A sidecar fund requires a lot of these to begin.
An angel investment group is the only type of group that can begin a sidecar fund, which is an investment fund that makes the group’s portfolios look better. Most of the time, an angel investment group is set up by a nonprofit organization, but one can also be formed by local governments. The group of angel investors determine what different business offers they will get involved with and they use a sidecar fund for the investment.
A sidecar fund carries no limit as to what the start-up amount for the fund will be. When you invest in a sidecar fund then you have an investment in each company that is being funded by the sidecar. For example, if the fund is invested in 10 companies, you will be invested in 10 companies.
One bad thing about a sidecar fund is that it is its own separate, legal entity. More paperwork and tracking has to be maintained on the sidecar for financial records. Also, when you get involved in a sidecar, not only are you responsible for your own money, but for everyone else’s money, as well.
An angel investment group has to be in existence before a sidecar fund can be started. The board of directors in the angel group will determine what the buy-in for the sidecar fund will be. They will also determine if only investors in the angel group can buy in to the sidecar, or if the buy-in will be open to outside investors.