Proskauer's Hedge Start: Seed Investments

Seed investment deals between a new hedge fund manager and a seed investor can be a key first step to launching a first fund. In a typical seed investment deal, the seed investor commits to make a founding investment in a new hedge fund in exchange for a share of the manager's future revenues or profits. Key terms of seed deals vary significantly but generally include:

Lock-up of Investment

Typically, the seed investor invests anywhere from $25 to $200 million and, typically, may not redeem its investment for two to three years.

• Exceptions: Exceptions to the lock-up are typically negotiated. Examples include investment performance below an agreed benchmark, the departure of key personnel, material withdrawals of capital from the fund by the key principal(s) of the manager, or if the manager or its key personnel commit certain agreed bad acts or are subject to certain agreed regulatory or other events. In these circumstances, the seed investor typically has