Fund Managers Performance Leveraging General Solicitation and Platforms
The hedge fund industry has grown to $3 trillion without any advertising. The methods these money managers have been using to attract investors to their funds and the results they have had may be surprising, especially in the wake of some legal changes that have now made it possible for them to start generally soliciting.
With the changing funding landscape brought on by new SEC regulations and the explosion of crowd-sourcing through crowdfunding, fund managers are adopting innovative funding platforms and general solicitation to attract further investment. Most private equity, hedge, and venture capital fund managers have stayed away from general solicitation for the burden it creates and increased reporting requirements for accreditation of investors . These private asset managers have been successfully attracting capital without general solicitation for decades, growing to $3 trillion in assets and $48 Billion respectively in 2014. Even with these issues and historic success some alternative investment fund managers have begun to test the waters.
Venture Capital fund managers have been the earliest adopters. Some notable venture capital firms that were early to solicit and leverage platforms are 500 Startups, the Foundry Group, ff Venture Capital, Scout Ventures, and Nin Ventures..
John Frankel heading the New York-based firm, ff Venture Capital, is known as the first fund manager to take advantage of general solicitation back in late 2013. ff VC focuses on seed and early-stage companies that "deploy lightweight disruptive business models to become the low-cost player in their respective market." John Frankel, a founding partner stated, "We've raised the majority of our capital already for this fund without generally soliciting, but we wanted to make a principled statement here." on Fortune.com. It did so with a blog post. email, and social media, announcing the launch of its third fund, ff Rose. They also now have a syndicate on AngelList.
500 Startups founded by Dave Mcclure has partnered with SeedInvest's white label technology to raise capital directly on its own website as well as through Angellist through syndicates. 500 Startups created the general 500 Syndicate and the 500 Women Syndicate targeting startups with women founders. Founded in 2010, 500 Startups is one of the most active seed funds and startup accelerators. It is headquartered in Silicon Valley. It's founder Dave McClure is a PayPal alumni. The 500 network includes more than 750 startups, 200 mentors, and 1,000 entrepreneurs all over the globe. 500 Startups runs popular conferences, and accelerator programs.
Below are the top 5 most active funds on AngelList of which 4 of 5 are run by Venture Capital firms. At the time of writing this article Paige Craig of Arena Venture Capital and Brad Feld of FG Angels were the top 2 most active..
Most Active $
Top Annual Commitments
To see more data on Syndicates go to our analytics section.
The use of these platforms like AngelList, SeedInvest, and others help to grow the brand these fund managers have created, I expect the adoption and money invested to continue to grow among Venture Capital firms.
There is a select few hedge fund managers that are taking advantage of the ability to advertise or generally solicit. Most hedge fund managers have stayed away from general solicitation for the burden it creates. Ropes and Gray has an excellent article explaining the legal reasons managers need to consider before marketing this way. Those that are not advertising, including many of the most successful, are attracting investors through new forms of social marketing that do not qualify as general solicitation.
Dmitry Balyasny manages a $12.7 billion fund according to NASDAQ, Balyasny Asset Management. Based in Chicago, the fund had closed its doors to outside investors for over two years and ran a small advertising campaign in early 2014 to help attract new investment. Colin Lancaster, a senior managing director at the fund worked with Pensions & Investments to run a new ad to open the doors back up and attract new investment. Balyasny paid roughly $6,000 for a half-page spread according to an interview of Mr Lancaster by the New York Times. The fund grew from $8.8 billion in 2Q14 according to Market Realist to the nearly $13 billion dollar mark. The timing of the growth seems to coincide with the campaign, but we are waiting for comment on the actual performance.
Dan Darchuck and Greg Stewart of Topturn Capital, a $100 million hedge fund, created a video ad. The video features a professional surfer, Joe Curren, speaking to the company's two founders discussing their Omnistrat fund and how managing money is similar to surfing. We do not know of the channels that were used to distribute this video.
Some fund managers utilize innovative marketing methods to attract investors that do not qualify as general solicitation, but garner public attention..Ray Dalio of Bridgewater Associates, the $150 billion hedge fund created a 30-minute lecture called "How the Economic Machine Works." He also created a website dedicated to thiseconomicprinciples.org. In the video he addresses the policy makers where if successful with his message can sway macro economic decisions.
Bill Ackman of Pershing Square Capital has also created a video reviewing financial principles. In his video he addresses us the audience as "students watching." About three quarters of the way through the video Ackman suggests to avoid investing in startups, and that he would advise his family to stay away from private companies, to only putting money into public companies.
I believe more managers will follow suit and take advantage of these innovative marketing and platform opportunities due to the ability to grow assets under management. Brad Feld commented to Reuters "We recognize the landscape for early-stage investing is constantly evolving, The best way to really understand it is to participate." Funding platforms are improving speed and ease of investment while lowering the costs. As the line continues to blur between solicitation and marketing, more innovative techniques will continue to emerge and more people will enter the market. As of now only accredited investors can participate in these funds. When the SEC works out the logistics from Title III of the JOBS Act around the April 2016 time frame and the remaining 95% of the population is able to participate in some of these private offerings, we expect to see a new wave of capital and further changing dynamics of companies getting funding. Innovators like Feld, McClure, Frankel, and Balyansy, will continue to lead with the growth of their funds and reach.
Thanks to Jared Goralnick for the image of Dave McClure. At Fund Wisdom we have created a number of offerings to market funds growing assets under management and provide insight to the impact these innovations have.