Sidecar Investment

The Sidecar Investment strategy is a great way to take advantage of your knowledge and experience while diversifying into a sector of the market you don’t necessarily understand. This type of investment also requires that you know how to properly cite your sources. Make sure to include all relevant information in the document. Sidecar investment is similar to motorcycle sidecar riding. Warren Buffett, for example, was an early investor in Berkshire Hathaway.

LPs should understand how sidecar investments work and should only represent about 50% of the original investment. If LPs are concerned about perception, you should not exceed 50% of your funds initial investment. You should also ensure that the allocations are proportional to your LP commitments. Sidecar investment is an effective way to mitigate the perception that your funds are not performing well. To be successful, you must create a strong correlation between the SPV and fund performance.

To maximize the benefits of sidecar investment vehicles, investors should carefully choose their partner. It is advantageous to both sides for both parties to have a sidecar investment vehicle. Lessors gain access to cheap capital for expansion, which helps them compete against other lessees. Lessors benefit from increased revenue, as they can earn additional revenue from equity returns or from servicing fees. Aside from the increased profits, sidecar investments are also beneficial for lessors.

Another reason why private equity real estate funds use sidecar investment vehicles is the ability to secure capital commitments quickly. Aside from lowering idiosyncratic risk, sidecar investments decrease the leverage risk of a deal. Sidecar investments are typically a private real estate fund that contacts individual investors for a sidecar investment. Each investor is able to say yes or no to co-invest, and they typically distribute the commitments according to their percentage of investment in the fund.

VentureSouth has recently closed its fourth sidecar investment fund, the VentureSouth Angel Fund IV. Raised $5 million during the recent pandemic, the fund is a partnership between VentureSouth members and outside investors. The fund continues the co-investment model of the three predecessor funds. The previous three funds had invested in more than 40 companies. By investing alongside its members, this fund is more likely to create a better environment for future growth.

Similarly, some sidecar investors focus on a limited number of industries. Jackson Walker lawyers advise Geekdom Fund in raising sidecar funding for Austin startups. Its portfolio includes ZenBusiness, which helps startups with regulatory compliance and back-office operations. It also invested $4.56 million in SubjectWell, a marketplace for clinical trial patients. Those investments resulted in a $17 million sidecar investment from Geekdom Fund.