How To Raise OPM (Other People’s Money) To Invest In Crypto

If you want LPs to back your allocation into a crypto quant strategy, you need clean structure, honest terms, and real compliance. No retail circus. No promises your liquidity can’t support. Here’s the playbook we use when we build small, professional vehicles that pipe capital into a third-party crypto fund.

Step 1 — Decide Who You’re Allowed To Take Money From

• US raise: run a private placement. Choose 506(c) if you want open marketing (accredited investors only with verification), or 506(b) if you’ll raise quietly from known investors.
• Fund type: keep it a private fund that fits 3(c)(1) (≤100 US beneficial owners) or 3(c)(7) (only qualified purchasers). For a $5m–$25m target, 3(c)(1) is usually enough.
• Carry rules: to charge performance fees to US investors, stick to “qualified clients” in that feeder. If not, remove carry or restrict who can buy.
• Non-US/ERISA money: take it through an offshore feeder so US tax-exempts don’t trip UBTI and you can ring-fence reporting.

Step 2 — Pick A Structure That Won’t Blow Up Later

Step 3 — Offer Mechanics That Keep You Out Of Trouble

• Documents: PPM, LPA, Subscription docs, bad-actor checks, AML/KYC pack, side letters.
• Filings: Form D at first sale and Blue Sky notices. If you’re in Cayman with open-ended liquidity, register with the regulator (master and offshore feeder).
• Futures/swaps exposure: if your look-through hits commodity interests, confirm CPO/CTA status and whether you can rely on a 4.13 exemption.
• EU/UK outreach: if you touch EU or UK investors, use each country’s private placement channel. No retail blasts. Stick to professional investors.

Step 4 — Set Terms LPs Actually Respect

Step 5 — Show LPs A Real Package

• Manager DD: audited returns if available, admin letters, risk reports, worst drawdowns, gates used in stress events, custody stack, and key-man policy.
• Feeder DD: term sheet, fee model, valuation policy, compliance and banking rails, and your NAV reporting template.
• Cashflows: a clear subscription/redemption calendar that aligns to the underlying dealing days.
• Tax: US K-1 planning, PFIC/CFC review for cross-border LPs, FATCA/CRS setup.

Infrastructure — Admin, Audit, Banking, Custody

Use a fund admin that can price digital assets and reconcile exchange/prime broker statements. Use an auditor that can handle exchange confirms and cold-storage proofs. Keep investor fiat on regulated rails. If you accept stablecoins, only use licensed service providers and document on/off-ramp controls.

Do / Don’t

• Do keep the cap table tight. A $250k–$500k minimum keeps the raise clean and helps with verification.
• Do speak in cash terms: dealing frequency, notice periods, and any gates or suspensions.
• Don’t advertise to the public if you’re not on 506(c). And even on 506(c), only sell to accredited investors after verification.
• Don’t promise monthly payouts if the underlying is quarterly. You’ll trap yourself.
• Don’t ignore commodity rules if you’re exposed to perps, futures, or swaps through the manager. Check the exemptions early.

Quick FAQ

• What’s the cheapest credible setup? US-only Delaware LP investing directly. Add Cayman once non-US/tax-exempt LPs show up.
• Can I pay carry to all US investors? Only to qualified clients. Otherwise block carry in that feeder or gate who can subscribe.
• How do I verify accredited status? Principles-based checks. Don’t rely on self-tick boxes. Keep records.
• What about Europe? If you must market there, use national private placement rules and talk only to professional investors. Keep a log.

References

• SEC: Rule 506(c) — General Solicitation
• SEC: Private Funds overview — 3(c)(1) / 3(c)(7)
• SEC: Exempt Offerings (506(b) vs 506(c))
• CFTC: CPO/CTA Exemptions (Rule 4.13)
• CIMA: Investment Funds FAQs (Mutual Funds Act)
• CIMA: Private Funds Act (2025 Revision)
• EU: MiCA/CASPs AML notices (EBA)

Legal Disclaimer. This article is for information only and is not legal, tax, or investment advice. Fund formation, marketing, and performance fees are regulated activities and depend on investor status and jurisdiction. Do not market to the public unless you are within a valid exemption. Do not accept subscriptions before your documents, filings, AML controls, and service providers are in place. Digital assets carry market, counterparty, and operational risks, including exchange failure, custody loss, liquidity gates, and regulatory action. Engage qualified counsel in the US and any other country where you solicit investors before launching or advertising any offering.