#Legal entity of venture capital company how to#

Some funds employ “placement agents”, but this practice is normally done with larger funds.ĭisclosures - The firm will prepare a Purchase Price Memorandum (PPM). A typical fund will raise anywhere from $10 million to several hundred million dollars. You will need to understand the fund characteristics that different types of investors prefer. Process for Raising the Fundįind Investors - You will need a plan for identifying and pitching to potential investors. Often, the general partnership will also organize one or more separate LLCs to act as managers or advisors to the LLC holding the investment funds. This allows for ownership of the portfolio companies to be spread out strategically among those LLCs. The funds are generally allocated into multiple LLCs. Investment Capital & Advisors (Multiple LLCs) - The general partnership holds all of the funds pledged by investors and called by the company. Further, it allows the management company to work with a single entity holding all of the investment funds. The purpose of this structure concerns operational, tax, and legal implications. The limited partnership purchases and holds the equity interest in the portfolio companies. The investors are generally wealthy individuals, family offices, pension funds, hedge funds, mutual funds, endowments, etc. Limited Partner - The investors organize as an LLC or a corporation, which serves as the limited partner in the partnership. The management company also receives a “carried interest” which is a percentage (usually 20%) of the profits generated by the fund. The management company generally receives between 1.5 - 2% of the total subscribed funds to run the day-to-day operations. These professionals include analysts, accountants, attorneys, and administrative staff. It is normally organized as an LLC with member managers who employ the professionals necessary to raise, manage, and invest the funds. The management company runs the fund and acts as advisor to the portfolio companies. General Partner - The management company (organized as an LLC) is the general partner. A limited partnership is made up of a general partner and a limited partner. General Partnership - A VC fund is generally structured as a limited partnership. Partnerships will have a detailed partnership or limited partnership agreements. An LLC will have a articles of organization and an operating agreement. A corporation will have articles of incorporation and bylaws. Each of these entities must have their own organizational and operational governance documents. Generally, all of the entities will be organized under the law of Delaware. It consists of a maze of business entities organized under state law. The structure of a VC fund can be quite complicated.

Performance Objectives - What objectives does the fund have for portfolio companies? Back to: Business Transactions What is the Legal Structure of a Venture Capital Fund?.

Geography - In what geography will the VC fund invest?.

Sector - In what industries or types of ventures will the VC fund invest?.

Stage - In what stage of startup will the VC fund invest?.

The venture fund may vary depending on a number of factors:

The objective of the managers is to make a profit on investor funds by selling or undertaking an initial public offering with the portfolio companies. The VC fund managers actively take part in the high-level management of these companies. These private companies are growth-oriented businesses who need the investment capital to fund its growth. Types of Venture Capital FundĪ venture capital fund is a business organization that acquires capital from investors to invest directly in a portfolio of private companies. Let’s begin by discussing what a venture capital firm is or does. The process for starting a venture capital fund is difficult and requires a great deal of effort.

#Legal entity of venture capital company how to#

Update Table of Contents How to start a VC fund Types of Venture Capital Fund What is the Legal Structure of a Venture Capital Fund? Process for Raising the Fund Regulatory Process Behind Founding a VC Fund Things to Remember When Forming the Fund How to start a VC fund