Seed Money, in German start-up or initial money, is usually used as start-up financing for fund projects. How initiators can win a sponsor for their idea…
The original sound of a potential seed investor in Frankfurt for various projects that might be eligible for funding: “In case of doubt, I assume that it will take twice as long and only generate half as much revenue as forecast”. This very clear approach seems ambitious and greatly reduces the potential of potential seed money candidates. Project management in the area of seed-money searches for private label funds can benefit from this clear line. Private label funds (PLF) are public funds that are launched by an investment company in cooperation with external partners.
It is often forgotten that no matter how much communicative excellence may be, it is difficult to replace a lack of systematic approach or product quality. This is especially true if the portfolio manager or advisor is not an established player in his or her investment category. Incidentally, a similar setting is often found in the case of “large companies”, for example, when the portfolio manager is expected to implement new fund concepts without much experience (examples: 130-30-fund hype, UCITS topic, SRI). It is not only “small” companies that often have difficulties in introducing good fund concepts to potential seed investors.
By the way, open and closed funds are not so far apart in the project field of seed money search – unfortunately, this is often not thought of in an interdisciplinary way. In a nutshell: At the end of the day it is all about presenting an investment idea – product cover should be followed by content.
Investment companies – not the classic seed investor
Established fund companies such as DWS or Union Investment may have potential resources to provide “start-up financing”, so to speak, for certain products. A core business area of seeding for managers without a track record has not yet been defined here. Even the houses more specialized in the private label fund business, such as Universal Investment, Hansainvest, or Alceda, see themselves primarily as service providers and less as capital providers for fund projects.
Seed money search – three possible questions
A point to be clarified with the fund edition is naturally whether the own being able is enough to inspire potential investors. Assuming that this question is answered successfully, the following questions may arise for the fund initiator in later steps of the launch process:
1. can I start the fund with my own money?
2. do I have the network and access to potential seed investors?
3. do I have the budget and other resources to start the process successfully?
Certain points of these questions can be discussed briefly at this point.
Seeding from own power
The financing of a fund edition from its means often fails because of the capital resources; from the “small” asset manager or with a certain size from the fund advisor. Many fund initiators find it also with difficulty to supply in a calculable and obligatory time framework customer funds to the potentially new fund as a basic amount. To discuss would be here also, which amount would be at all at the beginning economically justifiable in the sense of the investors since the respective investment companies must weigh fund initiator interest, own economic interests, and fund investor interest meaningfully also here.
Frequently less is well-known that besides, “larger” houses for enterprise-political reasons has sometimes difficulties recruiting Seed Money for fund projects in a justifiable time frame despite excellent networks. These reasons for this state of affairs are found more in the area of product management (processes, resources) and the field of project management. A ground with optimization potential, the “black box” does not only exist in the portfolio management process.
Network – contacts are not a guarantee
There are fund projects that fail despite an excellent network. This fact was addressed by the author in another article – in short: fund projects for which the world has not waited or the current or expected performance of the potential fund manager is not convincing.
With fund initiators, who have an excellent network, the question arises even with recognizable success potential of the fund launch project (performance, track record, etc.) whether the fund initiator addresses the necessary number of the correct contacts in a reasonable time frame (among other things also topic resources): From experience one can say that for example only a very small number of initiators possess and/or developed relevant databases at all. Certain family offices also have these problems in part: For reasons of discretion, it is not possible to search the market for investors or co-investors in a “loud rumbling” manner, rather elegance in communication is required – with or without databases.
Exchange of experience can be helpful: Associations like the federation of independent trustees Germany registered association. Association of Independent Asset Managers of Germany eV, (VuV) or news services such as Citywire (abroad) can often offer suggestions or point out which companies are possibly dealing with similar issues (product launch, seeding, distribution, etc.)
Budget and resources – a central stumbling block for fund projects
The budgeting of internal or possibly externally supported fund launch projects often represents the strategic bottleneck in the design of new funds. As with research and development in the industrial sector, the same applies to professional fund launches: When projects mature in the hustle and bustle of day-to-day business – sometimes even motivated more by economic hardship or opportunistically driven “greed for-profit” – there is often a conscious or unconscious danger that the starting signal for one of the numerous “we-dice-us-conception-less through” projects to be found on the market will be given. At the end of these projects, there is a desperate fund initiator who, in the final phase of the seed money search with the “scatter box”, desperately tries to find any or all investors.
The stress level in fund projects increases when the initial subscription period is slowly coming to an end. A major of this stress variant is discussions with fund initiators with the Teno: “We have already collected the necessary money for the fund launch – we are only missing the last two million of twenty million – don’t you have an idea?
If, for example, a half-baked fund idea meets non-prizing, under-budgeted project designs, the fund initiator can prepare for exciting, stressful times. The desire to set up a fund of one’s own can trigger an instructive and successful, profitable process. If a professionalization in the field of seed money searches were to develop over the coming years, the following statement would increasingly lose validity: “Like butter in the sun – in the end, nothing melts as quickly as a promise of seed money”. The industry wishes it from the bottom of its heart – interesting new products bring great joy to sales and investors.