can manage and reallocate investments more dynamically, ensuring that your fund remains attractive and agile in the face of market changes.

Overcoming Funding Hurdles

Here’s a real talk moment: the biggest hurdle is often raising that initial 5-8%. But don’t sweat it too much—think of it like securing seed money for a startup. You can use bridge funding or other creative financing solutions to get there. And the best part? You can pay off these initial costs with the senior debt once your fund is up and running.

De-Risking Your Fund

To wrap it all up and tie it with a bow, remember that your fund is a security. This means you can de-risk it further. How? By bonding them. This adds an extra layer of security and peace of mind for your investors, making your fund an even more attractive investment.

The Bottom Line

Sure, spinning up a fund and aiming to raise $100 million or more might sound daunting. But with the right assets, whether hard or soft, that are performing well, it’s totally doable. Keep your focus on structuring wisely, raising the initial funds creatively, and de-risking strategically. With this playbook, you’re not just playing the game; you’re setting the rules.

So there you have it—a straightforward guide to spinning up a fund. Whether you’re a seasoned player or a newcomer looking to make a big splash, these strategies will help ensure your fund is built on solid ground and ready to soar.