Questions regarding fundraising
Hello everyone, just wanted to ask a few questions regarding fundraising.
Essentially, I am trying to raise $1-2 million dollars in the hopes of creating a solid track record for myself. I am currently a rising junior in college, and while the idea of a rising junior in college fundraising seems ludicrous, I plan to raise the capital through family and family friends (something that I think is achievable.)
I am wondering: --> What is the best way to set up a fund like this (a very small sized fund)? I am sure that a securities lawyer will costs thousands of dollars, and the legal work going into the fund's formation will cost at least 20k - 30k.
--> Would these legal and fund formation fees be taken from the capital that I have raised? For example, let's say I raise a million dollars. If I spent 50k on legal and fund formation fees, would that mean I would have 950k to invest (since I spent 50k on fees). Sorry if this is a dumb question, but I have always wondered this.
--> Let's say I start the fund and originally don't charge the first LPs any management fee. Can I change this later as I begin to fundraise more capital? Additionally, are you able to change the structure of the fund as it gets larger?
Sorry if these are stupid questions (this is more of a pipe dream right now). Just wanted to get answers to these questions so that I can gauge how this would look. I am also happy to connect with anyone with experience in this!
If you don’t know these things maybe it’s best if you aren’t managing other peoples’ money? What’s your investment thesis?
Appreciate your response, but not sure if I understand the relation? Just because I don't know much about fundraising means that I don't know how to invest... what? Like I said this is more of a pipe dream. I plan to run a vanilla L/S type of fund. A lot of my extended family are farmers, sitting on insane amounts of cash who don't know anything about investing (they literally keep most of their net worth in cash according to my mom (this is mainly on my mom's side btw), an insane thing to do in this macroeconomic climate). I am interning at a fund this summer and they have become very interested in the equity research that I do (sometimes I give them tips) and have expressed interest in something like this.
To answer your question, I consider myself a GARP type of investor. I like to invest pretty simple (I am not claiming to have some crazy new model that generates insane alpha). I like to find companies with revenue growth CAGR of at least 10% over 10 years. Additionally, I like businesses that have grown their EBITDA and EPS at a rate of at least 15% a year, over at least 10 years. I like businesses with ROIC and ROE greater than 20%, and I like cannibalistic management teams (20 - 30% reduction in shares outstanding over a 10-year period to today). I also consider margin expansion and free cash flow CAGR over a 10-year time period. As for valuation (I keep it very simple, and I am trying to improve on this facet of investing) I like to look at 10- and 5-year average NTM Levered Free Cash Flow Yields and P/E ratios. If a business shows the qualities above and is trading at low valuations relative to these 5 and 10 year averages, that is a pretty good sign.
Getting more Qualitative, I like to consider moats, competitive advantages and unique growth prospects that act as catalysts for a business' continued growth.
Some of my favorite stocks right now include: Qualys (NASDAQ: QLYS), InMode Ltd. (NASDAQ: INMD), Domino's Pizza (NYSE: DPZ), Atkore (NYSE: ATKR), and Williams- Sonoma Inc. (NYSE: WSM). Note that some of these businesses don't fit all of the criteria above, but they all cover at least 80% of it, in my eyes.
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