General VC Questions

Generally speaking, Series B and later Preferred Stock Financings do not fit into an investment thesis for "early-stage" or "seed-stage" startups - however it's important to keep in mind that there is not necessarily a singular definitio...

Generally speaking, Series B and later Preferred Stock Financings do not fit into an investment thesis for "early-stage" or "seed-stage" startups - however it's important to keep in mind that there is not necessarily a singular definition of "early-stage" agreed upon throughout the world. 

Venture capital funds generally only involve themselves to ensure that after a priced round in which they are participating (or leading for that matter), there is a large enough option pool (aka stock plan, aka equity incentive plan, and...

Venture capital funds generally only involve themselves to ensure that after a priced round in which they are participating (or leading for that matter), there is a large enough option pool (aka stock plan, aka equity incentive plan, and many more) to grant equity to and incentivize hires on the roadmap, with a buffer as needed (as well as for any bonus grants for performance, etc.).  Otherwise, in the normal course of business for the startup, venture capital funds do not have any say in any changes to the option pool, unless they have negotiated for and included specific requirements into the priced round's legal agreements. With respect to startups, they generally try to reserve sufficient stock in the option pool to last for a while, as reserving additional stock for issuance from the option pool requires paperwork and corresponding securities filings, in many instances. 

The Post-Money Valuation Cap SAFE from YC Template (this is the standard SAFE document template) the valuation cap is explicit. Other versions of the SAFE are discount, where valuation is the priced round minus the agreed discount, or MF...

The Post-Money Valuation Cap SAFE from YC Template (this is the standard SAFE document template) the valuation cap is explicit. Other versions of the SAFE are discount, where valuation is the priced round minus the agreed discount, or MFN (Most Favored Nations) where the SAFE holder gets the best terms of all SAFEs in that funding round.

At least 25% with target 25-40% of the company, with the lower end being more common for high-valuation rounds or when there’s significant dilution from earlier funding (e.g., seed rounds). This exemplifies the need for capital journey p...

At least 25% with target 25-40% of the company, with the lower end being more common for high-valuation rounds or when there’s significant dilution from earlier funding (e.g., seed rounds). This exemplifies the need for capital journey planning and detailed pro forma cap table review, the Taylor Davidson model can help, and you may be able to advise here for mutually good outcomes.  An area that deserves special attention on cap tables is equity allocated to incubators/accelerators, confirming this is reflective of the value added to the company and - if disproportionate work with the founders and attempt to renegotiate - prior to a priced round. 

Here are some instructions to build a world-class pitch deck for a venture capital fund. To start, if you have a bad Thesis, you will have a bad presentation. Start by refining your Thesis until 1 in 5 people that you pitch your Thesis t...

Here are some instructions to build a world-class pitch deck for a venture capital fund. To start, if you have a bad Thesis, you will have a bad presentation. Start by refining your Thesis until 1 in 5 people that you pitch your Thesis to express interest in investing. When you are ready to build your deck, keep your slide design clean with a simple and mostly white background. Use 1 or 2 word titles for each slide following the slide structure. Ensure that the content of every slide matches and supports your Thesis. Below is a list of the different slides needed. We recommend that you follow the guidelines exactly to build the early versions of the deck, then refine the presentation with feedback from pitching LPs. NECESSARY SLIDES: • Title: Displays the name of the fund, date of last update, and contact information of key individuals. • Thesis: Provides the one sentence investment Thesis. • Team: Introduces Managing Partners with a picture and three short bullets on each. • Team (Continued): Introduces Partners and Venture Partners with a picture and three short bullets on each. • Value Add: Describes the unique value that the fund offers to portfolio companies to generate LP returns. • Market: Demonstrates the market attractiveness through a simple chart, table, or statistic. • Track Record: Showcases 1-3 relevant deals with logos, few word descriptions, value added, and markup achieved. • Pipeline: Highlights 1-3 potential deals by sharing a general overview of the company without sharing specifics. • Allocation: Tabulates the number of deals by stage along with estimated investment, valuation, and ownership details. • Returns: Exhibits anticipated returns from hypothetical portfolio companies categorized by exit sizes. • Liquidity: Illustrates up to three projected fund outcome scenarios using multiple or IRR, possibly through a pie chart. • Economics: Provides a table outlining fund economic terms like Minimum Investment Amount, Management Fees, and Carried Interest. • Thank You: Provides the fund's tagline, target closing date, and contact information for the General Partners. • Disclaimer: Contains legal disclaimers to mitigate liability. OPTIONAL SLIDES: • Deal Warehouse: Highlights 1-5 completed deals that will be transferred into the fund with company logos, brief descriptions, relevance to thesis, and investment terms. • Strategy: Describes how you will access the market for the best returns. • Operations: Explains any unique operational processes or systems. • Competition: Identifies relevant firms focused on the same markets with differentiation points. • Partners: A list of partners, possible as a logo pile, to improve the credibility of the fund. • Advantages: A list of items that help the fund to stand out. • Appendix: Houses updated old slides or additional research and data pertinent to the market segment.

All LPs must be on the same capital call schedule. If they are not, that poses major fiduciary and ethics related challenges. In the event that an LP pre-funds their entire position, their money would get accepted into an escrow bank acc...

All LPs must be on the same capital call schedule. If they are not, that poses major fiduciary and ethics related challenges. In the event that an LP pre-funds their entire position, their money would get accepted into an escrow bank account and the fund would call the same % as all other LPs on the escrow account.

No it does not. Each VC fund adopts a valuation policy and the hub accounting system reflects markups and markdowns based on this document. The vast majority of VC valuation policies markup an investment if there is a new priced round of...

No it does not. Each VC fund adopts a valuation policy and the hub accounting system reflects markups and markdowns based on this document. The vast majority of VC valuation policies markup an investment if there is a new priced round of financings. Otherwise they keep the investment at cost or they write it off. 

Please ask the AI Agreement Reviewer, and if you have additional questions, please post them in Base.

Please ask the AI Agreement Reviewer, and if you have additional questions, please post them in Base.

The AI Agreement Reviewer is specifically designed for these types of questions - if there are still questions afterwards, please post them in Base. 

The AI Agreement Reviewer is specifically designed for these types of questions - if there are still questions afterwards, please post them in Base. 

Sector, geography, and even general check-sizes are essential parts of a Fund's investment thesis and all have strategic considerations. Any related limitations on the fund managers' discretion in making investments usually derives from ...

Sector, geography, and even general check-sizes are essential parts of a Fund's investment thesis and all have strategic considerations. Any related limitations on the fund managers' discretion in making investments usually derives from said factors, rather than the other way around - and these are typically baked into the Fund's Limited Partnership Agreement. Other restrictions upon a fund manager's discretion in making investments will depend on their leverage, the size of the fund, demands from limited partners (particularly family offices and institutional investors), the domicile of the fund, requirements for investment committees, etc. For small and emerging funds, there are often few, if any, of the above types of restrictions.

Yes - the Limited Partnership Agreement spells out a limited partner's obligations and spells out the fund manager's options should a limited partner fail to meet said obligations (mostly relating to funding and capital calls). 

Yes - the Limited Partnership Agreement spells out a limited partner's obligations and spells out the fund manager's options should a limited partner fail to meet said obligations (mostly relating to funding and capital calls). 

Generally speaking, there are no easy exit options for limited partners should a fund underperform - this is why it's critical for limited partners to carefully evaluate and perform due diligence on any fund managers they intend to have ...

Generally speaking, there are no easy exit options for limited partners should a fund underperform - this is why it's critical for limited partners to carefully evaluate and perform due diligence on any fund managers they intend to have manage their money for a decade or more.   In most cases, secondary sales are also not an easy exit option. 

If by "template for an agreement among GPs" this question is asking about an agreement by and between the fund's managers, this is typically the operating agreement for the management company of the firm. In the standard Decile structure...

If by "template for an agreement among GPs" this question is asking about an agreement by and between the fund's managers, this is typically the operating agreement for the management company of the firm. In the standard Decile structure, this would be the Alignment Agreement, which we do have a template for. 

Side letters are still common and allowed by the SEC rules. Ethical managers typically disclose these side-letters because the terms can often affect the performance of the fund.

Side letters are still common and allowed by the SEC rules. Ethical managers typically disclose these side-letters because the terms can often affect the performance of the fund.

The criteria for determining when a portfolio company qualifies for a follow-on investment typically depend on the fund's size, strategy, and the growth trajectory of the company. Factors include the potential for future rounds, market c...

The criteria for determining when a portfolio company qualifies for a follow-on investment typically depend on the fund's size, strategy, and the growth trajectory of the company. Factors include the potential for future rounds, market conditions, and the need to support companies through critical milestones. Approval from the Limited Partner Advisory Committee (LPAC) may be required, especially if there's a conflict of interest, such as when the company was an angel investment of the general partner.

Every transaction that is recorded in the system needs to have supporting documentation, such as a legal agreement. Firms may also use an external auditor to further verify the date. However most small funds in Delaware often don't do an...

Every transaction that is recorded in the system needs to have supporting documentation, such as a legal agreement. Firms may also use an external auditor to further verify the date. However most small funds in Delaware often don't do an audit because: 1. The reports generated by the Decile Partners back office team are audit ready via numerous checks and balances 2. audits create a drag on metrics and 3. audits can create a significant opportunity costs for funds under $25m.

Below are the options for managing a defaulting LP: Option 1: The cleanest and best option is for you have the defaulting LPs sell their position other buyers. To ‘replace’ LPs - new LPs need to buy the entire position from the defaulti...

Below are the options for managing a defaulting LP: Option 1: The cleanest and best option is for you have the defaulting LPs sell their position other buyers. To ‘replace’ LPs - new LPs need to buy the entire position from the defaulting LPs. Here is how it works: 1. You introduce them (defaulting LP 1) to a buyer (LP 2), or they find a potential buyer 2. LP 1 & LP2 agree on a price (i.e. I’ll give you $15k for the $25k capital call that you made and I’ll take over the capital calls) 3. They notify you for approval 4. You notify us and we’ll handle the transfer. Important: new LPs must buy the entire position of the default LP. So, if the defaulting LP signed an LPA for $100k, the new LP needs to buy the entire $100k position (not more, not less) Option 2: Adjust capital account balance. This would effectively reduce the fund size without lowering the total Management Fees. Under this scenario, you re-adjust their contribution as if they committed less capital and there fore you get less fees. So, if $100k commitment wired $50k so far and can’t make any more capital calls - they are now a $50k LP and the fund gets $10k in management fees (20% of the new comittment) vs $20k if the LP continues making their capital calls to reach $100k. Option 3 (last resort): Invoke Default Provision in the LPA. For example, the Cornerstone LPA states: (b) if the Limited Partner has made a Capital Contribution, General Partner may sell the defaulting Limited Partner’s Interest for a purchase price equal to 50% of the lesser of (i) the defaulting Limited Partner’s aggregate Capital Contributions, or (ii) the Fair Value of the defaulting Limited Partner’s Interest at the time of default