Do your investment goals feel out of reach? You have assets you want to invest in and build wealth, but you don’t have the capital to make big moves. If this sounds like you, an investing group may be just what you’re looking for. But what is an investment group?
Let’s look at a few different scenarios:
Scenario one: A group of professional investors makes their living by finding, assessing, and participating in private deals like real estate or startups for clients or passive investors.
In scenario two, consider the founder or CEO of a company. This CEO is looking to finance their business through funding from people that believe in their mission and company. These investors range from friends and family to customers and angel investors.
In scenario three a group of friends is enjoying happy hour at a local bar. They decide to work together to purchase a local house that they plan to turn into a short-term rental property.
Which of these groups is a proper “investment group”? You guessed it: The answer is all of them, they just have different structures.
This post will cover five common structures for group investing, and we’ll answer the question: What is an investment group?
What Is An Investment Group?
An investment group is a group of people who pool funds to invest together. Really, that’s it! Though many of us think of investment groups as something only for the incredibly wealthy, as long as you have a group of like-minded people interested in investing together, you can form an investment group.
However, not all investment groups are created equal. Depending on your investing experience, resources, and more, some investment group structures in this list may not be the right fit for you. Some of the structures we’ll discuss here have many requirements and regulations attached, so choosing your structure depends less on personal taste and more on where you are in your wealth-building journey.
Investing as a group has many benefits, including:
- Lower risk: Investing in a group spreads your risk among all group members, making your individual investment less risky.
- More capital: This one is a no-brainer. Pooling your funds with a group means more funds to go around.
- Extended Network: Forming an investment group extends your reach, enabling you to access more and better deals.
- Increased Diversification: With an investment group, you can spread your investable capital across multiple investment opportunities instead of putting all your eggs in one basket.
- It’s fun: Investing as a group is a great way to gain knowledge, share ideas, and build strong bonds with the people in your group as you build wealth together.
Now that we’re all excited to start up an investment group of our own, let’s check out a few of the structures you may choose to invest with others.
Check out Tribevest’s Features and Pricing to get started with your own investment group!
1. Special Purpose Vehicle
Who is this for? Special purpose vehicles are a fit for professional investors. If you are a professional making a living through finding, assessing, and participating in private deals for clients and passive investors, a special purpose vehicle may be a good fit.
One investing group structure you may choose to pursue is a special purpose vehicle. A special purpose vehicle (SPV) is a structure often used by a company or business entity (such as an LLC) to acquire an asset that isn’t attainable for a single investor. Generally, a professional investor will use an SPV to finance a specific deal or scale into more deals with more investor capital.
SPVs generally consist of a sponsor (or the founder of the group), general partners, and limited partners. General partners are parties who take a role in helping to manage the SPV. These partners are liable for the SPV’s debts—meaning they’re on the hook. On the other hand, limited partners are silent or passive investors in the deals pursued by the SPV.
Benefits of SPVs
Why may you want to pursue forming an SPV for investing? One advantage of SPVs is that they can be a relatively short-term commitment. Since an SPV is often formed for a specific deal or series of deals, you don’t have to remain locked into the group for years on end, like some other structures we’ll discuss in this post.
Another benefit of SPVs is their transparency. Limited and general partners in an SPV have full knowledge of the investment they’re contributing toward from day one with an SPV. An SPV also insulates your LLC or other business entity from any risk undertaken by the SPV.
Lastly, forming an SPV is a good way to register your group with the Securities and Exchange Commission (SEC) so you can solicit accredited passive investors. The benefit of working with accredited investors is that these parties must meet certain income and net worth requirements to become accredited. In other words, you have more assurance that they have the capital you need to invest in your asset of choice.
Considerations for SPVs
SPVs aren’t without their downsides, however. The first thing you’ll want to consider is the cost: Setting up an SPV can be expensive. A standard setup fee for your first SPV is around $8,000. For example, if you’re pursuing a deal worth half a million dollars, this may not be a deal-breaker. However, if your group is contributing under $100k, taking over 8% out just to get started might not be your best play.
Another factor to consider when looking into an SPV is that you will be subject to the rules and regulations of the SEC. If you don’t have the knowledge, expertise, or time to navigate all the appropriate SEC requirements in the pursuit of your investment, an SPV might not be the right fit for your investment group.
Who is this for? Crowdfunding is a great fit for startup founders looking to fund their growing business with friends, family, employees. If this sounds like you, crowdfunding may be an option for your investing journey! Another great thing about crowdfunding is accredited and non-accredited investors.
Technically speaking, crowdfunding isn’t the same thing as an investment group. However, it’s still a good fit for some specific cases, so we figured we’d give some information in case it’s the right path for you.
What is crowdfunding? Crowdfunding occurs when you collect smaller contributions from a large pool of investors. Generally, a crowdfund is started by the startup's founder looking to raise capital, or a Real Estate developer looking to fund an upcoming project. Essentially, crowdfunding occurs when a company or real estate project owner seeks financing from passive investors.
Benefits of Crowdfunding
A benefit of crowdfunding is that it can be an incredible way to raise capital without pursuing traditional financing or in addition to traditional financing. If you’re crowdfunding for a startup or other business venture, it’s also a great way to build a solid base of brand advocates in the early stages of your business. If your crowdfunding campaign is a smash-hit, you may also end up getting media exposure. This exposure may be through traditional media like a mention on a news station or trade publication or social media if a popular user shares your crowdfund on their feed or channel.
Crowdfunding is also a good way to get registered with the SEC, setting you up for future success in your venture.
Considerations for Crowdfunding
Crowdfunding can be powerful, but its use-cases are pretty targeted. If you’re not funding a business venture or high-profile real estate development opportunity, the juice might not be worth the squeeze.
What’s involved in the “squeeze” here, exactly? Similar to an SPV, a crowdfunded venture is subject to SEC regulation. This can make things complicated or stressful to manage. Crowdfunding can also be expensive. Crowdfunding platforms require you to pay various fees. For example, if you’re using Kickstarter, you will pay 5% of your raised capital in the form of a platform fee, then an additional 3-5% fee to process all contribution payments.
Who is this for? Syndication is another investment group structure that is best suited for professional investors. If you’re an experienced professional investor looking to assess and participate in private real estate deals, this may be a good fit for you.
Another format you can use to structure your investment group is syndication. Generally used in real estate, syndication involves investors coming together to purchase a real estate asset. Real estate syndications are generally led by professional real estate investors who need to finance a specific project according to a specific timeline.
In addition to the leader, syndication involves a series of general partners in addition to limited partners. In this case, general partners consist of parties like real estate developers, attorneys, architects, and other key professionals. Limited partners are passive investors contributing capital toward the project.
Benefits of Syndication
If you’re interested in pursuing a high-level real estate asset, there are several benefits of syndication. Firstly, you have the opportunity to earn passive income through your syndication. If you invest in an apartment building or a hotel, the cash flow from that property can offer returns to all parties in the investment group.
Additionally, syndication offers a level of control that isn’t always available in group investing. Participating investors in syndication can choose toward which specific properties they want to contribute funds.
Syndication is another group structure that’s great for getting set up and registered with the SEC and begin soliciting accredited passive investors, similar to an SPV.
Considerations for Syndication
Syndication comes with downsides, just like all the other group structures. Firstly, it’s very targeted. Real estate syndication is not for you if you’re looking to form an investment group capable of pursuing a wide range of investment opportunities.
Setting up a real estate syndication can also be complicated and expensive. For starters, to start a real estate syndication, you need to be an accredited investor. This means you need an annual income of at least $200k or a net worth over $1M.
Syndications are also subject to SEC regulation, so if you choose to pursue this type of group structure, ensure you’re considering that and preparing for those requirements.
Who is this for? An investment fund is a complex investment group structure best reserved for seasoned professionals. If you’re a professional investor looking for a long-term investment opportunity, an investment fund might be a good choice.
The last structure you can consider for your investment group is an investment fund. What is an investment fund? A fund is a way for investors to pool capital together to purchase securities together. The advantage of a fund is that each group member controls his or her own shares, maintaining autonomy while investing as a group.
Generally speaking, investment funds are formed by professional investors looking to create an ongoing investment business that lets them access more deals and leverage the entire group’s experience.
Benefits of Funds
Some of the benefits of funds include the ability to diversify to a greater extent, pursue a wider variety of investments, and formally register your investment group with the SEC. You can also pursue accredited passive investors to further boost your investment fund's capital.
Considerations for Funds
Like most of the other structures we’ve discussed, investment funds can be complex and are subject to SEC regulations. Additionally, investment funds tend to be a long-term commitment, with an expected buy-in of ten years or more.
Another downside of investment funds is that they are often blind pools. This means that passive investors don’t always know what assets a portfolio includes when they sign on to contribute funds.
5. Multi-Owner Vehicle or Investor Tribe
Who is this for? Multi-owner vehicles (or, as we like to call them, Tribes) are a great fit for anyone from experienced investors to newer investors looking to break into a new investment opportunity and level up their knowledge and wealth. If you’re interested in teaming up with friends or family members to invest in anything from real estate to cryptocurrency, a multi-owner vehicle is your best bet!
What is a multi-owner vehicle? Coined by Tribevest, a multi-owner vehicle (MOV) is an investing group structure that allows individuals and partners to pool capital and invest in a wide variety of assets as a business entity.
Suppose you’re looking to partner up with friends and family or a business partner to transact in multiple investment opportunities. In that case, a multi-owner vehicle may be the best investing group structure to consider.
Multi-owner vehicles can be led by investors of varying levels of experience and knowledge. A group of people who know and trust one another band together in the form of a multi-member LLC to invest together. A MOV consists of a founder, or the leader of the group, and members, who are equal participants and contributors to the group’s investing efforts.
Benefits of MOVs
MOVs come with several benefits. In addition to the benefits associated with group investing in general, MOVs have the benefit of simplicity. The other structures discussed in this post are complex, expensive, and often subject to SEC regulations, MOVs don’t have any of these disadvantages.
MOVs are simple and fast to start. They’re also inexpensive. For example, starting a MOV with Tribevest costs only the subscription fee and an LLC filing fee with optional add-ons for compliance and more! For more details, you can check out our features and pricing page.
Another advantage of MOVs is that this structure is fun. Since MOVs consist of trusted friends, family members, or community members, they offer an opportunity to learn and grow your investing skills together: And build wealth at the same time!
Considerations for MOVs
The main consideration you want to account for when pursuing a MOV is that you can only accept capital from active partners in your LLC in this structure. Your MOV will not be able to accept contributions from limited partners or passive investors.
If you accept capital from passive investors at any point, you’ll be subject to SEC regulations, similar to the other group structures we discussed in this post.
What Is An Investment Group? Form Your Tribe!
Which investing group structure is the best one? That depends on your goals for your group, your investment, and yourself! Each structure has its own benefits and drawbacks. Armed with the information from this post, you should have everything you need to pick the structure that works best for you and your group.
Suppose you want your investment group to be collaborative, flexible, and accessible to group members at any level of investing experience. In that case, a Multi-Owner Vehicle is the best fit for you.
Tribevest knows a thing or two about Multi-Owner Vehicles (we should—we invented them). With a Tribevest MOV, your investing group can pool capital on our platform, maintain transparency and clear communication across your group, and invest as a single entity in any asset. To get started with your investment group, build your Tribe today!