One of the latest attempts to raise money for a start up venture in the digital currency space is the creation of the Bitcoin Fund, which will allow start up companies in the space to raise money without having to rely on venture capitalists. According to the documentation, the proposed fund would be classified as a private equity fund. However, Skybridge declined to reveal the total number of planned investments, but the required minimum from an individual investor would be $50,000. The offering would be under the SEC’s Reg D exclusion, which means that only those wishing to invest directly with the SEC can participate. Although participation in a venture capital fund has become increasingly difficult for new businesses, it is still possible to raise funds using the Reg D exception.
The proposal states that investors will receive the proceeds from the sale of a discounted percentage of the market price of one of many potential assets that are included in the proposed fund. While there is no guarantee that the selected sector will be a profitable one, it is expected that the management fee will be proportional to the profitability of the chosen investment. It is also not clear from the proposal how the investor would be compensated for the market to gain from the selling of the portion of the company’s stock included in the fund. This information should be clearly defined in the documentation accompanying the proposal, and if not, should be clarified in the shareholders’ agreement or operating agreement of the company.
The creation of the bitcoin fund is part of the wider effort by several large financial institutions to diversify their investment portfolio. In the past, hedge funds have generally focused on exchanging floating exchange rates between currencies, or on particular economic areas. The creation of the fund will allow more investors to participate in the exchange trading while maintaining their traditional hedge fund roles. This may open up new investment opportunities for investors in cryptocurrencies.