Fund Operations

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. 

Not yet. There are several privacy, ethical and business issues with this approach that would need to resolved before rolling a feature like this out. For example, the portfolio company many not want this to occur because they typically ...

Not yet. There are several privacy, ethical and business issues with this approach that would need to resolved before rolling a feature like this out. For example, the portfolio company many not want this to occur because they typically want to control this information. Also, though there is standardization with regards to the valuation policies of Decile Partner firms, that's not the case for other firms.

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. 

This is by design. If one were to specify every action that could or could not take place in limited operations mode, you would end up with at 200+ page document filled with legalese. Long legal agreements filled with legalese create a l...

This is by design. If one were to specify every action that could or could not take place in limited operations mode, you would end up with at 200+ page document filled with legalese. Long legal agreements filled with legalese create a lot of leverage for lawyers and Limited Partners. Sections 2.2.2 and 4.9.2 of the Cornerstone LPA cover that that the Manager will not be able to draw management fees or call capital during Limited Operations Mode. 

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/