Monday, July 7, 2008
SideCar Funds in Angel Groups– Creating Diversification and Participation
It’s interesting to note the rise of the fund (sometimes called a SideCar) among angel groups to provide diversification and participation into angel investing by passive investors. In many cases the fund is applied to deals the angel investors pursue. This means the return on the fund will mirror the return the angels are seeing.
During the recent Angel Capital Association Summit in San Diego a number of groups discussed their sidecar fund and how it worked. The first came from Ian Sobieski of the Band of Angels in the Bay Area. It’s a $50M fund raised primarily from outside investors. The fund invests $300K in deals the Band of Angels invests in which allows outsiders to enjoy the same returns as the Band of Angels members enjoy (which was reported at 53% IRR). The fund has a staff of three people who are paid from a 2.5% management fee and a 20% carry fee.
The second example comes from Luis Villalobos of the Tech Coast Angels which has a $3M fund that invests $350K in each deal that the Tech Coast Angel members invest in. The fund has no carry or management fee and so relies on the members to manage the fund. Both funds are ten year long funds.