I see many groups who operate outside of the state laws because they "think" the laws don't apply to them. Of course, they have never discussed it with an attorney so they don't know and then are surprised when they find out that they need registration or this or that.
It is really one of...
As I noted above the only way you can have an incubator hedge fund is if you only trade your own money. If you trade money for your family and friends you will need to go through the whole fund formation process which can be done, in some instances, for as little as $10,000.
If you traded...
You should always consult an attorney before establishing an incubator hedge fund as you may be unknowingly violating state or federal securities laws. For instances, taking fees (even in an incubator fund) would require the manager to be registered as an investment advisor in many states...