It’s like herding cats.
If you’ve ever been a project manager or team leader of any sort, you’ve almost certainly uttered this phrase before. You may fear that setting up an investment club will be the same. But it doesn't have to be.
An investment club is a group of people who come together to make investments. With significant capital on the line, you run the risk of high emotions, rampant disagreements, and more. How can you start an investment group to mitigate these future challenges?
Let’s examine the five most common challenges you may encounter when setting up an investment club. We’ll examine each challenge in detail and give you the tools and know-how to avoid them.
Benefits of Setting Up an Investment Club
Before we go any further, let’s first talk about investment clubs in general. What is an investment club? Any group of people who pool funds to invest together can form an investment club. Though you may think of an investment club as an exclusive thing meant only for the wealthy, any group of wealth-minded individuals can come together to form a club.
So, if setting up an investment club is so challenging, why should you bother? Let’s look at some of the advantages you can enjoy when you start investing as a group.
- Lower risk: Investing in a group spreads your risk among the group, making each member’s investment less risky.
- More capital: When you pool funds with a group, you have more capital to go around.
- Extended Network: Forming an investment group gives you more knowledge and expertise, allowing you to access more and better deals.
- Increased Diversification: With an investment group, you can spread your capital across multiple opportunities instead of going all-in on one.
- It’s fun: Investing as a group is a great way to learn new investment classes, share ideas, and build relationships as you build wealth.
Challenge 1: Getting Commitment
Your investment group challenges start right at the beginning of your group formation process. Challenge number one is getting group members to commit. To set up your investment club, you’ll need members. How can you find the right people to join your group?
The challenge doesn’t end there, though. Even after you’ve identified your group members and gotten them to agree to join your group, you still need to have enough momentum to move the group out of the “dreaming” phase and into the “doing” phase.
Solution:
The easiest way to solve this is to start by choosing the right people to participate in your investment club. Ensure that you are only inviting wealth-minded people who are just as committed to the investment opportunity as you are.
You’ll also want to step into the ‘founder’ or ‘group leader’ role. A leader helps spur the rest of the group into action and helps increase alignment.
Lastly, set a minimum contribution requirement for all members. This contribution requirement should include both capital contributions and a mandatory time commitment to ensure that only those serious about the opportunity join your club.
Challenge 2: Tool Overload
Your second challenge involves your communication efforts. Coordinating communication among several group members is challenging at the best of times. You’ll really find yourself running into trouble if these communication challenges coincide with tool overload.
In a tool overload situation, your group communication will be spread across channels like email, Slack, phone calls, in-person meetings, Zoom calls, and more. When you’re using this many channels, it’s easy to lose track of the conversation. Additionally, if not all group members are involved in all these conversations, some members may get left out of important decision-making processes.
Solution:
The solution to this challenge is simple: Use one alignment tool capable of handling all your investment-related communications. This tool should be separate from any tools you use for personal communication with any group members and should be used only to discuss club business.
Tribevest’s investing group alignment tool is designed to help investment clubs and groups with exactly this challenge. Check out our features and pricing to learn more about the tool today!
Challenge 3: Clashing Goals or Opinions
Any time a group makes a decision, clashing opinions are a challenge. When that decision involves finances, these decisions can be even more hotly contested. Some of the clashes that may arise for your investment club include disagreements surrounding expectations, budgets, and acceptable levels of risk.
Related Read: How to Build Generational Wealth from the Ground Up: 5 Essential Steps
Unlike the first two challenges, which only tend to arise in the early stages of forming your investment club, challenge number three can pop up at any point in your club’s journey.
Solution:
The best way to solve the challenge of clashing goals and opinions is to align your group! Align it early and often. An easy way to ensure your group is able to stay on the same page is to use an alignment tool.
Tribevest’s alignment tool lets you create a mission statement and streamline communication. These features allow you to ensure that every member of your club understands the goals, risks, and priorities of the group from the beginning.
Another important step to this solution is to formalize voting and decision-making processes. Setting up formal votes will ensure that everyone has an equal voice in the group, which is vital for keeping your group on the same page.
Challenge 4: Holding Members Accountable
The next challenge you may run into when starting an investment club is the challenge of holding group members accountable. If club members start falling through on responsibilities, it’s up to you as the club founder to get everyone on track.
The chief area where it may be necessary to hold group members accountable is in collecting capital contributions. If members aren’t following through with their contributions, chasing them down can make you feel a bit like a debt collector, which can be an uncomfortable position.
If your club decides to invest in an asset like property, you may have additional responsibilities to keep track of, like property management or renovations.
Solution:
The best way to resolve the challenge of holding group members accountable is to set clear expectations up front. Create a formal Operating Agreement that clearly lays out the responsibilities for each group member and deadlines for each capital contribution.
You can also use Tribevest’s alignment tool to help in this area. Our tool can be set up to send automatic reminders for capital contributions. This setup makes the tool the debt collector instead of you, which can be less awkward, especially if you’re investing with friends or family members.
Challenge 5: Agreeing on an Investment
The final common challenge you may encounter when setting up an investment club is agreeing on the investment itself. If you set out to form your investment club with a specific investment in mind, you’ll be less likely to run into this challenge initially. However, you could still encounter it in the long run if your group decides to continue investing together beyond the original opportunity.
Group members may have different opinions, goals, or expertise that will lead them to want to pursue different types of investment opportunities. How can you get all your group members to agree on a single investment?
Solution:
The solution to this challenge is similar to many of the solutions we’ve already discussed in this post: Continuous alignment and formalized processes!
Before formalizing your group, align the members of your investment club on the types of opportunities they want to pursue together. Ensure that you set up clear voting processes and clarify that the winning vote chooses the path for the group. As long as each group member has a voice in the vote, this process will help members buy in ton a decision, even if the ultimate decision ends up going against their individual vote.
Setting Up an Investment Club the Easy Way
Setting up an investment club is a fantastic way to build wealth and diversify your investment portfolio, but it isn’t without its challenges. To enjoy the benefits and wealth-building opportunities provided by an investment club, you’ll need to avoid or overcome these challenges.
If you follow the tips and advice in this post, you’ll be able to navigate the investment club setup process with minimal pain.
Many of these pains can be mitigated simply by using Tribevest’s communication and alignment tool. Get started with Tribevest today to see how easy our tool can make investing with a group!
