It is not uncommon for the amount of the investment to be paid in two or more tranches. Investors see the transfer as a way to reduce risk. The first tranche is paid, as a rule, a few working days after the notarized conclusion of the investment agreement. The following tranches are paid after reaching the agreed power miles. In situations where start-ups are approached by seed investors, the agreement can be prepared by one of the parties. All of these agreements must contain some key clauses: longer investors in specialized maritime funds will negotiate a prolonged freeze in exchange for improved fund participation. This is an opportunity to submit to the profitability of the underlying fund companies, which RMF calls “the call option for the growth of the hedge fund sector.” A blockage is almost a prerequisite for such a fund, and the blocking periods usually vary between two and four years. A seedling fund could have a lifespan of up to eight years. Historically, seeding funds also used a leverage of 1.5 to 2 x capital. It remains to be seen whether this can be maintained in a climate where loans to funds will generally be cut.
Some sighs argue that the traditional private equity/venture capital model is flawed because it is difficult to deal with executives or monetize equity in the manager. Given the focus on liquidity that we expect to see in the alternative investment sector at least for the next 12 to 18 months, this will be a priority for many institutional investors who remain interested in launch opportunities. There are also better terms of exit and liquidity than other collateral vehicles, which behave more like private equity funds. Investors benefit from the added benefit of a transparent payment plan and constant cash flow. Hurschler describes it as “a true direction of interest” with the underlying manager. At first glance, such a provision may seem like a nice compliment to the founders and their company, and it seems to be an early commitment to a strong participation in future Series A financing. However, these agreements hide a number of problems that the founders should at least be aware of. A more appropriate seeding model may be a model similar to mezzanine financing and recently advocated by RMF. Mezzanine debt is always cheaper than equity financing because current shareholders are less diluted and do not cede ownership of the company. Offshore investments can be considered short- and medium-term loans with interest related to the Fund`s gross revenues. RMF argues that the returns on successful mezzanine contracts should be smoother than a purely venture capital approach.