Question: My prospective LP wants to invest into my Fund out of a self-directed IRA. Can they do this?
Yes - however, note that both the Fund and the LP must be set up with a Trust company (the same company!) that will act as Custodian for the IRA before the investment can happen.
Question: Sounds great - let's do this! Let's just call up Chase/Schwab (or another big name institution)...
Whoa, wait a second! Most institutions:
Don't actually support this type of product any longer due to industry/market conditions (despite marketing materials or other claims); or
Don't actually understand VC and thus can't or won't set up your Fund to be able to accept such investments.
Question: What the heck does that mean?
Getting down to brass tacks, it means that there are only a few vendors out there that support investing into a VC Fund from a self-directed IRA. We (Decile Group) can count them without even fully using one hand! We've tried to work with other vendors, but when we dig into the nitty gritty details, they simply don't/won't/can't on-board the Fund to be able to accept the investment.
In one case, we got to the finish line, but it was a very painful and drawn-out experience for the prospective LP, the fund manager, and Decile!
Question: So....what do I do?
Decile works with and recommends Strata Trust primarily - they are our default vendor when this comes up and understand VC Funds very well. If you are working with Decile Partners, simply reach out to your point of contact to get the ball rolling.
Again please note BOTH the prospective LP and the Fund must be set up to be able to take this type of investment - this includes the prospective LP transferring their IRA to Strata.
Question: Haha! ABC Trust Company that my LP has been with for XYZ years swears they can also do this, can we work with them?
It's not outside the realm of possibility, but Decile Partners will need to scope the services, and the process may stretch weeks or even months depending on ABC Trust Company's processes.
We still strongly recommend going with Strata, as time is the enemy of all deals. Should you decide to explore ABC Trust Company's offerings anyways, please loop in your Decile Partners point of contact to assist in coordinating - and then prepare to wait for probably a while and for lots of back and forth.
Question: Should I stick with one IRA Custodian then?
Generally speaking yes - it is common to stick with one custodian vendor for operational efficiency. Imagine trying to on-board and accommodate any and every vendor a prospective LP might bring to your door...