The following Q&A is for a master/feeder setup, with the master fund being in US, and the feeder fund being in offshore. This is only intended to potentially help the beginners in finance aiming o start a crypto investment fund with no previous experience whatsoever.

Can it invest in ICOs/securities?

• Yes, as long as AUM < $25M, then no need to be registered as an investment adviser (Florida)
• Above AUM $25M and under $125M, need to do a ERA (exemption of reporting)
• Above $125M, need to be registered as an investment adviser

Can it invest in ICOs not offered in US through its offshore arm?

• NO (no regulatory issue, but accounting issue).
• If need be, setup a SPV (Special Purpose Vehicle) that is owned by the master 100%.

What consulting expenses can one pay directly from the fund?

• Whatever is for the benefit of the fund, but not the benefit of assisting the manager.
• Conferences seeking a specific investment or project can be expensed.
• Tools, software solutions can be expensed by the fund.
• Manager consulting team should not be expensed.
• Note: for convenience and when appropriate as listed above, you might want to spend a fund expense from the IM bank account and invoice the fund accordingly.

Marketing, third parties, and other alternatives

• US :  no commissions on anyone but broker/dealer (Registered rep).
• Non-US persons bringing non-US investors: outside US law (must be strictly offshore).Positive sentiment in emails must be aspirational language (=”we believe”)
• Possibility of 3rd party marketing agreements (with possible commissions/profits). Not allowed to sell securities other than the ones issued by the fund, and must be a registered financial broker/dealer.

Hedge fund or VC fund?

• It’s more a hedge fund than a VC if assets are liquid.
• VCs are for private equities/shares.
• The distinction is not that important nowadays.

Buy/Sell a fund : typical valuation?

• Discounted revenue of 1 to 2 years.
• Better if investments are locked.

Carried interests for GP/IM in the structure? is it done automatically?

• Management fees income are not carried interests.
• Performance fees could be taxed as carried interests (if long term assets).

Add new fund product: a common fund from a management perspective, but individual picks (similar to an operator)

• Too complicated as each individual would be considered like a fund (mini-fund), very complicated for accounting purpose as well.
• Possibility of side pocket funds, but that’s typically when a specific investment gets delisted or become non-tradable somehow.

Investing : is  accredited investor certificate required?

• No material requirement under exemption rule 506(b).
• 506(c) rule requires a document proof.
• If all the investors of the fund are accredited, the fund is considered accredited as well.

Closing the offshore fund?

• Less easy to close/liquidate Offshore fund, but lawyers can act as liquidators for about $6k.
• No need of long notice as closing can be immediate.
• No conflict of interest as long as personal exit doesn’t prevail investors’ exit.
• BVI new structures — SPCs (Segregated Portfolio Companies), LLCs, and Micro Business Companies.

Closing the US fund only?

• Redeem all US investors.
• Change the PPMs.
• Transfer all exchanges accounts.

Selling/merging the fund or management company :  is there something in the contract preventing such an outcome? Can the fund be managed by someone else?

• Another manager is possible, but it is a material change -> each investor needs to provide consent.
• Sell the right to manage the fund = change the manager = requires consent.
• Need to check on the possibility to bring on a key advisor without consent.
• Selling the management company requires consent.
• Can not buy only one token that is not liquid on exchanges, it goes against the strategy described in the PPMs.

If a company becomes a partner with % on profits rights. Can they refer/market the fund?

• No problem of commission for offshore fund / non-US investors whatsoever.
• Partnership on rights on profits is a good solution because the payments to partners are made out of the manager, and not out of the funds.
• The partner can not market the fund, just like the manager. But they can publish non-offering content as much as they want.

Other challenges and considerations

• Finding a crypto-friendly bank can be time-consuming. Plan with plenty of buffer.
• Choosing administrators you feel comfortable with is an essential piece in the puzzle. They will be your day-to-day interactions, each specialized company have their own methodologies, rules, and restrictions.
• Make sure you know the accounting methodology being used for tax purpose before beginning trading. Tax optimizations on capital gains are important. Be aware of all crypto tax rules in place or anticipated.
• I could write much more in specific areas of the fund experience I lived through the past 4 years, but above are the big lines. If you have edit suggestions, please comment. Feel free to get in touch with me.