Revenue Sharing for Seeding
I’ve recently been hearing and reading about investors investing into emerging funds in exchange for a percentage of revenue. However, it’s very difficult to find what type of terms some of these investors and fund managers agree to. I’m sure there are a lot of variables such as the original launch AUM target, strategy, pedigree, etc. but has anybody here heard of maybe a rule of thumb on these agreements? Things like the duration for the revenue share, lockup period for the LP, what percentage to give for investment amount?
Perhaps a bit outdated but I read that Blackstone invests 100-150m for 15-25% of revenue.
Would be interested to hear what you all have heard/seen.
Is this not meaningless without a target revenue?
I believe part of it has to do with investors trying to compensate for the higher costs of the fund in the early stages as seed investors but also to boost their returns on capital by reaping some of the revenue that is generated through the performance of the fund and also the fund growing from further LP investments - which they helped spark by getting the fund started.
Apart from Blackstone, who are the other well-known seeders?
There seem to be a fair number of them. Perhaps not as well known as Blackstone though. Some family offices appear to do this as well. It’s a bit difficult seeing what the agreements end up looking like. I was hoping someone here would be willing to share any information about what they may have looked like and if there is a norm.
The idea behind seeding arrangements is that the LP is taking on business risk in addition to investment risk when investing in a smaller / earlier stage fund. For this reason, the LP wants to participate in the upside from the business whose risk they are underwriting. Most of these seeders are LPs that are large enough with check sizes large enough that their investment accrues benefits to the fund in the form of business stability / endorsement. They can always wait a few years until business risk is removed by AUM growth / longer performance record and their money will still get taken at most attractive fee structure.
The particulars vary a ton based on if the fund is pre-launch, live for a few years with a couple hundred $ms in AUM, fund strategy, fund performance ITD, GP background, et al...Typically a pre-launch / very early stage deal will look like $75-$150m in capital. slightly preferential fees, additional LP intros, and some explicit cost covering in exchange for a 10-20pct revenue share for 5-10 years with potential earlier termination on revenue share if fund grows above a certain AUM. This seeding business has had its ups and downs over the years with a somewhat revolving cast of players.
What does it take to raise seed capital? Do you need a prior track record of managing own book? Any idea if people from SMs (where the book/track record is owned by the PM) are able to raise seed funding?
Deleniti nihil suscipit et ullam explicabo. Laboriosam quam id in ut voluptate qui qui.
Rerum vero et quos laboriosam qui vero voluptatem cupiditate. Modi delectus a odio eaque deleniti voluptates velit. Molestiae quaerat velit numquam velit error id. Rem dolore pariatur adipisci nulla sint natus quasi. Quis quas velit atque et blanditiis nulla minus.
Incidunt maxime voluptas rerum sed fugiat. Neque et consequuntur harum. Cumque culpa earum ut reprehenderit sed non. Laudantium aut quas pariatur quae.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...