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What Are the Best Practices for Accounting Acquired Portfolio Companies via Share Swaps in Your Track Record?

What are the best practices to account for portfolio companies that are acquired through share swaps in your track record?

Top answer:

Compare the price per share between your purchase price and the current price when acquired, and then record this differential as a markup. This assumes that you will have the same number of shares. If the share counts differ, then just ...

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What if I put my entire $5M fund into an SPV and operate off of that?

What if I put my entire $5M fund into an SPV and operate off of that?

Top answer:

This is a sub-optimal approach for building an during VC firm. VCs are setup with 3 entity structures and it's highly recommended not deviate from this approach. LPs will not count the SPV as fund 1. Therefore, on the next fund, the GP w...

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What does a Fund Prospectus include?

What does a Fund Prospectus include?

Top answer:

Take your deck and put it into a 1 pager. You have all the info that you need.

 -  Mike Suprovici
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Is it better to target a $5M fund and potentially oversubscribe to $10M, allowing room for failure?

If I'm targeting $10M fund 1 but could reasonably carry out my investment thesis with a $5M fund, does it make more sense to state I'm raising a $5M fund and try to oversubscribe to ~$10M giving myself some room for failure?

Top answer:

Yes. You should set a lower target and over subscribe. Fund models scale up well, but don’t scale down.

 -  Mike Suprovici
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How do funds typically distribute dead-by-deal carry to introducers for portfolio deals?

How do funds typically implement sharing dead-by-deal carry on deals in their portfolio with people that introduced them?

Top answer:

Funds normally compensate people that make introductions to portfolio companies by making them a Venture Partner using the Venture Share agreement here: https://govclab.com/2022/03/10/venture-share/. The formal discussion to be a Venture...

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Can We Use a Loan Equivalent to Management Fees to Invest 100% of Committed Capital in Our LPA?

Our LPA allows the partnership to borrow money — if our bank were to give us a loan equivalent to the management fees would we be able to use it to invest 100% of the committed capital?

Top answer:

Usually the reason that language is there to allow for capital call lines. You would probably need to specify this or work with your IC if you have one to get this done. That being said, you can also just do recycling to achieve the sam...

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Is it Common to Have Varied Management Fees for Active Investment and Divestment Periods (2% vs 1%)?

Is it normal to have different management fee for active investments period and divestment periods? i.e 2% vs 1%

Top answer:

Yes it’s common that during the active investment period (up to year 3/4) management fees are higher, say 3% and in year 9 and 10 it’s .5%

 -  Mike Suprovici
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What Agreement Should Be Used for Uncompensated Fund Advisors in a <$10MM Fund?

Moving this question here: what agreement to use for fund advisors? To further clarify these are people that have volunteered and are happy to help with no expectation of compensation. From what I understood last night the LPs will have the expectation that the advisors will be incentivized under VP agreements…so we should be using the VP agreement. Also what is the target number of fund advisors for a <$10MM fund?

Top answer:

You should use a VP agreement. There is no set #. It depends how you use your VPs. If you are using a network of VPs for deal flow and support, then you may have quite a few. If you’re using the VPs for specialized advice for example, yo...

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Is it fair to consider a markup in non-priced rounds with different SAFE caps?

Hi everyone. About markups... what's the best practice for non-priced rounds? For example I invest using a SAFE with a $5M Cap and a few weeks later another investor comes in at a $10M Cap. Is it 'fair' to say there was a markup? Or is it necessary to wait until the priced round?

Top answer:

Yes, you can call that markup

 -  Mike Suprovici
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How Much Capital Can Be Deployed from First Close Investors Before the Second Close in a Fund?

I’ve been speaking to a few potential LPs and a question came up that I was hoping someone could answer. How much of the “first close investors” capital can be deployed before the second close? For example if I had a $10M fund target with a first close of $2M am I able to call and deploy that full $2M before raising the remaining $8M? And even if I’m legally able to do so under the terms of a LPA would this be considered off-market? Thanks in advance.

Top answer:

No - a fund manager cannot call and deploy 100% of the capital from a first close before going on to raise the rest of the Fund. This would likely be fatal for the Fund - all limited partners must be on the same capital call schedule.  ...

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What is the typical dollars ticket size VCLab considers for seed and series A? Thanks

What is the typical dollars ticket size VCLab considers for seed and series A? Thanks

Top answer:

This is market specific. Here are some VERY general #s of what we have seen: In developed markets, it’s not uncommon for Series A tickets to be $5m+ In emerging markets, Series A tickets tend to be $2m+.

 -  Mike Suprovici
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What is the Ideal Portfolio Size for a €5 Million Fund Managed by a Solo GP: 15-20 or 20-25 Investments?

Regarding optimal portfolio size do you have any references you can share? For example for a EUR 5 million fund run by a solo GP what would be your suggestion for the number of companies invested? 15-20? 20-25? 25-30? I am thinking of 15-20 investments to have the 'attention span' required to help them grow max 20-25 but would like your input

Top answer:

The size very stage specific. At seed average is 20-25. At pre-seed it’s more. At Series-A you can do less.

 -  Mike Suprovici
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What are the mechanics of 'per deal carry' for Venture Partners when the fund hasn't generated enough returns?

What are the mechanics for 'per deal carry' for Venture Partners? Specifically if the whole fund has not generated sufficient returns to pay a carry does the GP pay for the per deal carry if an exit occurs?

Top answer:

Deal by deal carry, which is not recommended, is an arrangement where the fund grants an individual, usually a venture partner, a share in the upside generated by the performance of one or more deals allocated to that individual. This is...

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How Can a Solo GP Best Tackle the Key-Person Clause: Is Strong IC the Solution?

One question getting asked as a solo GP is how to tackle the key-person clause. What's the best way to tackle this? Strong IC?

Top answer:

This will be handled in the LPA. Here is how the Cornerstone manages it for your reference: However, you should simply reply by saying: This will be handled by the LPA and we will work on it together with LPs once we secure the necessa...

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Is There a Maximum Limit on Venture Partners for Optimal Sub-Sector Expertise in a Fund?

Is there a maximum limit on the number of Venture Partners a fund should have? I am thinking of pulling in different sub-sector experts to work with portfolio companies.

Top answer:

I recommend between 2 and 5. We have seen some funds that have dozens, but they need to be owners in the general partnership, so this can be a burden.

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Community Member
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