As interest continues to grow in Genesis Innovation Group’s cultivate(MD)’s Fund I and Fund II, some investors are opting to use their self-directed retirement accounts to invest in the funds.
What Is a Self-Directed IRA?
A self-directed individual retirement account (SDIRA) is a kind of individual retirement account (IRA) where the investor decides where their retirement money will be invested. The benefit is that these investors can gain all the regular tax benefits that an IRA offers while investing in an area of specific interest to them.
At cultivate(MD), we now have about 10% of our limited partners using a self-directed IRA to invest in our funds.
Traditional brokers often don’t offer SDIRAs but there are a handful of companies that specialize in them. There are several investment companies that our limited partners are currently using to invest in our funds.
What Is cultivate(MD)?
We’re a venture capital fund focused on early-stage medical device technology. This means we invest in anything from pre-regulatory clearance ideas that are still effectively the napkin sketch of a great idea, to technologies that have recently passed the regulatory process with FDA clearance.
The fund typically invests somewhere between $100,000 and $500,000 as an initial investment. To date, we’ve raised a little over $8 million from about 55 limited partners in both funds.
What Sets the cultivate(MD) Funds Apart for Self Directed Retirement Accounts?
The cultivate(MD) funds come with a team of operational resources that nurture an idea or technology as it migrates from that napkin sketch, through the design and development phase, through the validations, the regulatory process, and then onto a micro commercialization trajectory. We don’t want to be passive on investment, we want to be a valued resource. We want to be smart money, not just money.
The experience, network, and history that the cultivate(MD) team brings to medical device technologies is uncommon in the investment world. There are numerous venture capital companies that invest in software, for instance, but are run by a group of individuals who have never run software companies.
The cultivate(MD) team has the domain expertise that enables us to engage operationally at a level that the vast majority of other funds don’t have. We carry decades of experience in this space that has already proved invaluable to the portfolio of companies that we’ve invested in. We believe it will likewise serve the companies that we’ll invest in in the future.
Who Should Consider Investing?
An investor in our funds needs to be accredited. This means that their individual income is over $200,000, their family income is over $300,000, or they have over a million dollars in assets excluding their residence.
The core of our investor base is individuals who have a strong connection to the healthcare industry, including a large percentage of surgeons. However, we also have investors from the business world that are simply impressed with our funds.
How Is the Fund Set Up?
One unit in cultivate(MD) funds is $100,000 and investors can purchase as many units as they’d like. Instead of investors giving all the capital at once, the capital is drawn on four equal draws for the first 48 months of the fund. Our limited partners have found that attractive because they know exactly when the capital will be drawn.
From a return perspective, the limited partners get 100% of their capital contribution back before the general partners share in any of the investment gain. Then 80% goes to the limited partners and 20% goes to the general partners. The general partners charge the fund at 2.5%, which is in line with industry expectations for a fund our size.
What Is the Fund’s Life?
The fund’s target is at 10 years but, we don’t have a hard stop there. The reason we did not put a term on the fund is so that when we’re out in the 8th and 9th year, we’re not forced to make decisions on investments that would be wise to continue and be allowed to grow and mature as needed.