DEFINITION of 'Pledge Fund'

A special type of fund in which members of the fund work toward a specific investment goal by making defined contributions in a pool over a period of time. Many angel investors have started to employ a pledge fund format in venture capital investing.

BREAKING DOWN 'Pledge Fund'

After the dotcom bubble, venture capitalists became more concerned about the start-up companies that they would finance. Many venture capitalists decided to set up pledge-fund style angel investor clubs instead of following the conventional format that was popularized in the 1990s. This was largely because using a pledge fund format would not force individual angel investors to invest in ventures that the majority of the group decided on, but would allow each member to elect whether to take part in an investment opportunity on a case-by-case basis. This method was well received by investors who were skittish about start-up investments after the dotcom bubble had burst.

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