What is a Blind Pool?

In the world of investing and finance, terms can often sound more intimidating than they actually are. A blind pool is one of those terms. At its core, a blind pool is simply an investment fund where investors contribute capital without knowing exactly what assets the fund will purchase.

When investors put money into a blind pool, they are writing a blank check to the fund manager. They do not know the specific companies, real estate properties, or financial instruments their money will buy.

Instead, they are investing based on a specific mandate or thesis. The investors trust the manager to find assets that fit a particular profile and to generate a return on that investment.

The structure of a blind pool relies heavily on the reputation and track record of the fund manager, often called the General Partner or GP.

The process typically looks like this:

• The GP creates a prospectus outlining the investment strategy.
• Investors, known as Limited Partners or LPs, commit capital to the fund.
• The GP closes the fundraising round.
• The GP begins looking for investment targets that match the strategy.

This is distinct from other investment vehicles where the asset is identified first and money is raised second. In a blind pool, the capital is raised first.

To understand the blind pool better, it helps to compare it to a specified fund or a deal-by-deal structure.

In a specified fund, the manager lines up a specific asset first. For example, a real estate developer might find a specific apartment complex they want to buy. They then go to investors and show them the exact building, the rent rolls, and the renovation plans. The investors know exactly where their money is going.

In a blind pool, the manager says they intend to buy apartment complexes in the Southeast region. Investors give the money based on that general criteria, but they do not know which specific buildings will end up in the portfolio until after the deal is done.

Why does this matter to a founder building a technology company or small business?

It matters because almost all Venture Capital funds operate as blind pools.

When a VC firm raises a $100 million fund, their LPs do not know that the firm will eventually invest in your startup. The LPs are trusting the VCs to go out into the market and find the best startups available.

This structure is actually beneficial for founders for several reasons:

• Speed: Since the fund already has the committed capital, they can make decisions and wire money relatively quickly compared to investors who have to raise capital for every single deal.
• Certainty: When a blind pool fund signs a term sheet, you generally know the money is there.

While the concept is standard, it introduces variables you should consider as you navigate fundraising.

Does the blind pool have a strict mandate that limits flexibility? If a fund is strictly mandated for fintech, they cannot invest in your healthtech startup even if they love it.

Also, where are they in their deployment cycle? A blind pool has a lifespan. If they are at the end of their fund life, they may be out of dry powder regardless of how much they like your business.

Understanding that your investors are answering to their own investors helps you navigate the negotiation table with a clearer perspective.