Introducing: Fund investing on Mainshares

Today, accredited investors can invest in small to medium-sized business (SMB) acquisitions through diversified, managed funds on Mainshares. 

With a single investment, investors now have access to deals across a variety of industries, geographies, and deal structures in this traditionally inaccessible and fragmented asset class.

Investment fund vs Special Purpose Vehicle (SPV), what’s the difference?

Investment funds and SPVs are two ways that investors can invest in SMB acquisitions. 

While SPVs enable investors to invest in deal-by-deal opportunities based on their own investing strategy and diversify their portfolio accordingly, investing in a fund gives investors access to professional money managers who allocate their capital in accordance to their predefined investment thesis. 

Investment funds and SPVs both have unique benefits given an investor’s professional experience, familiarity with an asset class, and investment strategy. 

Benefits of investing in a fund

Investing in a fund can be the right choice for many investors. Investor advantages include:

1. Professional fund managers: Investors commit capital to a fund manager, or “General Partner” to execute a predefined investment strategy aligned with their ability to create value for their investors. Investment managers often have strong networks, access to deal flow, and an asymmetric information advantage based on their professional background and domain expertise. 

2. Portfolio diversification: Investors get access to a diversified pool of investment opportunities with a single check. Fund opportunities may invest in deals across different industries, geographies, and deal structures with unique risk and return profiles. Diversification reduces the unsystematic risk associated with one particular investment’s poor performance significantly impacting the rest of your portfolio. 

3. Asset selection: Investors are able to unlock access to opportunities that they would have otherwise been unable to access on their own. Deal flow is a competitive advantage in SMB acquisitions, and fund managers often have access to the best deals in part because of their ability to write larger checks. These deals would typically be unavailable to smaller check investors who wish to invest directly but can be accessible through a fund.

4. Convenience: Investors trust fund managers with their decision-making abilities to identify, negotiate, and conduct due diligence on potential investments. By doing so, investors take a more passive role in the investment process than they typically would in deal-by-deal investing. From an administrative standpoint, investors also benefit from a streamlined tax process, receiving just one K-1 tax form instead of individual K-1s for each deal-by-deal investment. 

Structure of an investment fund

Private equity funds are typically structured as a limited liability company (LLC) or limited partnership (LP) entity, both resulting in limited liability for investors as well as pass-through tax status. 

Investors commit capital to the fund, and the fund itself is overseen by the . The Sponsor is composed of two entities—a Management Company and a General Partner (GP). 

The Management Company is responsible for the fund's day-to-day operations, including paying operating expenses like rent and employee salaries. It also owns all branded assets and intellectual property. The management company typically earns a fee of 2% of the committed capital annually—known as the asset management fee. 

The General Partner is the legal entity responsible for making decisions on behalf of the fund and assumes legal liability for the fund. The General Partner earns carried interest for the performance of their investments which is commonly 20% of the investment profits.

Types of SMB acquisitions that funds invest in

Fund managers can invest in a variety of opportunities based on their investment thesis and the fund’s legal documents. 

For SMB acquisitions, we typically see three types of deals that fund managers invest in:

• Self-funded search: Self-funded searches are typically executed by individual buyers who finance their own search process, plan to own and operate the acquired business, and may need to raise equity capital to close on the acquisition. 

• Independent sponsor: Independent sponsors are professional money managers who identify potential acquisitions and raise capital from limited partners to finance deals on a deal-by-deal basis. They are typically less involved in day-to-day management after the deal closes than a searcher.

• Traditional search fund: Traditional search funds are raised by individuals who finance their searches with investor capital to identify a potential acquisition, before raising additional funds from the same or new investors to close on an acquisition.

Fund managers can now leverage the Mainshares platform to raise capital for their funds with these investment theses and accept new investors seamlessly from the Mainshares community. 

Small business acquisitions are an exciting asset class and today marks an important day in democratizing investor access to a wide range of investment opportunities. 

If you’re curious about how investing in small business acquisitions works, our team would be happy to answer your questions. 

You can begin by creating an investor account here or set up a time to chat with our investor relations team here.

Information posted on this page is not intended to be, and should not be construed as tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.