Venture Legal

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...

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 speaking, "public" type offerings (for example an IPO) must be registered (such as any stocks publicly trading on the Dow Jones or NASDAQ) - this is a long and complex process. When startups raise capital through private markets, i.e. raising from venture capital funds, the offerings are private by definition ("unregistered"). Therefore, they rely on an exemption from registration. • As startups almost universally (when fundraising from venture capital funds) issue unregistered securities, there are no specific legal considerations or potential risks to take into account other than the risks associated with investing into startups in general. • Startups typically work with counsel to issue securities, who usually shoulder the burden of ensuring compliance for exemptions from registration. *Please consult experienced local counsel if you have questions pertaining to securities issued in other jurisdictions.

Cornerstone version 2 is available to download from VC Lab here

Cornerstone version 2 is available to download from VC Lab here

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...

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) could be one of the causes for a General Partner to make such a decision.  While it's an edge-case, should a General Partner choose to go this route, they would be obligated to liquidate the Fund's assets and distribute the the proceeds to Limited Partners (see Cornerstone 6.3) - so it generally isn't considered "too risky" for the asset class.  It is not industry standard for LPs to need to approve of such a decision by the General Partner - however per the Cornerstone a majority of the LPs can also put the Fund into limited operations mode. 

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. 

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. 

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 ...

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 market of experienced and specialized service providers, unlike the other provinces. 

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

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

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...

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 interest with your fund. 

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

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

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...

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 generally not worth the extra effort and cost.  For specific advice about a jurisdiction, please consult an experienced fund attorney in said jurisdiction. 

“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.”

“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.”

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...

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 general solicitation regulations, which are explained below: https://govclab.com/2022/06/28/general-solicitation/

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...

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-binding.

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...

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 Combinator SAFE in 2023 contains language such as the following (please review variations published by Y Combinator for exact phrasing): "In connection with the automatic conversion of this Safe into shares of Standard Preferred Stock or Safe Preferred Stock, the Investor will execute and deliver to the Company all of the transaction documents related to the Equity Financing; provided, that such documents (i) are the same documents to be entered into with the purchasers of Standard Preferred Stock, with appropriate variations for the Safe Preferred Stock if applicable, and (ii) have customary exceptions to any drag-along applicable to the Investor, including (without limitation) limited representations, warranties, liability and indemnification obligations for the Investor." Answer: *Typically, during an Equity Financing, the Company (the portfolio company), will retain a law firm, which will be responsible for coordinating/distributing documents and requesting signatures as needed. **SAFE investors typically sign a subset of the Equity Financing documents.  Generally a VC in similar circumstances will need to: • Review the Preferred Stock Purchase Agreement and accompanying documents (with the assistance of its own counsel, which is usually recommended) to ensure its SAFE is converting correctly and as intended; • Sign the final financing documents (or subset thereof) as distributed by the portfolio company's law firm; • Receive and retain a final, fully executed set of closing documents for the Preferred Stock Financing.

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...

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 by the General Partner of the fund that have potentially adverse implications for the Fund's limited partners.

Yes, a Delaware LP is a pass through entity. 

Yes, a Delaware LP is a pass through entity. 

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...

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 options. Complicated legal setups are not recommended, and platforms where the fund manager does not outright own the rights to an investment are not viable either. TL:DR - keep things simple. 

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

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

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...

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 Canadian citizen, it will be much more beneficial for you to be domiciled in Ontario.