![]() The Fund investors grant broad discretion and authority to the GP in managing the Fund, however, the Fund's governing documents (in a limited partnership, the Limited Partnership Agreement) do include important restrictions on GP authority without the investors' consent. In a Fund that is formed as a limited partnership, the GP has the power and authority to manage and act on behalf of the Fund, making investment decisions, signing contracts (e.g., the Investment Management Agreement with the Management Company), filing tax and regulatory filings on behalf of the fund, and deploying the Fund property. In the traditional fund model, the Fund is organized as a Delaware limited partnership, which is structured to include a general partner (e.g., GP entity) and one or more limited partners (i.e., the investors). The GPs usually wrap themselves in a legal entity–most commonly, an LLC (e.g., Junto GP I, LLC), to limit liability and operate through a corporate existence.The GP designation also denotes its role in the traditional fund structure–as the general partner of a limited partnership. The founders of the VC firm are often considered the "VC," but the more precise title for the founders of a VC firm is general partner or GP. So far, we've used the term VC generically, but many different people and entities contribute within VC.” General Partners ("GP") In fact, the VC may qualify as an accredited investor simply by raising a Fund above $5M or being a knowledgeable employee of the Fund (more on this in Part III). A VC isn't even required to be an accredited investor independently. While there are plenty of regulatory hurdles to becoming a VC, there are no required licenses, specific education, or testing requirements. Structures and PlayersĪs we will discuss throughout this series, there are few technical barriers to becoming a VC. Internal Rate of Return ("IRR") is a more accurate metric for evaluatingFund performance than simple multiple calculations, as IRR analysis accounts for the time value of money by (i) starting the clock when the capital is called and (ii) stopping the clock when capital is distributed to the investors. ![]() This allows for investors to avoid having their money lay dormant while the VC identifies investment opportunities.Ĭapital calls are also helpful to the VC, who does not want to start the clock on its internal rate of return by calling capital before it is ready to be deployed. Instead, capital calls are made over the Fund's investment period, which is the period in which the VC is authorized to deploy capital (e.g., 3-5 years). Investors do not typically pay capital commitments at the outset or all at once. Venture Capital funds, or VC funds, are used to pool capital from investors and deploy it into companies identified by the venture capitalist, or VC.Ī venture capital fund is a type of private fund that: (i) holds itself out to investors as pursuing a venture capital strategy, (ii) holds at least 80% of its assets in " qualifying investments" (e.g., equity or cash), (iii) does not hold debt of more than 15% of its aggregate capital contributions and commitments, (iv) the interests of the Fund are not readily redeemable, except in extraordinary circumstances, and (v) is not registered under the Investment Company Act of 1940Īn investor's investment into the VC fund ("Fund") is known as a capital commitment and is made in exchange for an interest in the Fund. Throughout the series, we will discuss: (1) the legal structures and players, (2) the common and important terms, and (3) the regulatory hurdles. Junto allows you to spend your time growing your business instead of worrying about the bill. They offer fixed-fee packages and courses that promote communication, efficiency, and transparency. Junto Law supports emerging founders and funders as they form, fund, and scale their ventures. We’re teaming up with our friends at Junto Law to publish a three-part series on legal (and non-legal) aspects of starting (and running) a venture capital fund.
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