General VC Questions

This is likely in reference to General Solicitation under SEC Rule 506(c) - you can learn more about it here: https://www.decilehub.com/base/17-fund-operations/1782-what-is-this-506-c-thing-i-keep-hearing-about-should-i-do-it

This is likely in reference to General Solicitation under SEC Rule 506(c) - you can learn more about it here: https://www.decilehub.com/base/17-fund-operations/1782-what-is-this-506-c-thing-i-keep-hearing-about-should-i-do-it

Yikes! There is little need to do this. People that are trying to do stuff like this do so because they are desperate. First, "receive incentives for raising capital" is a MAJOR broker dealer violation. Second, a $5k investment is not wo...

Yikes! There is little need to do this. People that are trying to do stuff like this do so because they are desperate. First, "receive incentives for raising capital" is a MAJOR broker dealer violation. Second, a $5k investment is not worth your time (do the math of 2% for $5k). Third, the kind of people that can only invest $5k in a fund typically will struggle to help GPs because their networks rarely contain people that can invest $500k in a fund or that would use their investment as a 'signal' for quality.

For SAFE (or convertible note) portfolio investments 1. managers should track progress of the company, and potentially help the team negotiate to ensure fair terms for investors, founders and employees. 2. carefully review the docs and c...

For SAFE (or convertible note) portfolio investments 1. managers should track progress of the company, and potentially help the team negotiate to ensure fair terms for investors, founders and employees. 2. carefully review the docs and confirm conversion calculations. 3. participate in pro rata investment - if available - potentially offering this to LPs - potentially creating an SPV as a rollup vehicle and taking carry. Following conversion, the manager enters the updated holding information into Hub as a new Funding Round.

By definition, a studio will have a lot more ownership then most investors. Because of the complicated cap-tables of studio companies, many, if not most VCs avoid investing in such companies. Rather then attempting to figure out how to m...

By definition, a studio will have a lot more ownership then most investors. Because of the complicated cap-tables of studio companies, many, if not most VCs avoid investing in such companies. Rather then attempting to figure out how to minimize dilution, it's better for studios to focus on spinning out venture scale businesses addressing large markets that can attract follow on financings from downstream VCs despite their cap-tables. 

Yes. LPs can see various metrics, including historicals via Decile Pro. 

Yes. LPs can see various metrics, including historicals via Decile Pro. 

Decile Hub has the capability to calculate and showcase how much capital is called and which investors have fulfilled their capital call. For non-compliance, fund managers can send reminders and contact directly with their investors to r...

Decile Hub has the capability to calculate and showcase how much capital is called and which investors have fulfilled their capital call. For non-compliance, fund managers can send reminders and contact directly with their investors to remind them to satisfy their contribution to the fund.

Retained earnings are the cumulative net earnings or profits of a firm after accounting for distribution payments. As an important concept in accounting, the word “retained” captures the fact that because those earnings were not paid out...

Retained earnings are the cumulative net earnings or profits of a firm after accounting for distribution payments. As an important concept in accounting, the word “retained” captures the fact that because those earnings were not paid out to investors as distributions, they were instead retained by the company. For this reason, retained earnings decrease when a company either loses money or pays distributions and increase when new profits are created.

under back office > Fund Overview Click "Generate a Report" This pops up a modal with what reports to generate as well as a list of all reports that have been generated.  This list of all generated reports is where you can download usi...

under back office > Fund Overview Click "Generate a Report" This pops up a modal with what reports to generate as well as a list of all reports that have been generated.  This list of all generated reports is where you can download using the download icon to the right of the line item

The best practice is to offer that pro-rata to fund 1 LPs first via SPVs. Next, bring the investment to your LPAC to clear any conflicts. Then, make the investment. 

The best practice is to offer that pro-rata to fund 1 LPs first via SPVs. Next, bring the investment to your LPAC to clear any conflicts. Then, make the investment. 

Most Favorite Nation (MFN) is a negotiated provision in SAFE or convertible investments, which provides the investor with the best terms for that group of investments. This is sometimes used in early investments where other terms (valuat...

Most Favorite Nation (MFN) is a negotiated provision in SAFE or convertible investments, which provides the investor with the best terms for that group of investments. This is sometimes used in early investments where other terms (valuation cap or discount) are not yet decided, and the investor and company want to execute the investment quickly. Some MFN provisions require the investor be informed of new investments with better terms, then specifically electing to take the new terms. Some MFN provisions apply on conversion, where the actual conversion to shares is determined based on the MFN and any other terms.

The best practices for an Employee Stock Ownership Plan (ESOP) include ensuring that founders and employees of a startup have vesting schedules to secure investment from reputable VCs. This helps align the interests of the employees with...

The best practices for an Employee Stock Ownership Plan (ESOP) include ensuring that founders and employees of a startup have vesting schedules to secure investment from reputable VCs. This helps align the interests of the employees with the long-term success of the company and provides a structured approach to equity distribution.

The income in a fund's Profit and Loss statement (P&L) typically includes realized gains from the sale of investments, unrealized gains from the increase in fair market value of investments, and any income generated from the investments ...

The income in a fund's Profit and Loss statement (P&L) typically includes realized gains from the sale of investments, unrealized gains from the increase in fair market value of investments, and any income generated from the investments such as dividends or interest. It's important to note that the specific components can vary depending on the fund's investment strategy and the types of investments it holds.

In general, the fund admin capabilities of Canada are lacking the volume and professionalism of vendors that you see in other established fund domicles. You may want to consider working with a reasonably priced law firm or use the US for...

In general, the fund admin capabilities of Canada are lacking the volume and professionalism of vendors that you see in other established fund domicles. You may want to consider working with a reasonably priced law firm or use the US for your SPVs. 

this question has already been answered, and is a great example of something that you should ask the AI (the field at the top of the screen) here is the previous answer Here is the answer from Decile Base AI “Management fees are the ...

this question has already been answered, and is a great example of something that you should ask the AI (the field at the top of the screen) here is the previous answer Here is the answer from Decile Base AI “Management fees are the annual charges that are allocated to the General Partner (GP) as a percentage of committed capital in a venture capital fund. These fees are typically used to cover operational costs such as legal and accounting fees, due diligence, and other expenses. The standard rate is usually around 2%, although this can vary. The fees are often structured on a sliding scale, starting higher during the active investment period and declining in later years. ” Here is an article we wrote on the topic over on govclab.com And here is another article on the management fee models

Generally speaking, SPVs (Special Purpose Vehicles) are investment entities (commonly LLCs) formed for the purpose of making a single investment into a single startup.  • For example, let's say a fund has received a follow-on opportunity...

Generally speaking, SPVs (Special Purpose Vehicles) are investment entities (commonly LLCs) formed for the purpose of making a single investment into a single startup.  • For example, let's say a fund has received a follow-on opportunity into a startup it previously invested into - however Fund A is not set up to do follow-on investments nor does it have the capital to do so.  • Fund A could set up an SPV and "syndicate" the follow-on opportunity, offering the SPV to its limited partners or others (depending on the circumstances). The SPV would collect the capital (after all legal setup and agreements have been completed) and then make the follow-on investment. SPVs are also sometimes set up when an investor has received an allocation into a hot deal, but they are not able to make the the full allocation by themselves. Note that not all startups/companies are willing to accept investments via SPV, so be sure to check. 

There is no typical split. But, in general, there should be one founder who owns a bit more that is the final tie-breaker. 

There is no typical split. But, in general, there should be one founder who owns a bit more that is the final tie-breaker. 

There is a checkbox on every email at the bottom that says: "Disable click tracking and automation". Make sure this box is checked, and link tracking will be disabled.

There is a checkbox on every email at the bottom that says: "Disable click tracking and automation". Make sure this box is checked, and link tracking will be disabled.

I see. So, if we do have an potential LP--who has signed an LP pact--that wants to be a VP, is it fine for us to ask them to bring in an additional LP before we make them a Venture Partner at closing? 

I see. So, if we do have an potential LP--who has signed an LP pact--that wants to be a VP, is it fine for us to ask them to bring in an additional LP before we make them a Venture Partner at closing? 

Most funds will request a 1 or 2-year extension at that point. Then, you may distribute the equity back to LPs or you may chose to liquidate in the secondary markets. 

Most funds will request a 1 or 2-year extension at that point. Then, you may distribute the equity back to LPs or you may chose to liquidate in the secondary markets. 

I'm sorry to hear that you're experiencing difficulties with the video feature on your PACT form. I've tested it in my own sandbox account, and it worked fine. Could you please confirm whether you followed these steps: navigate to Fundra...

I'm sorry to hear that you're experiencing difficulties with the video feature on your PACT form. I've tested it in my own sandbox account, and it worked fine. Could you please confirm whether you followed these steps: navigate to Fundraising, click on PACTs, then click on PACT Content, enter the Video URL (which has to be a YouTube URL) under PACT LANDING PAGE MEDIA, and finally click on "Save changes" in the bottom right-hand corner? This will help us troubleshoot the problem more effectively.

Great suggestion. We're currently working on expanding the categories for "setting a variable" beyond % probability and will notify everyone here in the Decile Base community once additional options are available.

Great suggestion. We're currently working on expanding the categories for "setting a variable" beyond % probability and will notify everyone here in the Decile Base community once additional options are available.

We recommend that you have ~$1m in PACTs and another $500k - $1m hard to take advantage of Decile Launch.

We recommend that you have ~$1m in PACTs and another $500k - $1m hard to take advantage of Decile Launch.

Recruiting CEOs is one of the biggest challenges for venture studios. An effective way to solve this is for the Venture Studio to be narrowly specialized in one vertical. This way, the studio can build the expertise, systems, and strateg...

Recruiting CEOs is one of the biggest challenges for venture studios. An effective way to solve this is for the Venture Studio to be narrowly specialized in one vertical. This way, the studio can build the expertise, systems, and strategies to accelerate getting the company to a Series-A. If a studio executes on this strategy well with a few companies, then they can make a pretty compelling case to future experienced startup CEOs & founders in that vertical that by partnering with the studio they can get to scale much faster. 

LPs are most familiar with the 2/20 model. If you deviate from this, you will struggle to raise money, especially as an emerging manager. There are many areas to innovate as an emerging manager. Innovating on the standard fee model is no...

LPs are most familiar with the 2/20 model. If you deviate from this, you will struggle to raise money, especially as an emerging manager. There are many areas to innovate as an emerging manager. Innovating on the standard fee model is not one of them because it will create a lot friction with LPs. 

Not necessarily. Typically public benefit corporations (PBC) are taxed as a corporation like a C-Corp.  That being said, a PBC status may make it more difficult for the company to secure capital. This is because the founder has to expla...

Not necessarily. Typically public benefit corporations (PBC) are taxed as a corporation like a C-Corp.  That being said, a PBC status may make it more difficult for the company to secure capital. This is because the founder has to explain to investors why they are doing this, which increases friction. You need to make sure to DD the underlying structure of the company if there are additional reporting requirements for the company and what the impact is on their business. 

Fund managers often show various scenarios for how the fund may perform relative to the investment strategy. As an LP, it’s critical to understand the assumptions behind those projections, because models are rarely 100% accurate. For exa...

Fund managers often show various scenarios for how the fund may perform relative to the investment strategy. As an LP, it’s critical to understand the assumptions behind those projections, because models are rarely 100% accurate. For example, if the fund is pre-seed, the risk of the individual portfolio company failure is high. Therefore, to counter the risk, the manager often has to make more investments with lower check sizes and at lower valuations. The calculus for the LP is: Are the assumptions that are the basis of this manager’s strategy realistic and do they generate a high probability that the fund will make several investments that can return the fund individually?  In a Montecarlo simulation, LPs can use these assumptions as levers. For example, a lever could be the ownership % of the investment and its effect on performance. The next level in the DD process can be to think critically if the manager can realistically get that level of ownership based on their strategy, brand, deal flow, etc... Great companies command big valuations and therefore it’s hard for investors to command great ownership. On the other hand, if the company sells too much of the cap table too early, it will struggle to raise additional capital and therefore the investment will perform poorly. A Montecarlo simulation allows for a greater level of fidelity to test various assumptions and to test if the manager's strategy is grounded in reality. 

Here is a list of top GP - LP events: https://govclab.com/top-gp-lp-events-in-2024/ Most conferences are a mixed bag both for LPs and GPs. We are working to fix this, and are planning to host a new Decile Summit this year. Typically, th...

Here is a list of top GP - LP events: https://govclab.com/top-gp-lp-events-in-2024/ Most conferences are a mixed bag both for LPs and GPs. We are working to fix this, and are planning to host a new Decile Summit this year. Typically, the best events for both LPs and GPs, are small events that are hosted by GPs. If you are a GP, I encourage you to host your own events and invite your LPs and their friends. If you're an LP, I recommend that you attend GP events for the funds you're invested in because you will meet a lot of great individuals and learn some really unique insights. 

When LPs request a reference, they typically want the name and email rather than a reference letter. However, if you do plan on having a formal reference letter, ideally you want a founder and a co-investor documenting how you helped a ...

When LPs request a reference, they typically want the name and email rather than a reference letter. However, if you do plan on having a formal reference letter, ideally you want a founder and a co-investor documenting how you helped a startup be successful.  

No. Instead, send LPs a PACT. The standard PACT has NDA language prebuilt into the legal template and it's designed for this purpose. Once they sign the PACT, you can disclose more information about the fund. 

No. Instead, send LPs a PACT. The standard PACT has NDA language prebuilt into the legal template and it's designed for this purpose. Once they sign the PACT, you can disclose more information about the fund. 

Always avoid giving tax advice to your LPs. If you do, you incur enormous liability. Your answer should always be: "Please speak with your tax advisor." For your info only, there are usually tax benefits. But these are different dependi...

Always avoid giving tax advice to your LPs. If you do, you incur enormous liability. Your answer should always be: "Please speak with your tax advisor." For your info only, there are usually tax benefits. But these are different depending on jurisdiction. For example, in the US, there is QSBS. But never EVER suggest these to LPs. 

Broadly speaking, VC firms (and the funds they advise) must pursue a venture capital strategy and meet certain requirements in order to avoid registration with the SEC, under one or more "exemptions" to registration.  Registering with ...

Broadly speaking, VC firms (and the funds they advise) must pursue a venture capital strategy and meet certain requirements in order to avoid registration with the SEC, under one or more "exemptions" to registration.  Registering with the SEC brings a host of additional reporting, compliance, and governance requirements (and costs/burden) to a fund vehicle's investment advisor (often the same person/entity as the fund manager(s)) - hence funds try to avoid this at all costs unless/until their strategy requires this.  If one of these requirements is believed to be breached, then an analysis must be done to determine what exemptions the fund currently falls under, or if its investment advisor must register with the SEC (if it is not already registered). This can be a complex and nuanced analysis - we strongly recommend consulting an experienced fund attorney for assistance.  For more information, you may find the following articles generally helpful: • https://montague.law/blog/understanding-the-venture-capital-exemption/ • https://www.strictlybusinesslawblog.com/2018/05/31/the-venture-capital-adviser-exemption-explained/

Stages in the LP pipeline represent the logical steps that a prospect (potential investor) follows along in the fundraising process. These stages can range from being added to the pipeline, through various communication steps, all the wa...

Stages in the LP pipeline represent the logical steps that a prospect (potential investor) follows along in the fundraising process. These stages can range from being added to the pipeline, through various communication steps, all the way to being closed or declined. Each stage contains a series of actions that define the steps followed to determine what happens with a prospect. These actions could include sending an email to the prospect and then waiting for their interaction to progress to another stage. The system allows for automatic progression based on actions such as a prospect clicking on a link in an email or signing a PACT, but it does not currently support automatic stage changes based on inaction.

The Total Value to Paid-In (TVPI) ratio serves as a critical benchmark in assessing the performance of venture capital (VC) funds, offering insights into the return on investment for Limited Partners (LPs). This ratio is categorized into...

The Total Value to Paid-In (TVPI) ratio serves as a critical benchmark in assessing the performance of venture capital (VC) funds, offering insights into the return on investment for Limited Partners (LPs). This ratio is categorized into different performance levels: great (TVPI above 4x), good (TVPI of 2.5x), medium (TVPI of 1.5x), and bad (TVPI below 1.5x). However, the interpretation of TVPI ratios is nuanced, influenced by factors such as fund size, which can range from $5 million to $250 million, the stage of investment from pre-seed to Series B, and vintage years that reflect the market conditions at the time of the fund's inception. For example, the internet bubble era saw TVPI ratios soaring to 4.5x, demonstrating exceptional returns, which contrasted sharply with the post-bubble period when ratios dwindled to 1.5x, indicating reduced investor returns and a downturn in fund performance. The benchmark for a top decile VC fund is a Distributed to Paid-In (DPI) ratio of 3x over a 10-year period, suggesting that for every dollar invested, LPs should expect a threefold return. This ideal metric underscores the long-term investment horizon and the high-return expectation associated with top-performing VC funds. However, accessing reliable benchmarks for assessing fund performance can be challenging, as only 24% of U.S. funds report their financial returns for the 2002-2021 vintage years, according to studies utilizing databases like Pitchbook and Preqin. This limited data disclosure may introduce selection bias, possibly skewing reported results towards higher-performing funds and not fully representing the broader industry performance. Given these complexities and potential biases, caution is advised when using benchmarks to evaluate VC fund performance, especially for first-time and smaller emerging managers who might find it even more challenging to compare against industry standards. The variability in fund size, investment stages, and economic cycles, coupled with the limited and possibly selective reporting of financial returns, complicates the assessment of VC fund performance. This highlights the importance of a nuanced understanding of TVPI ratios and the context-specific factors that influence them, ensuring a more informed and balanced approach to evaluating venture capital investments.