Do You Have the Necessary Capital to Start Your Hedge Fund?

May 25, 2007 |

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This is a very basic question but you might be surprised how many start up managers have not thought through the process. Ok, you know what your what your chosen investment strategy requires to start trading, but what about all those other costs? Assuming you have already spoken to a securities lawyer about your fund and you have set up the appropriate business entity, have you thought about renting business space? Have you figured out what your back office operation will look like? What about setting up a relationship with a prime broker?

Here are some other things you might consider:

What about an executing broker?
What about audit services?
What accounting firms should you consider?
What about technology and data services?
Marketing agents?

Our point is this is a business and you must treat it like one if you are to begin raising seed capital for it. No investor wants to talk to someone who has not even taken the steps to set up a business entity or to think through the initial needs and requirements of the venture. Just so you know, about 18 months ago we wasted some time on a guy who had an excellent concept for a oil and gas company. His ideas were pretty innovative, especially as they were applied to that industry. However, he would not even make the most basic, fundamental investment in his own start up business — setting up a legal, viable business entity. He wanted someone else to pay for it!! He even asked us for the 50K necessary to do so! Then, when we declined, he asked the contacts we introduced him to for the 50K (the capital was to be spent on entity set up and the accompanying legal fees). We pulled the plug on him.

The moral of the story? Get your proverbial ducks in a row before you start trying to raise investment capital for your fund. You will do yourself and your investors a favor — by being professional.

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