1. Investment Structure & Tiers
Gonen Funds uses a two-tier entry system to accommodate both small-scale and larger investors.
- CF Shares (Crowdfunding): * Minimum Investment:$500.
- Target Audience: Non-accredited or retail investors looking for lower-barrier entry.
- Regulation: Likely operating under “Regulation CF” (Crowdfunding), which allows companies to raise capital from the general public.
- PPM Shares (Private Placement Memorandum): * Minimum Investment:$5,000.
- Target Audience: Private investors, often requiring a more formal legal disclosure (the PPM) that outlines the risks and terms in deeper detail.
2. Time Horizon (The “Terms”)
- Duration: 3 to 10 years.
- What this means: This is a long-term, illiquid investment. Unlike a stock you can sell any day, your capital is likely “locked” or committed for several years to allow the underlying assets (likely real estate, business ventures, or debt) to mature and generate value.
3. Financial Returns
- Competitive Returns: 7% to 15%.
- What this means: This is the target annual yield. A 7% return is comparable to a steady index fund, while 15% is considered high-yield, typically reflecting higher risk or more active management.
- Profit Split (55%):
- This is a “performance-based” model.
- Shareholders receive 55% of the net profits generated by the fund’s activities.
- The remaining 45% usually goes to the Fund Manager (the “GP” or General Partner) to cover management fees, operating costs, and their own incentive to make the fund grow.
4. Accessibility & Strategy
- Goal: The description emphasizes “making growth accessible.” By keeping minimums as low as $500, Gonen Funds is positioning itself as a “democratized” alternative to traditional private equity firms, which often require $50,000 to $100,000 to get started.
Summary Table
| Feature | CF Shares | PPM Shares |
|---|---|---|
| Minimum Entry | $500 | $5,000 |
| Annual Return Target | 7% – 15% | 7% – 15% |
| Commitment Term | 3 – 10 Years | 3 – 10 Years |
| Your Profit Share | 55% of gains | 55% of gains |
Investing in funds like the one described involves a transition from the “public” market (like buying stocks on an app) to the “private” market. While the returns can be higher, the guardrails are different.
Here is a breakdown of the specific risks associated with Regulation CF (Crowdfunding) and PPM (Private Placement) shares.
1. Liquidity Risk (The “Lock-up”)
The most significant risk with a 3 to 10-year term is that your money is “locked.”
- No Secondary Market: Unlike a stock you can sell in seconds, there is no public exchange for Gonen Funds. If you have an emergency and need your $500 or $5,000 back in year two, you likely cannot get it.
- Transfer Restrictions: Federal law typically restricts the resale of Reg CF shares for at least one year, and even after that, finding a buyer for a private stake is extremely difficult without the company’s help.
2. Transparency & Due Diligence Risks
- Reg CF (The $500 level): Companies using Regulation CF are required to file a “Form C” with the SEC, but the financial disclosures are often less rigorous than those of a public company. For smaller raises, the financial statements might only be reviewed by an accountant rather than fully audited.
- PPM (The $5,000 level): A Private Placement Memorandum is a legal “risk disclosure” document. The risk here is that the burden of due diligence falls entirely on you. The SEC does not “approve” or verify the claims in a PPM; they simply require the company to provide it to you so they are protected from fraud lawsuits later.
3. Structural & Operational Risks
- The “J-Curve” Effect: In private funds, you often see a dip in value during the first few years (as the fund spends money to acquire assets) before you see any of that 7–15% return. If the fund fails in year 4, you could lose 100% of your principal.
- The 55% Profit Split: While this sounds like a “partnership,” it means the fund manager is taking 45% of the upside. If the fund performs poorly but still has high management fees, those fees can eat into your 55% share, potentially bringing your actual “net” return below the 7% target.
- Dilution: Private companies often need more money to grow. If Gonen Funds issues more shares in year 5 to raise more capital, your percentage of the profit could be “diluted” (reduced) unless you invest more money to maintain your stake.
4. “Bad Actor” & Platform Risk
- Platform Dependency: For Reg CF, you are relying on the crowdfunding platform to have vetted the “Bad Actor” status of the fund managers. If the platform itself goes out of business, tracking your investment and receiving your payouts can become a legal nightmare.
Summary Comparison of Risk
| Risk Factor | CF Shares ($500) | PPM Shares ($5,000) |
|---|---|---|
| Complexity | Simple, app-based entry. | Dense legal contracts (PPM). |
| Disclosure | SEC-standardized Form C. | Company-written disclosures. |
| Fraud Protection | Higher (Platform oversight). | Lower (Investor must vet). |
| Capital Loss | High (Start-up risk). | High |
Before you invest in a fund with a 55% profit split and a 3-to-10-year lock-up, you should conduct “Reverse Due Diligence.” Since you are essentially handing over control of your money to a manager, you need to verify their competence, incentives, and exit strategy.
Here are the critical questions to ask the Gonen Funds manager or any similar fund sponsor:
1. The “Skin in the Game” Question
- “How much of your own personal cash is invested in this specific fund on the same terms as mine?”
- Why it matters: If the manager has nothing to lose if the fund fails, they may take higher risks. A “committed” sponsor should usually have 2% to 10% of their own net worth in the deal.
2. The “Worst Case” Questions
- “What happens to my investment if the fund does not meet the $X million fundraising goal?”
- Why it matters: If they only raise half the money they need, they may not be able to buy the assets they promised, leaving your money sitting in a stagnant account.
- “Is there any scenario where I could be subject to a ‘Capital Call’?”
- Why it matters: You need to know if the contract allows them to demand more money from you later to “save” the investment.
3. The Performance & Fee Questions
- “Is the 7–15% return a ‘Preferred Return’ (Pref), or just a target?”
- Why it matters: A Preferred Return means investors get paid their 7–15% first before the manager takes any of their 45% profit split. If it’s just a “target,” the manager might take fees even if you aren’t making money.
- “What are the ‘Asset Management Fees’ regardless of performance?”
- Why it matters: Many funds charge 1% to 2% per year just to manage the money. On a $500 investment over 10 years, high fees can wipe out your gains.
4. The Exit & Liquidity Questions
- “What is the specific ‘Trigger’ for the 3-to-10-year exit?”
- Why it matters: Does the fund end when a specific building is sold, or is the 10-year mark just an estimate?
- “Is there a ‘Redemption Gate’ or ‘Secondary Market’?”
- Why it matters: Ask if there is any way to get out early (e.g., after 12 months) if you pay a penalty fee (usually 3–5%).
5. The Transparency Questions
- “Who is the third-party administrator or auditor for this fund?”
- Why it matters: You want to hear the name of an outside accounting firm. If the manager is the only one “counting the money,” the risk of fraud or mismanagement increases significantly.
- “Can I see a ‘Track Record’ of a ‘Full Cycle’ deal?”
- Why it matters: A “Full Cycle” means they bought something, managed it, sold it, and returned the profit to investors. Anyone can show “paper gains” on a project that hasn’t sold yet.
This draft is designed to be professional yet firm. It signals that you are a serious investor who understands the mechanics of private equity and Regulation CF.
Since “Gonen Funds” appears to be associated with Gonen Corp (based in Michigan), you can address this to their Investor Relations team or the fund manager directly.
Subject: Inquiry regarding [CF / PPM] Shares – Due Diligence for Gonen Funds
Dear Gonen Funds Investor Relations Team”
I am writing to express interest in the Gonen Funds investment opportunity. I have reviewed the high-level terms regarding the 55% profit split and the 3–10 year investment horizon.
Before proceeding with a subscription agreement for [CF / PPM] shares, I would appreciate clarification on the following items as part of my due diligence process:
- Preferred Return: Is the 7–15% target return structured as a “Preferred Return”? Specifically, do investors receive their target yield in full before the 45% manager profit split is initiated?
- Manager Alignment: Could you share the level of “skin in the game” the fund sponsors have? Specifically, what percentage of the total fund capital is personally committed by the management team on the same terms as the shareholders?
- Fee Structure: Outside of the shareholders 55% profit split, what are the annual asset management fees, and are there any “acquisition” or “disposition” fees charged to the fund at the time of asset purchase/sale?
- Liquidity & Redemptions: Given the 3–10 year term, does the fund offer a structured redemption program or a secondary market for shares after the first 12 months? If so, what are the associated penalties for early exit?
- Track Record: Can you provide a summary or “case study” of a previous full-cycle investment (acquisition through exit) managed by this team that mirrors the strategy of this current fund?
- Third-Party Oversight: Who serves as the third-party administrator or independent auditor for the fund’s annual financial statements?
I am looking for an opportunity that aligns with my long-term growth goals and appreciate your transparency in providing these details. I look forward to your response and any available offering memorandums (PPM) or Form C filings you can share.
Best regards,
The Shareholders
Pro-Tip for Sending
If you are investing at the $500 (CF) level, they may refer you to a standardized FAQ. If you are investing at the $5,000 (PPM) level, you have more leverage to ask for a brief 15-minute introductory call with a member of their team to walk through these points.