Fund Operations

TL'DR - Don't do it. You will struggle to raise from professional LPs and it's incredibly difficult and expensive to execute an evergreen strategy in VC. As a result, the VC Lab accelerator does not support evergreen funds. It is not re...

TL'DR - Don't do it. You will struggle to raise from professional LPs and it's incredibly difficult and expensive to execute an evergreen strategy in VC. As a result, the VC Lab accelerator does not support evergreen funds. It is not recommended to use an evergreen structure for Venture Capital funds, especially for emerging managers.LPs will be un-familiar with the evergreen structure in VC, because it's unusual, difficult to execute and there is no example of a successful evergreen VC fund. It will make the fundraising process even more challenging that it is with a normal closed-ended VC fund. In addition, to execute an evergreen strategy, funds have to be able to mark the assets to market in between rounds of financing so that LPs can get liquidity. These structure is incredibly difficult to execute with startups and introduces enormous complexity.

If an LP (Limited Partner) passes away, the LP's partnership interest is handled according to the arrangements made with respect to the LP's heirs, executors/administrators of the estate, successors, etc. The LP is responsible for settin...

If an LP (Limited Partner) passes away, the LP's partnership interest is handled according to the arrangements made with respect to the LP's heirs, executors/administrators of the estate, successors, etc. The LP is responsible for setting these arrangements up. These arrangements can vary and are subject to different regulations and requirements depending on the country or state. Therefore, agreements like the Limited Partner Agreement (LPA) generally remain silent on any specifics.

I do not believe that we have any NVCA members. In general, we do not feel that the NVCA is positive organization for venture capital. They advocate for unethical policies, as an example. 

I do not believe that we have any NVCA members. In general, we do not feel that the NVCA is positive organization for venture capital. They advocate for unethical policies, as an example. 

Question: My prospective LP wants to invest into my Fund out of a self-directed IRA. Can they do this? Yes - however, note that both the Fund and the LP must be set up with a Trust company (the same company!) that will act as Custodian...

Question: My prospective LP wants to invest into my Fund out of a self-directed IRA. Can they do this? Yes - however, note that both the Fund and the LP must be set up with a Trust company (the same company!) that will act as Custodian for the IRA before the investment can happen. Question: Sounds great - let's do this! Let's just call up Chase/Schwab (or another big name institution)... Whoa, wait a second! Most institutions: • Don't actually support this type of product any longer due to industry/market conditions (despite marketing materials or other claims); or • Don't actually understand VC and thus can't or won't set up your Fund to be able to accept such investments.  Question: What the heck does that mean? Getting down to brass tacks, it means that there are only a few vendors out there that support investing into a VC Fund from a self-directed IRA. We (Decile Group) can count them without even fully using one hand! We've tried to work with other vendors, but when we dig into the nitty gritty details, they simply don't/won't/can't on-board the Fund to be able to accept the investment. In one case, we got to the finish line, but it was a very painful and drawn-out experience for the prospective LP, the fund manager, and Decile!   Question: So....what do I do? Decile works with and recommends Strata Trust primarily - they are our default vendor when this comes up and understand VC Funds very well. If you are working with Decile Partners, simply reach out to your point of contact to get the ball rolling. Again please note BOTH the prospective LP and the Fund must be set up to be able to take this type of investment - this includes the prospective LP transferring their IRA to Strata. Question: Haha! ABC Trust Company that my LP has been with for XYZ years swears they can also do this, can we work with them?  It's not outside the realm of possibility, but Decile Partners will need to scope the services, and the process may stretch weeks or even months depending on ABC Trust Company's processes. We still strongly recommend going with Strata, as time is the enemy of all deals. Should you decide to explore ABC Trust Company's offerings anyways, please loop in your Decile Partners point of contact to assist in coordinating - and then prepare to wait for probably a while and for lots of back and forth. Question: Should I stick with one IRA Custodian then?  Generally speaking yes - it is common to stick with one custodian vendor for operational efficiency. Imagine trying to on-board and accommodate any and every vendor a prospective LP might bring to your door...

Making an angel investment alongside your fund is potentially a conflict of interest. In order to proceed here, you will need to get approval from your limited partner advisory committee (LPAC).  

Making an angel investment alongside your fund is potentially a conflict of interest. In order to proceed here, you will need to get approval from your limited partner advisory committee (LPAC).  

One thing you could do is to write a small check from the fund and offer the rest via SPV to your LPs as a perk. You can use Decile SPV for this because it’s built for this use case and is managed in hub. Important: Capital lines of cre...

One thing you could do is to write a small check from the fund and offer the rest via SPV to your LPs as a perk. You can use Decile SPV for this because it’s built for this use case and is managed in hub. Important: Capital lines of credit from your bank are NOT an option in this scenario because you have not closed the fund. Banks are not going to provide your a line of credit due to the risk and it's not cost effective. 

A capital call is a request made by a venture capital fund to its limited partners (LPs) to contribute a portion of their committed capital to the fund. This is typically done when the fund needs additional funds to make investments or t...

A capital call is a request made by a venture capital fund to its limited partners (LPs) to contribute a portion of their committed capital to the fund. This is typically done when the fund needs additional funds to make investments or to cover its certain ongoing expenses. A venture capital fund should not commit to a set schedule for capital calls, however, and should call capital only when needed - no significant amount of investors' capital should sit in the venture capital fund's bank account either.  LPs should be aware that they are expected to contribute their committed capital upon request, and failure to do so may have consequences as outlined in the LPA.

The frequency of capital calls is generally determined by the needs of the fund (for deployment, fund expenses, etc.) and the discretion of the management. Most funds call 20% or 25% of committed capital upon the first close, after which...

The frequency of capital calls is generally determined by the needs of the fund (for deployment, fund expenses, etc.) and the discretion of the management. Most funds call 20% or 25% of committed capital upon the first close, after which it normally takes 12 to 18 months to close the remainder of the fund. During this period, funds typically do not call additional capital. When the fund is fully closed but within the active investment period, managers generally make capital calls as needed.  Capital calls are not normally done per deal or on a set percentage each month or quarter. 

A fund back office normally includes multiple functions, including legal, accounting, tax, and audit. Normally, these functions are provided by multiple external vendors. There is also a set of software offerings used by funds, commonly ...

A fund back office normally includes multiple functions, including legal, accounting, tax, and audit. Normally, these functions are provided by multiple external vendors. There is also a set of software offerings used by funds, commonly referred to as the VC Tech Stack, that includes a file system, cloud storage, document sharing, data room, digital signature, CRM, normal accounting system, fund accounting system, databases, email solutions, and middleware. The Decile Group provides a flat rate and unified offering with Decile Hub as the venture platform and Decile Partners as a single back office provider.

Should LPs ask for a shorter term for a venture capital fund than 10 years, it may be an indication that the LPs do not understand the asset class and are not aligned with the fund and its managers. Proceed with caution - further discuss...

Should LPs ask for a shorter term for a venture capital fund than 10 years, it may be an indication that the LPs do not understand the asset class and are not aligned with the fund and its managers. Proceed with caution - further discussions may be warranted. 

Usually, the LP will work to find a buyer for the defaulted position. That is the most common way to manage this. 

Usually, the LP will work to find a buyer for the defaulted position. That is the most common way to manage this. 

The fund typically adopts a valuation policy after the first close. All portfolio investments will be valued quarterly or yearly depending on the terms of the LPA via the guidelines of the valuation policy.

The fund typically adopts a valuation policy after the first close. All portfolio investments will be valued quarterly or yearly depending on the terms of the LPA via the guidelines of the valuation policy.

As it pertains to the Cornerstone LPA 2.0, yes. 

As it pertains to the Cornerstone LPA 2.0, yes. 

Delaware is the domicile of choice for most new and emerging managers world wide for the following reasons: • Cost-effectiveness • Regulatory Clarity and Stability • Efficient Formation and Management • Global Investor Familiarity and Co...

Delaware is the domicile of choice for most new and emerging managers world wide for the following reasons: • Cost-effectiveness • Regulatory Clarity and Stability • Efficient Formation and Management • Global Investor Familiarity and Confidence • Prolific Startup Ecosystem • Tax Appeal For more details, please review this article: https://govclab.com/2023/06/10/delaware-is-the-vc-domicile-of-choice/

The venture capital roles are: • Managing Partners • Partners • Venture Partners • Principals • Associates   • Analysts • Interns You can learn more about each role in this article: https://govclab.com/2021/10/28/venture-capital-roles/

The venture capital roles are: • Managing Partners • Partners • Venture Partners • Principals • Associates   • Analysts • Interns You can learn more about each role in this article: https://govclab.com/2021/10/28/venture-capital-roles/

The best approach is to use Decile Hub because it integrates the entire VC stack. Otherwise, you will need to cobble together 10+ different tools with a Zapier integration which is very sub-optimal if you're going to manage millions of d...

The best approach is to use Decile Hub because it integrates the entire VC stack. Otherwise, you will need to cobble together 10+ different tools with a Zapier integration which is very sub-optimal if you're going to manage millions of dollars. 

There are not really "pros and cons" for naming a Fund's entities - however there are conventions that make it easy to follow (see below). Generally speaking though, Firms/Funds do not have "series" like SPVs might - unless one is refer...

There are not really "pros and cons" for naming a Fund's entities - however there are conventions that make it easy to follow (see below). Generally speaking though, Firms/Funds do not have "series" like SPVs might - unless one is referring to a type of Fund of Funds structure (or potentially vehicles managed by AngelList). Whether a corporate suffix has periods or no periods is also generally immaterial.  With respect to a fund thesis, a Fund 1 and a Fund 2 can have different ones - or the Fund name can specify the name of a vertical, region, etc. Standard naming conventions: Management CompanyThe Venture Capital Firm’s “Brand”The Management Company is the entity that endures across Fund 1, Fund 2, Fund 3, etc. - it is owned by the fund managers and typically employs only those analysts and other professionals working across all of the firm’s funds.  Example Names and Conventions Example Capital, LLC Example Capital Management, LLC Example Ventures, LLC Example Ventures Management, LLC General Partner EntityThe Entity that Manages the FundThe General Partner entity (important to note this isn’t referring directly to the fund managers, as is commonplace) is owned (mostly) by the Management Company. It manages the activities of the Fund, in a general sense. Venture Partners and any other advisors who are working only on the specific Fund managed by the specific General Partner entity will sit on this entity’s cap table, in most cases.  *Note that a new General Partner Entity is set up for each Fund. The General Partner Entity for Fund I typically is not numbered, though General Partner Entities for subsequent funds are often denoted by arabic numerals starting with 2.  Example Names and Conventions Example Capital GP, LLC Example Ventures GP, LLC Limited Partnership (the actual Fund)The actual “Fund” where the Limited Partners sitThis is the Fund itself, where the Limited Partners invest into and portfolio investments are deployed from.  *Note that a new Limited Partnership  is set up for each Fund, usually denoted by a roman numeral.  Example Names and Conventions Example Capital Fund I, LP Example Ventures Fund I, LP

It's not common to see hurdle rates for funds less then $30m, even in the EU. Small funds are optimized for the carry, not for fees. So, when you insert a hurdle, you're going to have mis-aligned incentives and expectations with your LPs...

It's not common to see hurdle rates for funds less then $30m, even in the EU. Small funds are optimized for the carry, not for fees. So, when you insert a hurdle, you're going to have mis-aligned incentives and expectations with your LPs because they are reducing your carry with this approach AND forcing you to use a European Waterfall vs American which is much less advantageous for small funds. To answer your question: There is no bench mark for VC. It's super uncommon for VCs to have hurdles. For the Private Equity asset class, hurdles are usually in the 5% - 10% range. But again, these are typically applied to funds in the $100m+ range. IMPORTANT: Avoid hurdles at all costs. Read into the intent of the LP rather then the 'ask'. Most LPs that are asking for this will be bad LPs because they are not aligned with your goals and expectations. You will need to mange these bad LPs for 10+ years. 

It's difficult to answer this question without more context on the fund strategy, however  HSBC could be an option here. 

It's difficult to answer this question without more context on the fund strategy, however  HSBC could be an option here. 

The estimate of doing 40 $100K deals with a $5 MM fund is a dispersed strategy. You will not sit on Boards with $100K investments. Your capital deployment strategy is dependent on your fund strategy. If you want to get a lot of shots of ...

The estimate of doing 40 $100K deals with a $5 MM fund is a dispersed strategy. You will not sit on Boards with $100K investments. Your capital deployment strategy is dependent on your fund strategy. If you want to get a lot of shots of goal because you are very early, then investing in more deals is a good strategy.

Question: What is this 506(c) thing I keep hearing about? SEC Rule 506(c) covers General Solicitation - in essence publicly advertising that a Fund is raising money (via social media, public speaking, etc.).  This is in contrast to SEC...

Question: What is this 506(c) thing I keep hearing about? SEC Rule 506(c) covers General Solicitation - in essence publicly advertising that a Fund is raising money (via social media, public speaking, etc.).  This is in contrast to SEC Rule 506(b) for private placements - this is the regulatory framework Funds traditionally raise under (privately), and which we strongly, strongly recommend.  Question: Sounds great, so shouldn’t VCs (like me) fundraise under 506(c)?  TL:DR - NO Question: Why the heck not? First and foremost - generally soliciting for fundraising for an enduring VC firm has a very low probability of success. As a professional money manager, LPs will hire you to take care of their hard earned capital. LPs who are wealthy enough to participate in your fund ($100K per LP minimum for a Fund I, rapidly scaling up from there), are not looking online for random money managers that they don’t know or trust. They simply don’t need to - and it’s an extremely risky endeavor.   It is up to you, the fund manager, to find (or network your way) such LPs - and then crucially convince them you will do a great job professionally managing their money for the next 10 to 15 years. Trying to fundraise online for $10K checks is not effective from a time or cost perspective - even with emerging fund sizes of say, $5M (never mind certain regulatory limits on how many investors can be in a Fund).  Fundraising under 506(c) also increases costs, administrative burden and LP friction. As a 506(c) fund, you (or a 3rd-party vendor) must affirmatively verify the accreditation status of each and every LP you accept into the Fund (no exceptions and no take backs). As you can imagine, this takes additional time and money - not to mention it creates a lot of friction with your potential LPs, who will need to provide personal/confidential documents to a third-party vendor or loop in their attorneys, accountants or similar professional service providers to assist. This can extend the time it takes to close an LP by weeks to even months in some cases - some also just pass due to the friction. This situation becomes even more problematic with large check LPs who are often unwilling to provide tax information to your back office team (or a third-party vendor) to verify accreditation. Finally, general solicitation often appears unprofessional to limited partners and removes the exclusivity of your offering, and is often perceived as desperate by experienced LPs. Question: But people do so on AngelList, so why can’t I?  AngelList is a great platform for syndicating deals out to amateur investors. AngelList owns and manages the vehicles, and it is typically not a viable option for enduring VC firms.  While some investors on AngelList may also invest into your Fund, as a general matter LPs often do not overlap with the archetype LPs necessary for a VC fund because: 1) they like doing deal by deal investments instead of having a manager do this for them and 2) they generally do not have the capacity to make the minimum investment commitment which starts at ~$100k for a VC fund. "Angel’List is a platform that’s designed for angel investors, and those angels that want scale their practice. Most of the best practices that apply to angel investors do not apply to founders of enduring VC firms - they are fundamentally different. 

Not necessarily. While LPs will contribute their commitment through multiple capital calls, they do not need to contribute all of their committed capital during the Investment Period. It would be correct to make capital calls for managem...

Not necessarily. While LPs will contribute their commitment through multiple capital calls, they do not need to contribute all of their committed capital during the Investment Period. It would be correct to make capital calls for management fees and fund expenses in the post-investment period.

Read this: https://govclab.com/2021/10/28/venture-capital-roles/ And this: https://govclab.com/2023/08/02/venture-capital-roles-2/ And finally, this: https://govclab.com/2022/03/10/venture-share/ The comp is close to 0 for a $5m fund ...

Read this: https://govclab.com/2021/10/28/venture-capital-roles/ And this: https://govclab.com/2023/08/02/venture-capital-roles-2/ And finally, this: https://govclab.com/2022/03/10/venture-share/ The comp is close to 0 for a $5m fund and most new managers will not be able to afford to have many support roles on salary, if any. You will have $1m for 10 years to run your business. That $100k/year will need to pay for a variety of things, besides your salary. 

As a general matter, here are some best practices in setting up a fund's LPAC: • Check the LPA or governing document that describes the LPAC appointment process and details the LPAC's particulars; • Ensure that LPAC members are people th...

As a general matter, here are some best practices in setting up a fund's LPAC: • Check the LPA or governing document that describes the LPAC appointment process and details the LPAC's particulars; • Ensure that LPAC members are people that the fund manager really trusts, as depending on the LPA, LPAC members may have quite a bit of power;  • Keep the LPAC as small as practicable, with the proviso that the LPAC should have an odd number of members to prevent any potential deadlock situations; • For smaller funds, 1 to 3 members are ideal.  *Given the SEC's recent rules, the LPAC should not be used as an Investment Committee, nor should it vote on matters regarding conflicts of interest. More information can be found here: https://govclab.com/2023/08/25/sec-private-fund-adviser-reforms/

Fund managers can discuss future arrangements verbally - however they should refrain from making any promises or commitments (verbal, written, or otherwise). Particularly, fund managers should sign NOTHING - as a general matter, legal ...

Fund managers can discuss future arrangements verbally - however they should refrain from making any promises or commitments (verbal, written, or otherwise). Particularly, fund managers should sign NOTHING - as a general matter, legal agreements cannot be signed on behalf of fund entities that do not exist. This goes for any investments intended to be warehoused as well - a prospective fund manager must sign those as an individual or on behalf of a wholly-owned entity the fund manager will invest out of.

First read this article on Management Fees. Then read this article on fund expenses. Everything listed as Manager in the 'Who Commonly Pays?' column will come out of management fees. Finally read this article on the VC fee model. Every f...

First read this article on Management Fees. Then read this article on fund expenses. Everything listed as Manager in the 'Who Commonly Pays?' column will come out of management fees. Finally read this article on the VC fee model. Every fund is different, so your costs, especially with respect to DD may vary based on the strategy. 

General Partner Entity Background Information The General Partner Entity is governed by the Stewardship agreement. The agreement authorizes and issues two types of Shares: Class A and Class V. Class A Shares are issued to the Management...

General Partner Entity Background Information The General Partner Entity is governed by the Stewardship agreement. The agreement authorizes and issues two types of Shares: Class A and Class V. Class A Shares are issued to the Management Company  (“ManCo”) and to any Venture Partners who may come on board.  The Stewardship Agreement provides for a reserved Share Pool for this purpose.  Class V Shares are designed for investors in the GP entity. The Stewardship Agreement provides that the sale of Class A shares will result in the automatic conversion of the shares to Class V shares. This provides a mechanism for the Management Company to sell its shares to fund the operations of the Management Company. What are the differences between Class A and Class V Shares?  Generally speaking, Class A Shares are issued to: • ManCo (with no vesting) • Venture Partners (with vesting) • General Partners who are not part of the Management Company Class A Shares have voting privileges and are generally designed for those active in the management of the fund.  Class V Shares are non-voting and are designed for passive investors.  Why do Class V Shares have Preference? The “Preference” given to Class V Shares has a  different purpose from a liquidation preference that you may see in startup term-sheets. Class V Shares simply provide that upon distributions, its holders have their percentages carved out separately before Class A holders. Given that the GP controls all distributions, in practice, distributions happen at the same time.  So then why do Class V Shares need to have “Preference”? The “Preference” has two purposes: 1. ensures that investors in the GP receive distributions at the same time as the principals given that Class V Shares do not have any voting rights or other protections; and 2. establishes a different class of shares which may be helpful for tax purposes. If there is a sale of Class A shares that convert to Class V, this can mitigate the effect of the transaction on the value of the Class A shares.  This may be important if the GP needs to issue Class A shares to venture partners at a later date. Why do Class V shares have a fixed percentage?  In general, investors in the GP are expecting a return based on the carried interest from the fund and not the operations of ManCo. This protects the investors in the GP from having their interests diluted.   How do distributions to Class A Shares and Class V Shares work?  All distributions are at the discretion and determined by the ManCo. A typical cap table would include the following: • 850,000 Class A Shares issued to ManCo. • 100,000 Class A Shares reserved for the Share Pool. • 50,000 Class V Shares issued to Decile Group. Distribution Examples: Example 1: If ManCo determines that $1 million will be distributed and there are no shares issued from the Share Pool, then the distributions would be as follows: • $950,000 to ManCo (all the proceeds after deducting the Class V distribution)($1.11765 per share). • $50,000 to Decile Group ($1.00 per share). • Share Pool does not receive any distribution because there are no shares issued. Example 2: If ManCo determines that $1 million will be distributed and there are 50,000 vested shares issued from the Share Pool to Venture Partners, then the distributions would be as follows: • $897,222.22 to ManCo (850,000 divided by 900,000 times $950,000)($1.0555 per share). • $52,777.78 to Venture Partners (50,000 divided by 900,000 times $950,000)($1.0555 per share). • $50,000 to Decile Group (remains fixed at 5%; $1.00 per share). Why does Decile Group get Class V Shares?  First, re-review this: https://decilegroup.com/decile-launch.  For small funds set up by emerging managers, most institutional grade providers will charge at minimum $50k/year+ and they are just doing fund administration which consists of accounting and government filings. Though this is a very fair price for a complicated financial product, these offerings typically do not include business advice, deal review, treasury, etc. - and no one is there to tell you if you’re doing something sub-optimal. With Decile Group, you’re getting institutional grade operations at a significantly lower cost than the market, and you own your fund. For our model to work, we need your fund to achieve Decile performance to recoup our significant time and cost investment. We are unlikely to recoup the delta if your fund has average performance - we don’t want you to be average! This model aligns all of us around your success and we have been very thoughtful in these agreements to create the conditions to give you the best chance to achieve top decile performance (i.e. Class V being non-voting etc…).

A capital call is a request made by a venture capital fund to its investors to contribute capital to the fund. This is typically done when the fund needs additional funds to make investments or to cover its ongoing expenses. Capital Call...

A capital call is a request made by a venture capital fund to its investors to contribute capital to the fund. This is typically done when the fund needs additional funds to make investments or to cover its ongoing expenses. Capital Calls are commonly paid by the Limited Partners as defined by the Limited Partner Agreement (LPA). • Step 1 – Assess Capital Requirements: Fund managers must first determine the need for additional capital, which may arise due to new investment opportunities or ongoing fund expenses, such as management fees, legal and accounting fees, and other operational costs. • Step 2 – Issue Capital Call Notice: Upon assessing capital requirements, fund managers issue a capital call notice, typically through email or other electronic means. This notice informs investors of the capital call amount, payment deadline, and consequences of non-compliance with payment terms. • Step 3 – Monitor Investor Responses: Fund managers closely monitor investor responses to ensure timely capital contributions. If an investor fails to make the required payment, the management team follows up to determine the reason for the delay and may seek alternative funding sources if necessary. • Step 4 – Limited Partners Contribute Capital: Investors, primarily Limited Partners, contribute their pro-rata share of the capital call amount by the specified payment deadline. Fund managers reconcile the received capital against bank records to confirm accurate and complete funding. For more information, read the following: https://govclab.com/2023/05/07/vc-capital-calls/

You can take a look at Sydecar. Some folks in the VC Lab community had a good experience with them. We also offer Decile SPV to  Decile Partners customers. 

You can take a look at Sydecar. Some folks in the VC Lab community had a good experience with them. We also offer Decile SPV to  Decile Partners customers. 

Delaware formation with any reputable law firm can range from $50k - $100k+. Fund administration will typically range from $25k/year to $100k+ a year depending on a variety of factors related to the complexity of the setup. Both legal an...

Delaware formation with any reputable law firm can range from $50k - $100k+. Fund administration will typically range from $25k/year to $100k+ a year depending on a variety of factors related to the complexity of the setup. Both legal and administration costs are typically variable with traditional legacy vendors. Decile Launch offers turnkey formation and flat rate back office for top performing venture capital funds: https://decilegroup.com/decile-launch/

It is critical for Managing Partners (founders of venture capital firms) to partner with people that they know extremely well and that they have had an extensive long-term working relationship. Partner breakups in VC firms have dire cons...

It is critical for Managing Partners (founders of venture capital firms) to partner with people that they know extremely well and that they have had an extensive long-term working relationship. Partner breakups in VC firms have dire consequences given that these firms are 15 - 20 year commitments at a minimum. Therefore, if the choice is between being a solo GP or partnering with someone who you don't know extremely well, the best choice is often to be solo.

There are other structures, but they are not commonly accepted. As a result, GPs that attempt to setup non-standard structures get significant resistance from LPs and experience severe fundraising challenges. Read this: https://govclab....

There are other structures, but they are not commonly accepted. As a result, GPs that attempt to setup non-standard structures get significant resistance from LPs and experience severe fundraising challenges. Read this: https://govclab.com/2023/05/26/vc-management-fees

The LPA specifies the conditions for what will take place at the end of the fund life. The options are: extend the fund life by 1 or 2 years, distribute the remaining interest to LPs, or liquidate the fund via a secondary transaction. Ty...

The LPA specifies the conditions for what will take place at the end of the fund life. The options are: extend the fund life by 1 or 2 years, distribute the remaining interest to LPs, or liquidate the fund via a secondary transaction. Typically, when extending the fund, GPs don’t charge management fees.

Please read this article on the structure of the Venture Studio: https://govclab.com/2023/04/25/how-to-build-a-venture-studio/

Please read this article on the structure of the Venture Studio: https://govclab.com/2023/04/25/how-to-build-a-venture-studio/

Extending the fundraising period can provide additional room to fundraise in case a fund does not expect to achieve its stated fundraising target within the originally scheduled fundraising period. This measure should not be taken light...

Extending the fundraising period can provide additional room to fundraise in case a fund does not expect to achieve its stated fundraising target within the originally scheduled fundraising period. This measure should not be taken lightly, though, and it would be advisable to discuss such decisions with an LPAC or a majority of LPs. It’s important to note that extending the fundraising period may warrant examining the management fee schedule (should additional work be required upfront).  LPs may push back if they perceive that LPs admitted outside of the original fundraising period will receive preferential treatment. They may also believe that extending the fundraising period signals an inability of the fund manager to raise money.

It's generally important for a fund manager to sign investment agreements with the correct signature block - it's especially important for the signature block to reference the correct Fund name, as well as it's General Partner and Manage...

It's generally important for a fund manager to sign investment agreements with the correct signature block - it's especially important for the signature block to reference the correct Fund name, as well as it's General Partner and Management Company, in most cases. This will avoid annoying cleanup later, as these types of errors will be caught at the latest when/if the startup gets to a priced round and is working with counsel, or is undergoing due diligence or an audit.  For Funds working with Decile Partners, the signature should appear as the following (for Delaware domiciled funds, as an example): Full Fund Name, LP By: Full General Partner Name, LLC, its General Partner By: Full Management Company Name, LLC, its Manager By: _____________________________ Name: Fund Manager Name Title: Managing Partner Refer to your Fund's legal agreements for more details - fund managers often have the correct signature block on a Word or PDF document and simply send it to startups during the signing process to ensure that it is correct. Counsel will typically insist that the signature block is correct or they will not approve for signing. It is also just a good habit to get into.  

The exact response and penalties by a fund to a limited partner that does not fund a capital call is governed by the Limited Partner Agreement (LPA). Most LPAs have very strict penalties for when a limited partner misses a capital call. ...

The exact response and penalties by a fund to a limited partner that does not fund a capital call is governed by the Limited Partner Agreement (LPA). Most LPAs have very strict penalties for when a limited partner misses a capital call. However, there are many reasons that a limited partner may miss a capital call, including reasons outside of their control, such as bank delays. The Cornerstone LPA provides general partners with wide discretion on how to handle missed capital calls, including penalties, forfeiture, or leniency. The exact language from the Cornerstone LPA is below for reference: 2.3 Default. If a Limited Partner fails to make all or any portion of any Capital Contribution or any other amount required to be paid by such Limited Partner pursuant to this Agreement or applicable law, and such failure is not cured after a period of ten (10) Business Days after the delivery of General Partner’s written notice regarding such failure, then, unless waived by General Partner in its sole discretion, the defaulting Limited Partner will owe interest with respect to such unpaid amount calculated at a rate equal to 12% per annum unless waived in whole or part by General Partner in its sole discretion, and General Partner shall have the right to take one or more of the following actions in its sole discretion: (a) if the Limited Partner has not made any Capital Contributions, deem the Limited Partner’s Interest in the Fund to be forfeited; (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; (c) use any distributions that might otherwise be made to such defaulting Limited Partner to offset any amounts owed by the defaulting Limited Partner; or (d) pursue and enforce all rights and remedies it may have against the defaulting Limited Partner. Each Limited Partner hereby consents to the remedies provided for in this section.

The frequency of capital calls is determined by the terms of the LPA, the needs of the fund, and the discretion of the management in that order. Most funds will call 20% or 25% of committed capital upon the first close, and then it norma...

The frequency of capital calls is determined by the terms of the LPA, the needs of the fund, and the discretion of the management in that order. Most funds will call 20% or 25% of committed capital upon the first close, and then it normally takes 12 to 18 months to close the remainder of the fund. During the closing period, most funds do not call additional capital. When the fund is closed and in the active investment period, managers make capital calls as needed, usually once per quarter or once per half. Capital calls become less frequent after the active investment period. Most funds do not call the total fund size because the investments and expenses come out to less than the committed capital.

Generally - no, the Fund should not appoint new LPs to the LPAC, unless it is someone the Fund Manager trusts implicitly and has worked with over a long period of time. It is important to be cautious about giving unfamiliar LPs a seat on...

Generally - no, the Fund should not appoint new LPs to the LPAC, unless it is someone the Fund Manager trusts implicitly and has worked with over a long period of time. It is important to be cautious about giving unfamiliar LPs a seat on your LPAC as it can lead to complications for the Fund and limit the Fund Manager's ability to make decisions on behalf of the Fund. Regardless of their financial contribution, prioritize placing individuals you trust on the LPAC. 

With pre-seed funds, exits can take up to 10+ years, making extensions potentially necessary.  Decile Group's Cornerstone LPA includes two optional one-year extensions on top of a standard 10-year Fund Life. 

With pre-seed funds, exits can take up to 10+ years, making extensions potentially necessary.  Decile Group's Cornerstone LPA includes two optional one-year extensions on top of a standard 10-year Fund Life. 

A warehoused investment is an investment a (prospective) fund manager makes personally (or via a wholly owned entity) before the venture capital fund is set up and reaches a first close. Shortly after reaching a first close, the warehous...

A warehoused investment is an investment a (prospective) fund manager makes personally (or via a wholly owned entity) before the venture capital fund is set up and reaches a first close. Shortly after reaching a first close, the warehoused investments are then transferred into the fund. Planned investments do not count as warehoused investments. Warehoused investments are required to be disclosed to LPs before closing - this is typically done by listing them on the schedule of warehoused investments. The information required includes but is not limited to: • Company name; • Number and type of shares (if equity); • Amount of money paid, and currency used; • Potential conflicts of interest. Be sure to provide fully executed copies of your warehoused investments' legal agreements to your law firm or Decile Partners (if working with Decile Launch).

This depends on local regulations. In many jurisdictions, unpaid internships are not legal.

This depends on local regulations. In many jurisdictions, unpaid internships are not legal.

It's unlikely that the large firm will agree to this arrangement with the VP due to conflicts of interest. It also works vice versa where it creates conflicts of interest for your fund and you will need to disclose it.

It's unlikely that the large firm will agree to this arrangement with the VP due to conflicts of interest. It also works vice versa where it creates conflicts of interest for your fund and you will need to disclose it.

They are both compensated with a venture partner agreement and advisors typically get a bit less carry. 

They are both compensated with a venture partner agreement and advisors typically get a bit less carry. 

Fund Admin is a component of the Back Office function. Typically Fund Admin includes accounting, reporting and filings. Back Office includes a variety of other functions that can be in house or outsourced or both, such as Treasury, inves...

Fund Admin is a component of the Back Office function. Typically Fund Admin includes accounting, reporting and filings. Back Office includes a variety of other functions that can be in house or outsourced or both, such as Treasury, investment reviews, software, etc..