This article by MOI Global instructor Scott Miller is excerpted from a letter of Greenhaven Road Partners Fund.
In the last two letters, I discussed the likelihood that we would seed an investment manager. There are many forms of seed investing. The core of most seed relationships is a sizable limited partner (LP) investment into a fund in exchange for a portion of the economics of the overall fund. To put it another way, in addition to whatever returns one would earn as an LP, a seed investor will also get a portion of the profits that the manager earns from management and incentive fees of the entire fund. If a fund is seeded at launch, there may be no other limited partners yet, in which case owning a portion of the overall fund would have no impact on returns. However, if the fund attracts other investors, the revenue share contributions can become quite substantial.
In the movie “The Graduate,” Dustin Hoffman’s character is in the process of graduating from college and trying to find his way in the world. In one scene, one of his father’s successful friends tries to give him advice and boils the key to financial success down to “one word – plastics.” We all know that life is not that simple, but if I only wanted my daughters to be as wealthy as possible, my one word for them would be “GP” (General Partner). If structured properly, owning a small piece of a general partnership can be very asymmetric, with the rewards substantially outweighing the risks.
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Disclaimer: This document, which is being provided on a confidential basis, shall not constitute an offer to sell or the solicitation of any offer to buy which may only be made at the time a qualified offeree receives a confidential private placement memorandum (“PPM”), which contains important information (including investment objective, policies, risk factors, fees, tax implications and relevant qualifications), and only in those jurisdictions where permitted by law. In the case of any inconsistency between the descriptions or terms in this document and the PPM, the PPM shall control. These securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction have been satisfied. This document is not intended for public use or distribution. While all the information prepared in this document is believed to be accurate, Greenhaven Road Capital Partners Fund LP and MVM Funds LLC makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors, appearing in the document. An investment in the fund/partnership is speculative and involves a high degree of risk. Opportunities for withdrawal/redemption and transferability of interests are restricted, so investors may not have access to capital when it is needed. There is no secondary market for the interests and none is expected to develop. The portfolio is under the sole investment authority of the general partner/investment manager. A portion of the underlying trades executed may take place on non-U.S. exchanges. Leverage may be employed in the portfolio, which can make investment performance volatile. An investor should not make an investment, unless it is prepared to lose all or a substantial portion of its investment. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other investment alternatives and may offset profits. There is no guarantee that the investment objective will be achieved. Moreover, the past performance of the investment team should not be construed as an indicator of future performance. Any projections, market outlooks or estimates in this document are forward-looking statements and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly affect the returns or performance of the fund/partnership. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of Greenhaven Road Capital Partners Fund LP and MVM Funds LLC. The information in this material is only current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of Greenhaven Road Capital Partners Fund LP and MVM Funds LLC, which are subject to change and which Greenhaven Road Capital Partners Fund LP and MVM Funds LLC do not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment. The fund/partnership is not registered under the investment company act of 1940, as amended, in reliance on an exemption thereunder. Interests in the fund/partnership have not been registered under the securities act of 1933, as amended, or the securities laws of any state and are being offered and sold in reliance on exemptions from the registration requirements of said act and laws.