All Questions

If an LP unfortunately passes away, said LP's partnership interest will be handled by the arrangements made with respect to the LP's heirs, executors/administrators of an estate, successors, etc. The LP is responsible for setting these u...

If an LP unfortunately passes away, said LP's partnership interest will be handled by the arrangements made with respect to the LP's heirs, executors/administrators of an estate, successors, etc. The LP is responsible for setting these up. The aforementioned arrangements will vary and can be very custom - additionally each country/state may have different regulations and requirements regarding them. Therefore agreements (the LPA for example) generally remain silent on any specifics.

Generally speaking, a Fund should not enter into a Venture Partner agreement with a company, unless the company is wholly owned by one individual. Services provided to a Fund are typically very personal and delegation is usually unwant...

Generally speaking, a Fund should not enter into a Venture Partner agreement with a company, unless the company is wholly owned by one individual. Services provided to a Fund are typically very personal and delegation is usually unwanted. Attempting to do this also creates additional legal, securities law, and tax complexities.  It is far easier for the Fund to enter into an individual agreement with each relevant person within a company or other type of organization. 

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. 

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.

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.

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…).

As a general matter, a Fund Manager should strictly NOT provide any advice, especially with respect to legal or tax matters. These are highly regulated professions (specifics will vary by country) with specific rules about who, how, an...

As a general matter, a Fund Manager should strictly NOT provide any advice, especially with respect to legal or tax matters. These are highly regulated professions (specifics will vary by country) with specific rules about who, how, and under what type of relationship any such advice may be provided, and crossing the lines opens the door to liability, lawsuits, potentially unauthorized practice of law and more. TL:DR - don't do it. Decile Partners' subject matter experts may provide generalized explanations and/or guidance. If working with Decile Launch, in particular, additional assistance is usually available. However if specific advice is required or requested, then the safest course of action (for the Fund Manager) is for the party in question to engage their own legal or tax experts. Decile Partners can provide referrals on request, of course, and even provide guidance about how best to work with such experts. 

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.