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How Much Money Does it Take to Start a Hedge Fund?

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The answer: Less than you'd think.

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However, Strachman said that it is realistic for hedge fund managers to attempt to grow a $10 million or $20 million fund into one that holds a few hundred million worth of assets, "and then take a $100 million business and grow it to a half-billion-dollar business or a billion-dollar business."

"But it doesn't happen overnight for most," Strachman added. "It may not ever happen for some. But it's reasonable to think that over a period of time, if you build the business effectively by doing what you say you're gonna do in the market -- you're gonna implement your strategy, the strategy is gonna work -- it's reasonable that you will grow your business."

Whatever you do, don't get your hopes up too high, too fast. "Is it reasonable to think that a guy with $5 million will grow to $30 billion?" Strachman questioned. "Probably not. But it is realistic to think that a guy with $5 million could have incremental growth to $20 million, to $50 million, to $100 million, to $500 million, to a billion, etc."

That growth could take five to 10 years, Strachman said. "But that's the price of being an entrepreneur," he added. "That's what you're trying to do -- you're trying to build a business. I think it's unreasonable for people to think, 'Well, I have a new fund, I gotta get in front of all these big players.' I'm not sure that's a good use of anyone's time."

To really succeed, Strachman said that you have to define your marketplace. "You need to figure out what you need to access your marketplace and put in a good marketing strategy to communicate to the marketplace," he explained. "If you're a $20 million fund, you probably have no business calling up pension plans. But you should be calling on high net worth investors, family offices, maybe some small endowments."

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