Sidecar funds are investment vehicles available to investors through angel investment groups. Investors in a sidecar fund commit capital to start-up companies while relinquishing basic decision-making in where their money is allocated to follow the choices of the angel investors. Angel investment groups are made up of wealthy individuals who invest in start-up companies, earning equity in the businesses in return. Individuals, rather than institutional investors, most often invest in sidecar funds, according to the Angel Capital Association.
Decision-Making and Cost
The investment decision-making in a sidecar fund varies among the individual funds, but the basic idea is that the investments in the fund should align with those that the angel investors are making with their own money, according to the Angel Capital Association. Some funds use a formula to make this determination. However, most also have a committee, board or professional staff with the power to flexibly make decisions as conditions change. Sidecar fund investors typically pay a management fee of 2 or 2.5 percent of capital invested to enroll in the fund.