An investment club is a group of individuals who pool their money together and then invest it in a range of investments, like companies or stocks, for the shared benefit of all involved. But just how do investment clubs work? Not all investment clubs will have the same structure but it often starts with the investment club manager who sources deals and researches investments. Before they put these deals in front of the investors (who are members of the investment club) however, there are a series of steps an investment club will often take:
- Help companies create their pitch deck and establish their expectations.
- Ensure the companies filings and founders agreements are in place.
- Help arrange SEIS/EIS insurance.
- Establish a plan and perform initial due diligence checks on the companies.
- An investment club should also perform checks on the investors to make sure they are able to make investments (otherwise known as being a sophisticated investor - someone with sufficient capital, experience and net worth).
You may be able to find individual investors through your network, but this can be difficult and time consuming. An investment club could therefore be an easier solution for both parties - it helps draw together investors and investees (companies), pairing the two together and making the investment process much smoother. Cai Gwinnut from Tramshed Tech describes it as "a matchmaking service" for this exact reason.
An investment club might designate someone to be this middle-man; this is a person who is responsible for arranging people to pitch to investors. In fact, Graham Spooner, investment research analyst at The Share Centre, recommends that anyone setting up a club looks for people they know and trust, with a range of interests, experiences and perspectives to fill set roles. This should include a chairperson (to set up and plan meetings and activities), a treasurer and a secretary to record minutes.
Once the investment has been made, an investment club can help:
- Track and manage the investment.
- Maintain a relationship with the companies and/or entrepreneur (who the investment is with).
- Maintain relationships with the wider network.
- Provides regular updates and answer questions, and meets the other needs & requirements of the investor and companies/entrepreneur.
Investment Club Benefits
All of this sounds pretty good, right? An investment club increases scope and lowers risk through its unique structure. It allows a range of different people - with different experience and perspectives - to invest in a range of companies. This also enables people who might not otherwise be able to invest, to make an investment within a good structure.
In addition to making investments, the club allows members to broaden their network and learn invaluable information that all members can take into the future. Indeed, lots of investment clubs prioritise socialisation and fun - some will arrange social events and activities to celebrate victories and commiserate losses as a cohesive group. After all, as Cai puts it, "it's always better and more fun to do things together."
Invest in the Future
In addition to the possibility of investing in the next big thing, this early stage investing provides investors with access to the next generation of talent and the opportunity to begin building relationships with future generations of talent.
There are investment clubs that invest with a certain purpose - for example, to support and elevate founders/companies that their club believes in, who might otherwise have difficulty accessing investment. Two great examples of this are the HBS Black Investment Club which aims to "address the massive underrepresentation of Black investors in venture capital, private equity, and investment management by creating a focused organization aimed at empowering and advancing the interests of [the] community" and the Gaingels Investment Club, who ensure that LGBTQ+/Ally "investors' time and capital furthers the community while seeking to make profitable investments with above market returns."