Are Hedge Funds The Next Pot Of Gold For Startup Investment?

Entrepreneurship. Isn’t it hard enough to find a good idea, to make it a reality and scale it without having to spend countless hours courting investors?  We’ve all heard the heartbreaking stories of great ideas that failed to materialize due to lack of funds. For those of us without a “sugar daddy” to keep filling our entrepreneurial pockets, we are all too often obliged to spend our waking hours thinking about money.

 “When will we be able to stop looking for money and be able to focus on our million dollar idea?”

If only we had the answer, right? Well, luckily for us, an interesting byproduct may have emerged out of the market crisis. Yes, we may have found a ray of light. “A rio revuelto, ganancia de pescadores” as we say in Spain.

Essentially, traditional long-term holdings such as pension funds, retiree obligations and savings accounts do not return nearly as much as they used to. Times are changing.  Greed is back!  Remember those great 80’s movies about how Wall St was amazing and how we all wanted to be Gordon Gekko in that 70^th floor corner office? Well, we are not and, a reality check for all of you out there, we probably won’t be for a while. However, here is where the path is being paved with gold. The bull market has picked up, and even the bears are turning to HEDGE FUNDS to buy private equity. And what is more valuable to entrepreneurs than increasing the value of the equity in their companies? Nothing my dear friends. Nothing. And hedge funds know that.

Wealthy investors are starting to buy up equity in start-up companies because there is a growing optimism that, while a little bit riskier, the reward may be much higher.

Allow me to go a tad deeper in what Hedge Funds are: Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and typically require a large initial minimum investment. The idea behind a hedge fund is to have a portfolio of projects that, managed in an assertive way, can bring in high returns in a short amount of time. They want to maximize returns with many small investments, and where can they do that better than in start-up companies?

Hedge funds are buying cheap equity in companies hoping for a high return in a short period of time.

While people know the risks of investing in private equity, they also know the bigger return they can get if the investment and the company come through successfully.

Entrepreneurs out there!! Keep knocking on those doors; more are opening everyday. Hopefully, with increased access to capital, you won’t be spending as much time worrying about money and you will finally be able to develop your idea. Hedge funds are greedy, and you can take advantage of that!

 

Image credit: Shutterstock Gordon Gekko & Wall St Bull