Fund Compliance

Institutional LPs typically do not sign PACTs. They also rarely participate in Fund 1s and on 1st closings. Most are prevented by charter from investing in emerging managers and typically engage in Fund 2 and beyond. If you're going to a...

Institutional LPs typically do not sign PACTs. They also rarely participate in Fund 1s and on 1st closings. Most are prevented by charter from investing in emerging managers and typically engage in Fund 2 and beyond. If you're going to approach them, make sure they have a defined and focused strategy to invest in new and emerging managers.

Your administrator typically has several tools at their disposal for situations like they above. In our case, we would ask for additional details like DOB and we would run them through a product like Parallel Markets (https://parallelmar...

Your administrator typically has several tools at their disposal for situations like they above. In our case, we would ask for additional details like DOB and we would run them through a product like Parallel Markets (https://parallelmarkets.com/) or similar. 

In this case, you can talk about Fund 1 publically but not Fund 2.

In this case, you can talk about Fund 1 publically but not Fund 2.

Generally speaking, avoiding conflicts of interest when introducing LPs to a deal a Fund has passed on (and where such deal is not within the Fund's thesis), would be accomplished by following these best practices: • Set up the LPAC (thi...

Generally speaking, avoiding conflicts of interest when introducing LPs to a deal a Fund has passed on (and where such deal is not within the Fund's thesis), would be accomplished by following these best practices: • Set up the LPAC (this is a relatively easy process); • Ask LPAC to evaluate and confirm that the deal is not within the Fund's thesis and that deal is okay to send to LPs; • Send deal to all LPs simultaneously without making an investment recommendation; • Remind LPs to do their own due diligence; • Ensure the Fund does not participate directly or indirectly after passing on the deal. Clearly documenting all of these above steps is key. 

You must amend your Form ADV each year by filing an annual updating amendment within 90 days after the end of your fiscal year. For best practice, you should have you legal counsel file this amendment for the fund.

You must amend your Form ADV each year by filing an annual updating amendment within 90 days after the end of your fiscal year. For best practice, you should have you legal counsel file this amendment for the fund.

Venture Capital Funds can quality for certain exemptions from registering with the SEC as an "Investment Company". Section 3(c)(1) of the Investment Company Act of 1940 provides exemptions for: • private funds with 100 or fewer investors...

Venture Capital Funds can quality for certain exemptions from registering with the SEC as an "Investment Company". Section 3(c)(1) of the Investment Company Act of 1940 provides exemptions for: • private funds with 100 or fewer investors; • venture capital funds with fewer than 250 investors (under $10M and meeting other requirements); Counting the proper number of investors can be a complex and nuanced process due to ultimate beneficial ownership and look-through for entities (and other factors), etc. - therefore we strongly recommend consulting an experienced fund attorney for assistance WELL BEFORE a fund may run up against either of these limits. 

You will need to work with your law firm and fund admin service providers to attain those policies. That being said, VC Lab has developed a valuation policy template for the community. 

You will need to work with your law firm and fund admin service providers to attain those policies. That being said, VC Lab has developed a valuation policy template for the community. 

When a capital call is completed, an investor's total capital commitment does not change, but the portion of that investor's committed capital that has been paid into the fund has increased. The fund's size (as described on the LPA) does...

When a capital call is completed, an investor's total capital commitment does not change, but the portion of that investor's committed capital that has been paid into the fund has increased. The fund's size (as described on the LPA) does not necessarily limit the maximum total capital investors commit - this is typically referred to as over-subscribing.  Note that all LPs must be on the same capital call schedule and the fund cannot call and deploy 100% of the capital from a first close before raising the rest of the fund. 

Valuation policies take various approaches. Assuming that you are referring to the VC Lab Valuation Policy, SAFE or a Convertible Note investments will held at cost on the fund's financials until there is a priced round. Upon a priced ro...

Valuation policies take various approaches. Assuming that you are referring to the VC Lab Valuation Policy, SAFE or a Convertible Note investments will held at cost on the fund's financials until there is a priced round. Upon a priced round, subsequent equity round valuations will be used to value the asset. Below are the definitions of the Levels: Level 1 investments are quoted prices (unadjusted) in Active Markets for assets or liabilities that the reporting entity has the ability to access at the valuation date. Level 2 investments are inputs other than quoted prices included within Level 1 Inputs that are observable for the asset or liability, either directly or indirectly. Level 3 investments are unobservable inputs for the asset or liability. Level 3 Inputs should be used only to the extent that Level 1 Inputs and Level 2 Inputs are not available. Level 3 Inputs may be relied upon when little to no market activity exists for a particular asset or liability.

The new SEC rules will impact new managers. You can learn more about those rules here: https://govclab.com/2023/08/25/sec-private-fund-adviser-reforms/  In summary: • All side letters will need to be disclosed to other Limited Partners (...

The new SEC rules will impact new managers. You can learn more about those rules here: https://govclab.com/2023/08/25/sec-private-fund-adviser-reforms/  In summary: • All side letters will need to be disclosed to other Limited Partners (LP) • Information made available to one LP should be equally accessible to all LPs • The SEC now emphasizes that larger conflicts of interest should be approved by all Limited Partners, versus an Limited Partner Advisory Committee (LPAC). 

Generally speaking, a fund's domicile is not the same as the fund manager's (advisor's) place of business. It is very rare (I believe I have seen it once) for a fund manager to actually live/work in Delaware (thus potentially necessitati...

Generally speaking, a fund's domicile is not the same as the fund manager's (advisor's) place of business. It is very rare (I believe I have seen it once) for a fund manager to actually live/work in Delaware (thus potentially necessitating a state level filing depending on the criteria).  Emerging fund managers generally domicile in Delaware but live and conduct business in other states or countries - they typically rely on 3(c)1 and file with the SEC as an Exempt Reporting Advisor (Form ADV). When working with Decile Partners, we will coordinate with a premier partner law firm to take care of any needed regulatory filings. If you are setting up your fund independently, your law firm should take care of these for you. 

“For the Anti Money Laundering portion of the review we are always looking for the underlying individuals. It means that if there are any entities that are owners with 25% or more interest in the LP entity, we will require the name(s) a...

“For the Anti Money Laundering portion of the review we are always looking for the underlying individuals. It means that if there are any entities that are owners with 25% or more interest in the LP entity, we will require the name(s) and date(s) of birth of the underlying individuals of that subsidiary entity/entities. In the case where there are no underlying owners with 25% or more interest in the LP entity (directly or through its subsidiaries), it will be required to review the next person who has the authority and control to be the decision-maker in the LP entity. We will need the name(s) and date(s) of birth of that individual(s).”

Generally speaking, venture funds do not structure themselves as LLCs - we typically see the following multi-entity structure for Delaware domiciled funds: • Management Company - LLC • General Partner entity - LLC • Fund - Limited Partne...

Generally speaking, venture funds do not structure themselves as LLCs - we typically see the following multi-entity structure for Delaware domiciled funds: • Management Company - LLC • General Partner entity - LLC • Fund - Limited Partnership Please read this for more information: https://govclab.com/2022/02/09/the-ideal-number-of-lps-in-a-vc-fund/

As a general rule of thumb, fund managers avoid domiciling in the EU. Currently, the EU has a complex web of expensive and inefficient regulations that need to be adhered to, burdening fund managers with audits, fees, high taxes, regulat...

As a general rule of thumb, fund managers avoid domiciling in the EU. Currently, the EU has a complex web of expensive and inefficient regulations that need to be adhered to, burdening fund managers with audits, fees, high taxes, regulatory requirements, general solicitation penalties, and ESG rules, like this. Most managers choose Delaware as a domicile to limit the regulatory burden, and these regulations only apply to foreign funds in certain circumstances, which can be easily avoided by following the best practices for general solicitation.

Generally speaking, no - Fund Managers do not need to file an 83(b) election with respect to acquiring Shares in the ManCo or GP entity (via the ManCo). An 83(b) election is only required when acquiring Shares that are subject to vesting...

Generally speaking, no - Fund Managers do not need to file an 83(b) election with respect to acquiring Shares in the ManCo or GP entity (via the ManCo). An 83(b) election is only required when acquiring Shares that are subject to vesting over time. It is very unusual for Fund Managers to subject their Shares to vesting. 

Companies in certain critical technologies or other types of industries or geographical proximity to national security matters (i.e., airports, submarine bases) may require investors to represent that the investor is not owned or control...

Companies in certain critical technologies or other types of industries or geographical proximity to national security matters (i.e., airports, submarine bases) may require investors to represent that the investor is not owned or controlled by foreign persons. That’s because if a foreign person obtains a certain level of control over the company, then the investment transaction will require review by CFIUS. Here’s the traditional representation that companies concerned with Defense Production Act matters will request from their investors: CFIUS Foreign Person Status. The Purchaser is not a “foreign person” or a “foreign entity,” as defined in Section 721 of the Defense Production Act of 1950, as amended, including all implementing regulations thereof (the “DPA”). The Purchaser is not controlled by a “foreign person,” as defined in the DPA. The Purchaser does not permit any foreign person affiliated with the Purchaser, whether affiliated as a limited partner or otherwise, to obtain through the Purchaser any of the following with respect to the Company: (i) access to any “material nonpublic technical information” (as defined in the DPA) in the possession of the Company; (ii) membership or observer rights on the Board of Directors or equivalent governing body of the Company or the right to nominate an individual to a position on the Board of Directors or equivalent governing body of the Company; (iii) any involvement, other than through the voting of shares, in the substantive decision-making of the Company regarding (x) the use, development, acquisition, or release of any “critical technology” (as defined in the DPA), (y) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected by the Company, or (z) the management, operation, manufacture, or supply of “covered investment critical infrastructure” (as defined in the DPA); or (iv) “control” of the Company (as defined in the DPA).]

As a general rule, you should validate is the name or a substantially similar name is not being used anywhere for a business in a related field. So, you want to look for more than just a trademark in more locations than just BVI. To star...

As a general rule, you should validate is the name or a substantially similar name is not being used anywhere for a business in a related field. So, you want to look for more than just a trademark in more locations than just BVI. To start, you begin with extensive searching for your name or similar names on Google. If there is no competition in a similar space, then, the largest database of corporate names is in Delaware, so this is a good place to start to see if there is a business entity with a similar name. Lastly, if everything is clear, then you do a trademark search. The link to search in Delaware is: https://icis.corp.delaware.gov/Ecorp/NameReserv/NameReservation.aspx

*For informational purposes only **Fund managers should avoid any activities which may be construed as providing or interpreting legal tax, or other advice to prospective limited partners.  Question: Does a Canadian fund manager need t...

*For informational purposes only **Fund managers should avoid any activities which may be construed as providing or interpreting legal tax, or other advice to prospective limited partners.  Question: Does a Canadian fund manager need to register as an investment fund manager, a portfolio manager, or an exempt market dealer with the Ontario Securities Commission?  Answer: Generally speaking, if the fund being managed is considered a venture or private equity fund (and not a hedge fund), the fund manager does not need to register.    A venture or private equity fund must make primarily “active investments” (as opposed to “passive” investments made by hedge funds), typically for purposes including: • Exercising or seeking to exercise control of an issuer in which it invests; or • Being actively involved in the management of an issuer in which it invests.   Indicators of “active investments” can include but are not limited to the following: • Holding securities representing more than 10% of the outstanding equity or voting securities of portfolio company; • Having the right to appoint board or board observer seats for a portfolio company; • Having the ability to impose restrictions on the management, or approval or veto rights over decisions made by the management of a portfolio company; • Providing advice or mentorship to a portfolio company.   Should these criteria ever be put to the test, it will come down to a factual analysis of the circumstances – there is no “check the box” type of exercise done.    Please refer to the Ontario Securities Commission’s website for general guidance on this topic, or consult an experienced, qualified fund/securities attorney in Ontario for assistance with a specific situation. 

No. A fund can not accept advisory shares. Also, accepting shares as an individual creates various conflicts. Funds can however get warrant coverage. 

No. A fund can not accept advisory shares. Also, accepting shares as an individual creates various conflicts. Funds can however get warrant coverage. 

General solicitation in venture capital refers to publicly advertising or promoting the opportunity to invest into a fund without a substantive pre-existing relationship and the knowledge that the individual is accredited. To avoid issue...

General solicitation in venture capital refers to publicly advertising or promoting the opportunity to invest into a fund without a substantive pre-existing relationship and the knowledge that the individual is accredited. To avoid issues, one should not: (1) publicly disclose details about the fund on the internet, (2) use social media to promote the fund, (3) solicit investments from unaccredited investors that you do not know, and (4) make misleading or unsubstantiated claims. See this article for more help: https://govclab.com/2023/11/22/general-solicitation/

Possibly yes - but be careful. A fund manager should avoid mentioning a fund or thesis until the fund has been fully raised and closed. https://govclab.com/2022/06/28/general-solicitation/

Possibly yes - but be careful. A fund manager should avoid mentioning a fund or thesis until the fund has been fully raised and closed. https://govclab.com/2022/06/28/general-solicitation/

The situation described is most likely a conflict of interest - but this doesn't guarantee it can't be done. Conflicts of interest are generally disclosed in a Fund's Limited Partner Agreement - and having any roles in other funds almost...

The situation described is most likely a conflict of interest - but this doesn't guarantee it can't be done. Conflicts of interest are generally disclosed in a Fund's Limited Partner Agreement - and having any roles in other funds almost certainly fits. In such situations, there will need to be an evaluation of potential outcomes of any conflicts even with disclosure in order to craft the proper language - we recommend consulting with an experienced fund formation specialist attorney for assistance. 

Hard NO.  See this article for more assistance: https://govclab.com/2022/06/28/general-soliciation/

Hard NO.  See this article for more assistance: https://govclab.com/2022/06/28/general-soliciation/

Possibly - conflicts of interest are situation-specific, so it would be best to dig into the details and consult an experienced fund formation specialist attorney as needed. If, for example, XYZ company has a venture fund and the fund m...

Possibly - conflicts of interest are situation-specific, so it would be best to dig into the details and consult an experienced fund formation specialist attorney as needed. If, for example, XYZ company has a venture fund and the fund manager's friend is involved in it, a conflict of interest would almost definitely arise. Additionally, if XYZ company is working on competing technology to the fund's portfolio companies, that could also be a conflict.

TL:DR - it's difficult, and we always recommend erring on the side of following regulations. Read the following: https://govclab.com/2022/06/28/general-solicitation/ Here are a few things that you should avoid mentioning just to be saf...

TL:DR - it's difficult, and we always recommend erring on the side of following regulations. Read the following: https://govclab.com/2022/06/28/general-solicitation/ Here are a few things that you should avoid mentioning just to be safe: • Your fund’s name, thesis or fund size, or the fact that you are raising a fund • Your fund’s strategy • Your one sentence pitch You may be able to carefully talk about:  • Your background • The types of companies/founders that you personally are interested in investing in and why • Market inefficiencies that you see

You may be able to list yourself as Managing Partner (and ensure that there is no "contact us" anywhere) - however please review the following carefully with respect to general solicitation: https://govclab.com/2022/06/28/general-solici...

You may be able to list yourself as Managing Partner (and ensure that there is no "contact us" anywhere) - however please review the following carefully with respect to general solicitation: https://govclab.com/2022/06/28/general-solicitation/

A fund manager is a professional money manager and LPs expect them to primarily focus their energy on generating returns for them. LPs are generally not enthused if a fund manager's investing attention is focused otherwise. LPAs are us...

A fund manager is a professional money manager and LPs expect them to primarily focus their energy on generating returns for them. LPs are generally not enthused if a fund manager's investing attention is focused otherwise. LPAs are usually pretty restrictive with regards to fund managers investing personal money - it makes sense. Even if a fund has an LPA that is not as restrictive, a fund manager's biggest challenge (in personally investing into deals) is how they manage this with their LPs.   For example, if a personal investment has any overlap with fund's thesis, LPs are not likely to be happy. The fund manager will likely have to/should take any deal in this category to the fund's Investment Committee - and, irrespective of the result, it’s good practice to offer LPs the opportunity to invest (which will slow things down and may prevent the deal from getting done in the first place). TL:DR: a fund manager should tread carefully and err on the side of the fiduciary responsibility owed to the fund. 

Generally speaking, hard no and nowhere.  A fund usually cannot solicit investors publicly, irrespective of how many closes it has completed. However, a fund can (carefully) do PR to attract entrepreneurs as investment targets for capita...

Generally speaking, hard no and nowhere.  A fund usually cannot solicit investors publicly, irrespective of how many closes it has completed. However, a fund can (carefully) do PR to attract entrepreneurs as investment targets for capital deployments. For more information, please read this: https://govclab.com/2022/06/28/general-solicitation/

Generally speaking, participants in VC Lab can say that they are participating in the program and even describe the experience. They cannot disclose their Thesis, nor discuss launching a fund.  See here for more assistance: https://gov...

Generally speaking, participants in VC Lab can say that they are participating in the program and even describe the experience. They cannot disclose their Thesis, nor discuss launching a fund.  See here for more assistance: https://govclab.com/2022/06/28/general-soliciation/

Generally speaking, for AML, all that is truly required is the full legal name and birthday - for KYC more details and identification documents are typically required.  If a prospective portfolio company wants to be thorough about dilig...

Generally speaking, for AML, all that is truly required is the full legal name and birthday - for KYC more details and identification documents are typically required.  If a prospective portfolio company wants to be thorough about diligence, they may ask if a Fund has any LPs in certain categories. You may want to ask what KYC/AML service they are using, and that will tell you what they really “need” versus that they “want.”  Fund managers are obligated to maintain confidentiality with respect to the identities of limited partners - and similarly, certain agreements of the Fund itself are also usually confidential (please check the agreements, as they will vary from jurisdiction to jurisdiction). You may wish to research what are the actual legal obligations for the portfolio company's jurisdiction - for example, for a Delaware domiciled fund, there is no such thing as a formal register of shareholders.  Formation documents (such as those filed with the Delaware Secretary of State), and information required to run KYC on the ultimate beneficial owners of the a fund's entities (such as the ManCo or General Partner), are sometimes requested, and would not be too unusual.