‘A hedge fund is an aggressive investment portfolio. It utilizes advanced investment strategies in local and foreign markets to obtain high returns. Hedge funds are mostly private investment partnerships for a limited number of investors, requiring a high sum. The minimum period of investment is one year. Hedge funds are unregulated. Thus, US laws require investors to have substantial investment knowledge and have a net worth of over a million dollars per year.’
Angel investors and venture capitalists are the sources of funding that new businesses are seeking to grow dynamically. New businesses and entrepreneurs, however, normally experience obstacles launching their ideas and sharing benefits with the investors. The basic factor that hinders entrepreneurs is finding smart, educated investors who could be their prospect fund providers. On the other hand, investors require strong platforms to gauge the profitability of business ideas with minimal risk.
Hedge funds are unregulated, and they can gain more investors through crowdfunding. Now that the crowdfunding space is growing, and more people are looking for investment opportunities, hedge funds operators have shifted their attention towards angel investors and crowdfunding investments. However, restrictions exist for investors with $1 million net worth – they can invest only equal or less than $2,000 in any project. Hedge funds have a bigger scope and space to grow, considering that the crowdfunded investments will be there for at least a year, and the pool of funds will be larger. These big Wall Street investors definitely need to find groups who can support them by expanding the pool of investment.
Crowdfunding is a powerful tool to get investment, particularly for medium-sized companies. I have collaborated with the Securities and Exchange Commission (SEC) in the early works for the enactment of the Jumpstart Our Business Startups Act, or JOBS Act, for crowdfunding has the “transparency” to distinguish legitimate investors.
An integration of large capital for a business venture, crowdfunding seeks small capital amounts from many investors. Through social networks, these varied investors get to know of these possible investment opportunities in different crowdfunding sites. Likewise, investors find online groups to talk about new business idea or venture and get other investors’ attention. Crowdfunding is perceived as the best tool for increased investments allowing more investors to share the burden and distribute the high risk involved, with increasing potential for entrepreneurship through expansion of investor pool and raised funds. In this way, many individuals can share the risk and make a million-dollar investment, instead of one or two investors taking a high risk. Quite a few companies have opened their gates to new investors through marketing on social platforms and discussing profit possibilities.
Five Step Process for Hedge Funds moving into the Crowdfunding space:
- Float the idea. Introduce the idea for a profitable business and let people talk about it. The trend suggests that new businesses which are unorthodox and unique, gain people’s liking because of their extraordinary appeal. Use these ideas to start moving into the crowdfunding space.
- Share and refresh the business idea. Share the idea to gauge what people think of it. Letting people talk about and discuss the idea helps entrepreneurs find the advantages and disadvantages of the possible outcomes. Many ideas are clinched at this level, or are refined further.
- Apply the business idea. The hedge fund manager proposes the idea to the crowdfunding platform. The idea must be well thought-out, unique and uncomplicated. The issuer should also devise a complete strategy on how these things would work out for the investor. What will be the offerings associated with the business idea? Is it a reward-based idea, equity investment or a different kind of benefit?
- Analyse the proposed idea or business. The expert panel of the crowdfunding platform analyses the proposed business’ worth, what it needs, and the people’s expectation from it. Other financial aspects, as well as the scope of business, are evaluated before the hedge fund campaign is approved for launch.
- Find Investments. Finally, the crowdfunding platform launches the idea among prospective investors. Before deciding to invest, these individuals interact directly with the business owner and discuss their particular interests.
Two of the Hedge Funds that moved into the crowdfunding space are Crowd Alliance and Exhilway Global.
Unlike a traditional marketplace, Crowd Alliance allows investors get access to a wide range of investment options that are difficult to find through other means. Launched in April 2014 by Asset Alliance led by its Founder and CEO Bruce Lipnick, Crowd Alliance “offers investors and businesses a great opportunity to interact on a multitude of ideas, including technology, entertainment, health and wellness, real estate, restaurant services, consumer goods, and many more.”
Crowd Alliance assists the entrepreneurs, called issuers, to launch their online campaigns so as to attract a wide range of online investors. The campaign can be a convertible offering, an equity offering, a reward-based campaign or a donation-based campaign. Bruce thinks that web-based crowdfunding is the future of capital generation. Crowd Alliance is paving the way for modern debt and equity funding in the near future.
Exhilway Global is a well-known billion dollar private hedge fund organization which recently introduced “Exhilway Link” as their new platform for all types of crowdfunding investments. Exhilway Global currently sponsors and maintains over 100,000 hedge fund projects or industries by partnering them together. Startup projects are also provided with training on how to raise money, to help with project financing.
Hedge fund managers have come up with simple and sophisticated strategies in investments. Now that some of them have moved into the crowdfunding space, there are exciting moments ahead of us.
David Drake is an early-stage equity expert and the founder and chairman of Victoria Global, LDJ Capital, a New York City-based family office, and The Soho Loft Media Group, a global financial media company with divisions in Corporate Communications, Publications and Conferences. You can reach him directly at David@LDJCapital.com.