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Ok gang, your input will be greatly appreciated here. I have convinced 4 of my friends and relatives to join me in founding an investment club ( a la private equity or VC) the idea is very simple: each one of us will contribute a certain amount of cash ( we're thinking of 25000 USD each) with an option to raise more funds when we come across viable investment opportunities.

I'm taking time off work for up to 2 years to fully focus on this venture. I will be the only paid employee and any future profit will be equally divided among the 5 of us. I'm not just getting paid out of blue, I have experience in portfolio management, assets allocation, and I can run all kind of investment simulations (actually that's what I do) our main focus will be to invest in start ups and or creating the start ups ourselves around any viable opportunity and hire the right people to run. so if things go well we may end up with money invested in 3 to 4 ventures.

My questions are: what are the main points I need to consider in this kind of venture?

thanks for your time.

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First of all good luck. Maybe you could specify your main concerns so we can focus on the more precisely. – A. Garcia Feb 14 '11 at 17:12

3 Answers

up vote 3 down vote

If you go the private equity fund route:

  • The costs of setting up a private equity fund.
  • Investors in a private equity fund have to be Qualified.

Get in writing who makes the investment decisions, determines you salary, expenses and the profit split. Get a lawyer.

Analyzing startups is not the same as established companies in established industries. You never mentioned any background specific to this area. Search this site for questions about hiring programmers - it's not easy.

After you draw a salary, there's barely enough money left to pay the salary of one full-time programmer. Any other type of non-technology or service based company probably needs more capital. Are you looking to fund a few individuals looking to 'bootstrap' it?

Do you have some close connections who can get the first company going or are you starting from square one? I would think the typical situation would be if you knew someone who has an idea and the ability to execute it but needs funding, so you came up with this idea.

You're going to put in 25K and draw a salary? Initially this may not be the best strategy. Why pay income taxes on a salary that partially comes out of your own pocket? Other investors want you to have some skin in the game, but you're drawing a salary may negate your initial investment.

Consider entering some other questions on this site that are more specific. You'll get better responses.

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up vote 1 down vote

You may want to reconsider your initial seed capital. You're basically looking to start a VC firm with $125K and you plan to pay a full-time salary out of that. I'm sure startups can be founded on that kind of money, successful ones at that, but you're limited to very, very, very early stage companies. The kind where the founders are just as likely to find full-time jobs and abandon their project as anything else.

You asked about main points to consider, and I'd say you might want to consider whether there's going to be a big enough capital pool to make this work.

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up vote 0 down vote

Just some questions that come to mind right now:

  • How much money can you afford to lose?
  • What type of companies are you going to invest in?
  • What type of assets will you be allowed to invest in?
  • Are the funds locked in or can be freely removed?
  • What happens if two of your partners don't want to invest in a particular start-up?
  • How are you different from the other thousand VC firms out there?
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