INVESTORS' CLUB

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Pledge funds are organisations made up of individuals looking for investment opportunities in start-ups. But unlike venture capital organisations, members of these clubs are free to choose the projects they find most interesting, as well as the amount to invest.

A GOOD DEFINITION IS AS FOLLOWS

A pledge fund, also called a "bridge fund" or "investment club", is an arrangement in which investors retain the ability to make decisions on an agreed basis and subject to pre-agreed terms. This investment autonomy within the Club attracted many investors from venture capital organisations chastened by the resounding investment failures caused by the technology bubble in the United States in the late 1990s.

WHY KEEP YOUR MONEY IN INVESTMENTS YOU CAN'T CONTROL?

The mechanics are very simple! The fund managers propose investment ideas to the partners and the partners decide whether to invest or not.

 IN SUMMARY, THE ADVANTAGES OF THE PLEDGE FUND ARE AS FOLLOWS:

• More security for the investor.
• Better advice, as it has a prior assessment of the projects.
• Optimal access, as investment minimums are generally not very high.

Pledge funds arrived in Spain in 2011 and began to multiply with firms such as Lánzame Capital and Faraday Ventrue Partners. This gives investors eager to enter startups the opportunity to do so with a margin of autonomy in their decision on which company to invest in. 

HOW DO INVESTOR CLUBS WORK?

Typically, pledge funds charge a periodic fee to each member. They may also charge a fee for both investment and success.or if certain milestones are met. Investment minimums are relatively low. In the case of Faraday Venture Partners, its investors can invest from €2,000 per project, with no minimum investment commitment per project or overall, although the average ticket is around €15,000 per investment. In any case, average tickets are lower than in venture capital.

When the capital to be contributed by each partner is decided, it is syndicated and channelled through a limited company or a PCS (Private Civil Partnership). Each investor subscribes to the pledge fund for a specific amount. The manager is obliged to present investment options for a certain amount with the objective that the aggregate of all subscriptions will reach the required amount. Each time the manager wants to add a project, he presents the investors with a statement of terms describing the opportunity.

At that time, investors have a certain number of days to study the proposal and make a decision. During this 10-15 day period, investors can make their own proposal mainly through the manager, although direct discussions with the management team are possible. Each investor can opt for a certain amount up to the maximum allocation. This is determined by the size of their subscriptions to the pledge fund relative to their subscriptions to other projects. If investors subscribe for less than the maximum initial allocation, other investors may choose to subscribe the remainder of the amount.

If the investment is not yet fully subscribed, the manager will usually have the opportunity to keep it or offer it to third parties. Therefore, we can say that one of the key features of the pledge fund is flexibility: Investors have a different percentage stake in each investment, and will not be able to participate in certain investments.

ADVANTAGES FOR START-UPS OF INVESTOR CLUBS:

Investment clubs also offer advantages to start-ups. Members as such have less power on the board, if they sit on the board at all, and are more docile than venture capitalists. On the other hand, shareholders usually acquire a high level of commitment to the start-up and contribute to the dissemination of the product or service. They become like brand ambassadors for the brand. 

HOW DO THEY CAPTURE ATTRACTIVE OPPORTUNITIES? DEAL FLOW FROM INVESTOR CLUBS

To find good deal flow opportunities, pledge funds follow the same procedures as venture capital funds. The vast majority of opportunities come from networking activities and proposals received from other funds for co-investment. However, the management team also carries out an active search on its own, attending entrepreneurial competitions and sectoral events. The partners themselves also propose investment options to the management committee for consideration. Finally, it is worth noting that investors' clubs are one of the most important excellent option for people who are just starting out in the world of startup investment. The main recommendation is to invest as a "follower", i.e. following business angels with much more experience and track-record. They can be a great school for everything related to analysis and decision making and also allow you to do so with controlled amounts. 

HERE ARE SOME LINKS TO THE WEBSITES OF SOME OF THE INVESTOR CLUBS OPERATING IN SPAIN:

• THROW ME CAPITAL (+)

• ANGEL CLUB. ENEKO KNÖRR (+)

• AMAZON CLIMATE PLEDGE FUND (+)

• BIOCREW. SPECIALISING IN HEALTH (+)

An investor club is an organisation of individual or corporate investors who come together to invest in a variety of projects or start-ups. Investor club members often share similar interests and seek investment opportunities that match their investment objectives.

Investor clubs can bring many benefits to individual investors and start-ups, including:

1. Access to investment opportunities: investor club members can share information about interesting investment opportunities, which can help investors find and evaluate projects or start-ups more effectively.
2. Portfolio diversification: Investor clubs can invest in a variety of projects or start-ups, which can help investors diversify their investment portfolio and reduce risk.
3. Access to experience and expertise: Investor club members may have experience and expertise in specific areas that can be useful to the start-ups in which they invest.
4. Risk sharing: By investing together, members of the investor club can share risk and reduce individual exposure.
5. Access to resources: Investor club members may have access to additional resources, such as mentoring, advice and business support, which may be useful for the start-ups in which they invest.

TIPS FOR JOINING AN INVESTORS' CLUB:

1. Investigate the options: research the different investor clubs available in your area and compare their offerings. Find out about their track record of success, their approach and their business philosophy.
2. Includes investment terms: make sure you understand the investment terms of the investor club, including membership fees, investment requirements and any portion of future profits they may claim.
3. Check the focus: Make sure the focus of the investment club aligns with your investment objectives. Some investment clubs may be more focused on technology, while others may be more focused on sustainability or other sectors.
4. Check the team's experience: make sure that the investor club team has experience and expertise in the business field.
5. Consider the duration of the commitment: make sure you understand the length of the commitment involved in joining an investor club and make sure you can meet the time requirements and any other associated conditions.

In summary, investment clubs can be a great option for individual investors looking for interesting investment opportunities and a way to diversify their investment portfolio. When joining an investment club, it is important to understand the investment terms, the focus of the club, the experience of the team and the duration of the commitment.

Advice for entrepreneurs on how to access funding from investment clubs

HERE ARE SOME TIPS FOR ENTREPRENEURS SEEKING FUNDING FROM AN INVESTORS' CLUB:

1. Research investor clubs: research the investor clubs available in your area and compare their offerings. Find out about their track record of success, their approach and their business philosophy. Make sure the investment club is interested in your industry and the type of business you are building.
2. Prepare a solid pitch: Prepare a strong presentation about your company, including information about your team, product or service, target market and growth plans. Make sure your pitch is engaging and exciting for investors, and that it highlights what makes your company unique.
3. Show your progress: Investors will want to see that your company is making progress and is on the right path to success. Make sure you have some important milestones that you can highlight, such as achievements in sales, users, customers or advances in technology.
4. Communicate your need for funding: clearly communicate how much money you need and how you will use it. It is important to have a detailed plan that demonstrates how the funding will help your business grow and achieve its goals.
5. Be prepared to negotiate: Make sure you are prepared to negotiate with investors, including investment terms, ownership percentages and any portion of future profits they may claim. It is important to maintain a professional approach and be willing to listen and negotiate.
6. Be transparent: Be transparent about the risks and opportunities of your start-up. Make sure investors understand the profit potential, but also the potential risks. Transparency is key to building a strong and lasting relationship with your investors.

To get funding from an investor club, it is important to research and prepare a strong pitch, show your progress, communicate your need for funding, be prepared to negotiate, be transparent and highlight what makes your business unique and attractive to investors.

Advice to a business angel wishing to start investing through an investment club

HERE ARE SOME TIPS FOR A BUSINESS ANGEL WHO WANTS TO START INVESTING THROUGH AN INVESTMENT CLUB:

1. Research investor clubs: research the investor clubs available in your area and compare their offerings. Find out about their track record of success, their approach and their business philosophy. Make sure the investment club is interested in the type of business you are interested in and is aligned with your investment objectives.
2. Includes investment terms: make sure you understand the investment terms of the investor club, including membership fees, investment requirements and any portion of future profits they may claim. Make sure the terms are fair and that you are comfortable with them before you invest.
3. Meet the other members: make sure you get to know the other members of the investor club and understand their investment objectives. Try to identify those members who may have expertise in areas that could be useful to you, such as those with experience in the business sector in which you want to invest.
4. Take advantage of networking opportunities: Take advantage of the networking opportunities offered by the investors' club. Attend events and activities organised by the club to meet other members and potential companies to invest in.
5. Understand the risks: understand the risks associated with investing in startups and make sure you have a clear investment strategy. Make sure you are comfortable with the level of risk and that you are not putting your personal finances at risk.
6. Maintain a professional attitude: Maintain a professional and respectful attitude towards other members of the investor club. It is important to have a good relationship with other club members and to maintain a strong professional image.

In summary, for a business angel wishing to start investing through an investment club, it is important to research the different investment clubs, understand the investment terms, get to know the other members, take advantage of networking opportunities, understand the risks and maintain a sound professional attitude.