One of the most important decisions you’ll make as a capital raiser is the capital raising model you choose — whether that’s a blind pool fund, a syndication, a customizable fund, or another type of fund.
The model you choose will have significant impacts on your expenses, the types of deals you can do, and the investors you attract. Each model has its unique pros and cons, so it’s important to consider all factors and choose the one that’s right for you.
What is a Blind Pool Fund?
Blind pool funds are a unique investment vehicle that give fund managers an enormous amount of freedom in how they use their investors’ capital.
With a blind pool, investors will choose to participate based on your reputation or on the types of deals you typically do. But once they invest in your fund, they have no control over the specific deals you allocate their capital toward.
If you’re interested in starting a blind pool fund, here are 3 important factors to consider:
1. Costs of Starting a Fund
Did you know that it can cost as much as $50,000 to start a traditional fund? Unless you’re already an experienced capital raiser, this expense can be a major barrier to entry — which is why many first-time sponsors will instead choose a syndication model.
If a blind pool fund is outside of your price range, you may find that a customizable fund is better suited to your needs. At Avestor, we’ve lowered the costs of launching and managing a fund so significantly that the cost of starting a customizable fund is similar to that of a single syndication deal.
Plus, customizable funds don’t have to have a definitive end date, so you can continue using your fund indefinitely and won’t have to worry about paying to launch a new one.
2. Investor Pros and Cons with a Blind Pool Fund
If you want to fundraise successfully, you need to think carefully about who your ideal investor is and what they’re looking for. While some investors may be comfortable investing in a blind pool fund based solely on your track record, many investors want more control over the deals they participate in, and the transparency to see exactly how their investments are performing.
A customizable fund gives you the ability to do this within a fund structure — instead of needing to do deal-by-deal syndications. When someone joins your customizable fund, they choose the deals they want to invest in and how much they want to allocate to each. This gives them a level of control and diversification that’s extremely appealing.
And with more investors interested in what you have to offer, you’ll be able to grow significantly faster than you might otherwise.
3. Flexibility When Markets Change
Today’s market conditions are not the same as they were even six months ago, and it’s safe to assume they’ll change again over the next six months. In order to succeed as a sponsor, you need the ability to stay agile and respond quickly to shifts in the market.
Most traditional funds do not provide this, as they require you to choose one asset class and one business model for the entire fund. A customizable fund, on the other hand, allows you to adjust business models on a deal-by-deal basis, and even to include multiple asset classes within one fund.
If you want to learn more about the different types of funds and get help identifying the best model for your business, our team would love to connect with you. Book your free strategy call here!
