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Once an entrepreneur, always an entrepreneur, right? It’s in the DNA of a founder to re-create their original success over and over by starting new businesses. After all, it’s why the term “serial entrepreneur” is so popular. Richard Branson, Elon Musk and many more continually reinvest their profits in new ventures. While that is certainly one tactic, using a portion of your profits to create an investment fund can be infinitely more valuable.
There are many forms of investment companies that manage pooled assets of multiple private investors, such as venture capital, private equity and hedge funds. While most startup founders don’t think of themselves as finance experts or professional investors, their experience building and exiting successful companies may very well equip them to succeed in making investments on behalf of others.
The seeds of my journey to creating a hedge fund started when I was an engineer focused on research and education computing (far from a finance background!). Eventually, that led to my role as a CTO at a startup, and I co-founded a firm that grew to $30 million in revenue in just under two years. Several liquidity events from that business became the foundation for building my family office, a private wealth management firm that runs like a hedge fund.
Today, that is the foundation from which I build my wealth rather than embarking on new business ventures. But why should other entrepreneurs consider following this path? Here are three reasons:
Previous success doesn’t mean future success
If you’ve started one successful company, it’s easy to think that you can do that repeatedly. But doing so can be more challenging than expected. The conditions that created outsized achievements the first time are hard to replicate as the world around us constantly changes. The best use of your proven business acumen may be to invest on behalf of others rather than diving headlong into developing another company.
That said, starting an investment fund isn’t unlike establishing another company. Your first step — even before you line up initial investors — should be to hire a good lawyer and contact your state’s Secretary of State for guidance about investment fund business structures. In the case of hedge funds, most are formed as limited partnerships, in which the founder acts as the general partner and an incorporated group of investors act as the limited partners. This means you would likely need to set up two entities: one for the fund itself and one to incorporate its various investors.
Bigger potential upside
A fund structure is attractive because it allows a successful entrepreneur to use their expertise to help others navigate investments. In addition, the financial rewards can be substantial. Successful fund managers, whether in venture capital, private equity, hedge funds or real estate, are highly compensated and only limited by their performance and how many investors they can attract.
For successful entrepreneurs such as myself, launching or participating in funds can amplify their expertise with capital and create a new kind of business that also brings about material financial contributions. In the course of founding your startup, you likely got to know some wealthy individuals who contributed to your success. Founding a fund can enable you to deliver value to these individuals in a new way. Because time is our most scarce resource, it doesn’t make sense for individuals with $20MM to invest their time into a $1-2MM opportunity, when instead they could invest that capital into your fund, go to the beach and call it a day.
Leave the startup grind behind
Once entrepreneurs have participated in major liquidity events, they realize a great deal can be gained by exploring new investment opportunities, managing taxation, and utilizing estate planning. After all, the point of founding a startup for many entrepreneurs is to compress the working years of one’s life, sell the company and have more years of freedom. Founding an investment fund can allow you to do that.
For me, the idea of a fund seemed an appropriate encore to a successful business career. Fast forward to today — the strategies I spun off from my family office have become the heart of the TrueCode Capital crypto Momentum Fund I founded. It allows me to spend my time sharing the lessons that made me a successful investor in digital assets and helping individual investors and family offices achieve growth, all while sleeping through the night.
Of course, founding an investment fund — like any venture — isn’t for everyone. But for those with confidence in their ability to read the market, with contacts among high net-worth individuals, and with a proven track record of business success, starting your own hedge fund may be the next career step you’ve been looking for.