Venture Legal

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Top answer:

By law, all offers and sales of securities within the United States must be either: • registered with the Securities and Exchange Commission (the SEC); or • issued relying on an available exemption from such registration. Generally spea...

 -  Haw Kuo
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Venture Legal

Cornerstone Query: 'Non-Investments'

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Community Member
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Nov 28, 2023

In the Cornerstone LPA, clause 3.2 mentions portfolio liquidity results with respect to 'non-investments'. Can you please explain what non-investments may be, and how their yield portfolio liquidity results?

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Venture Legal

Cornerstone LPA 2.0 agreement specifies that the fund can be dissolved, liquidated, and terminated by the election of the general partner. What are the typical cases making GP to make such a decision? Isn't it too risky for LP leaving it possible to have the fund terminated for any reason by the GP?

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Community Member
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Nov 28, 2023

I wonder what are the provisions in the Cornerstone LPA 2.0 that will protect the LP from unjustified termination, such as LP approval of termination and what is the best industry practice to protect LP rights.

Top answer:

For the General Partner to unilaterally decide to wind up a fund is an edge-case - there aren't "typical" types of cases to speak of here. However as one example, a pending SEC investigation (which could implicate the General Partner) co...

 -  Haw Kuo
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Venture Legal

Roles and limitations for LPs in portfolio companies

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Community Member
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Nov 26, 2023

What roles in portfolio companies can LPs play, given their expertise or network? What are the considerations for these roles in order to avoid conflicts of interest?

Top answer:

It's not uncommon for LPs to take advisory roles in some portfolio companies. In addition, many LPs are often offered direct investment opportunities in follow-on or pro-rata opportunities. 

 -  Mike Suprovici
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Venture Legal

For Canada Domicile, there has been a lot of movement towards alberta (lower tax rates to start) - any thoughts on this differing from Ontario? (ie. some are newly dubbing alberta 'delware of the north' - true?)

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Community Member
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Nov 10, 2023

Here are a few articles to review that have popped up in the last month: 1) https://www.theglobeandmail.com/business/commentary/article-albertas-aim-to-be-delaware-north-deserves-more-attention-from-canadas/?rel=premium 2) https://www.canadianla...

Top answer:

Ontario is an internationally recognized domicile. Alberta, BC and Quebec may make sense if all LPs and investments are from that region. Otherwise, Ontario is the recommended domicile because it's a hub. This means that there is a good ...

 -  Mike Suprovici
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Venture Legal

Mike had said there are 5 legal entities in domiciling in Toronto, Canada - what are they and why 2 extra then normal?

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Community Member
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Nov 10, 2023

3 legal entitities of a venture capital firm venture capital firm typically consists of three legal entities:1. The Management Company (ManCo) - This is the enduring entity across all funds and is owned by the fund managers. It typically employs ...

Top answer:

See the diagram below: [Canada Cornerstone Structure.png]

 -  Mike Suprovici
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Venture Legal

Founder request for business help

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Community Member
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Oct 12, 2023

A rockstar founder is asking me to help with his company - well beyond a bit of free coaching and guidance (negotiate a license, coach interim CEO, other substantial efforts) in exchange for equity &/or cash.  What are the top considerations prior...

Top answer:

Here are the main considerations: 1. Venture funds can't receive advisory shares. So, if the founder makes you an advisor, you can't transfer that ownership to the fund. 2. If you are an advisor or consultant, that will be a conflict of...

 -  Mike Suprovici
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Venture Legal

Where can I find the VC Lab’s template Stewardship Agreement?

Asked by:
Community Member
Edited by:
Adeo Ressi
on November 11, 2023
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Oct 10, 2023

It's mentioned in the Venture Partner agreement, but I cannot find it anymore.

Top answer:

A template Stewardship Agreement is available below: https://docs.google.com/document/d/1_wo2K7adTcEjARB3AgoPzW_PC8XHIUH7GrMTvutDsMQ/edit

 -  Adeo Ressi
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Decile Group strongly recommends not accepting any investors who are not accredited investors into a Fund, even if it is technically and legally possible (depending on the jurisdiction and the Fund's legal agreements). Such investors are...

 -  Haw Kuo
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“The identity of the LPAC members will be disclosed to all the investors of the fund. Disclosure happens as part of the process of providing notice to investors of changes or approvals that have been made.”

 -  Magdalena Mielczarek
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Venture Legal

How do we verify someone is an accredited investor before we talk to the? Is it illegal to talk to them about joining the fund if they are not accredited? (thinking for people with high salaries specific that we think may qualify but aren't sure of)

Asked by:
Community Member
Edited by:
Adeo Ressi
on November 11, 2023
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Sep 20, 2023

Looking for when to broach the topic of accreditation and how to bring it up in the conversation, this is for the closing of the PACT conversation.

Top answer:

As a manager, you need to get to know every potential limited partner before you pitch them, including doing research to understand if they are accredited. At the ned of the day, you need to use your best judgement. This is governed by g...

 -  Adeo Ressi
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Venture Legal

I live in Canada, what language for the PACT? See details for what I put.

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Community Member
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Sep 19, 2023

Given I expect to be raising from LPs from Canada and USA: "The undersigned understands that the Offering is being made without registration under any securities law in any jurisdiction, including the Securities Act of 1933 (the “Securities Act U...

Top answer:

The PACT is a non-binding agreement, and, before any entities are formed, the jurisdiction does not matter, since there is no underlying entity to bind the agreement to. In general, it can be any jurisdiction, as the agreement is non-bin...

 -  Adeo Ressi
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Venture Legal

Standard Y Combinator SAFE agreement - error?

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Community Member
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Aug 30, 2023

Regarding a typical Y Combinator SAFE agreement: In the event of an Equity Financing, who should be responsible for "execute and deliver all of the transactions documents related to the Equity Financing". The Investor or the Company? The current ...

Top answer:

Question: With respect to financing documents, what does an early-stage VC need to do at the time of a an Equity Financing (aka Preferred Stock Financing), if said VC invested earlier in a typical SAFE note? A standard, unaltered Y Com...

 -  Haw Kuo
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Top answer:

Yes - however in doing so, the limited partner will generally lose their "limited" status with respect to liability, because they may wield influence over the Fund's decision-making processes. They may become liable for any actions taken...

 -  Haw Kuo
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Venture Legal

the Fund is a pass through entity?

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Community Member
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Aug 10, 2023

The Fund being a Delaware LP is a pass through entity?

Top answer:

Yes, a Delaware LP is a pass through entity. 

 -  Mike Suprovici
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Venture Legal

Legal setup for a deal warehouse

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Community Member
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Aug 03, 2023

What is the best legal setup for a deal warehouse especially for the first fund? Do we create a simple LLP with equal partnership of investors (close associates) that holds 4-5 assets, which is later bought out by the fund company and transfer the...

Top answer:

Generally speaking, the best setups for a prospective fund manager to warehouse deals are: • Individually (no one else involved); or • Via a 100% wholly-owned entity.  The other types of setups you are referring to generally are not opt...

 -  Haw Kuo
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Venture Legal

Venture Partnership agreement

Asked by:
Community Member
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Jul 25, 2023

What are the main clauses or at least recommended clauses for an agreement with a Venture Partner in a fund?

Top answer:

Please go here to see the open source Venture Partner Share Agreement Template we published: https://govclab.com/2022/03/10/venture-share/

 -  Haw Kuo
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Venture Legal

Where should the fund be incorporated?

Asked by:
Community Member
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Jul 25, 2023

If I create a fund that invests in startups in US and Canada but i'm based in Toronto, should the fund be registered within the country I'm in or anywhere in the investment geographic area? Sydecar for example does the registration in Delaware so ...

Top answer:

Sydecar is not an option for VC firms. So don't waste any time on this matter until at least $1m US is hard circled via PACTs. This is one of the last decisions that a fund manager should make.  That being said, since you seem to be a C...

 -  Mike Suprovici
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