What the Heck is an Affinity Fund?

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As a chief executive of an investment platform and as an entrepreneur myself, I’m seeing the growing interest of angel investors to invest in something with which they can relate to or in which they feel a connection to. It could be the urge to give back something to the startup ecosystem or support a social cause; there’s a growing trend toward what I and my colleagues call “affinity funds.” An “affinity fund” is a customized venture fund for groups looking to unite around shared investment opportunities and goals. It provides an opportunity to invest in something that you care about—with people from your own network. The way to do this could be a venture capital fund based on your organization, alumni, specific beliefs, or personal social missions. For example, this could be an LGBT fund or a fund built around the university incubator at the school from which you graduated. In fact, most affinity funds on the market are generally related to universities or act as sidecar investment vehicles for angel groups. Beyond Angels wanting to give back to something they believe in, we’re seeing a need for affinity funds due to the increasing entrepreneurship focus within universities. Many universities want to support their programs and incubators with capital for their companies. In tandem with this, there’s also a growing capital crunch that includes a lack of seed capital. These factors drive the need for more specialized funding. Let me explain how and why this investment model works. A school with an entrepreneurship program has some percentage of alumni who could be more likely to write checks to promote successful companies that come out of their school, than to do a blind contribution. Not only is this an opportunity for the school to tighten its relationship to the alumni and provide an experience rather than a Thank You note, but it’s an opportunity for alumni to get into early stage investing with companies they feel they have a stake in and would be willing to mentor or help. With all this said, this is still a highly fractured and fairly new space, so it’s hard to assess the size of the industry. Companies like mine are helping activate these groups, showing them the opportunity that is available to them and then helping build a customized fund. I expect to see affinity funds become more and more common. If you think an affinity fund could be for you, I’ve created a checklist including a number of key decisions that need to be considered before beginning a fund. Here are nine areas to think about if you want to create an affinity fund: Affinity-Fund-Table

Shereen Shermak, CEO

Launch Angels is a Boston-based venture capital firm that helps alumni, universities, and other affinity groups create venture funds to support early stage companies that meet each fund’s unique investment goals.

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