VC Fund Formation

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VC Fund Formation

Postby Anonymous User » Sat Feb 17, 2018 5:37 pm

I'm headed to SV biglaw at a chambers "top" venture capital fund formation practice and hoping to learn more about the work. I've seen a lot of threads on TLS discussing fund formation practices, but more on the NYC PE/Hedge Fund side.
I understand generally what the practice area consists of (fund formation, fundraising/fund marketing, fund compliance, etc.), but I was wondering what the day-to-day work looks like and (importantly) exit options with a venture capital fund formation practice area are like. I'm still debating whether I want to take on a more standard Emerging Companies/Start-Up practice vs. a Fund Formation practice.

ithrowds

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Re: VC Fund Formation

Postby ithrowds » Mon Feb 19, 2018 9:38 am

Interested in this also - any info would be appreciated

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deepseapartners

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Re: VC Fund Formation

Postby deepseapartners » Mon Feb 19, 2018 12:36 pm

Caveat that I don't have much experience with VC work, but if you substitute "VC" with "PE," then your exit options are going to be more varied if you do PE M&A because you can leverage your experience into various M&A-preferential in house gigs, whereas your usual options as a PE fund formation lawyer are basically to either to go into a fund or to represent investors directly. I would imagine that emerging company corp work vs VC fund formation work is very similar in that respect.

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Re: VC Fund Formation

Postby Anonymous User » Tue Feb 20, 2018 11:07 am

I'm a former PE fund formation associate. No experience doing VC funds but I have to imagine the day-to-day work is very similar considering VCs are still investment advisers.

Let's say one of your firm's clients is raising a new fund and you're staffed on it. If you're at one of the "top" VC firms, your client has likely raised a million funds already. If that's the case, and this fund is not a brand-new strategy, then what you'll do is start with all the documentation from the last fund they raised with this strategy. I can see VC being slightly less rote than PE here, as the big PE shops tend to just repeat their strategies over and over (Buyout Fund I, II, II, etc. Credit fund I, II, II, etc.), but I imagine VCs are not re-inventing their shop each time they raise a fund. So you'll take VC Fund I and start changing all the documentation to VC Fund II (this will be LPAs, PPMs or OMs, subscription materials, etc). As a junior you'll be responsible for this. Aside from changing names, type of entity, location of entity, etc. you'll also be responsible for stripping/adding concepts as necessary (i.e., will this fund have an LPAC?) for the mid-level or senior to eventually review. The offering materials (PPM/OM) will be the most scrutinized document. This will go through a million changes as it passes from you to the senior to the partner to the client and back again. Countless hours spent revising disclosure such as risks and conflicts, etc, and revising language because they're doing something slightly different this time around. Same drill with the operating documents (LPA, LLCA). As a junior, most of your day-to-day is turning other people's changes and making sure the documents have correct x-refs and definitions and shit like that. As a mid-level/senior, your day-to-day is going to be writing these changes.

Once the fund documentation is complete (i.e. you've finalized the offering materials and the LPA) there won't be much to do until the fund starts accepting subscriptions. Based on the investor base, your job day-to-day will change. If the VC has a bunch of repeat small investors, you likely won't be negotiating over the terms of their investment. But, as a junior, you'll have a million subscription documents to review, and you'll liaise with the investor to make sure they filled them out correctly. If the VC has a smaller number of large investors, you'll likely be involved in negotiating the terms on which they'll invest vis-a-vis a side letter. Again, this is from a PE perspective, but side letter negotiations generally take the form of the investor sending over their form letter, then the fund's lawyers reply back with the PE/VC standard language for each request. This goes back and forth until you can agree on a letter. Regardless of the size/number of investors, as a junior, you are responsible for keeping track of all subscriptions. It's boring, annoying, and tedious. You'll also likely be responsible for creating a side letter matrix or something that keeps track of every provision you have given to investors for this fund in a side letter (which you'll then use to create side letters for the next fund! Yay!).

Closings are probably the easiest part of being a funds attorney. Nothing like the fire drills of M&A. You likely have all your client's signatures way in advance and most of the investors'. You get opinions from your firm and any offshore firms necessary. It really just comes down to deciding that a closing has taken place. Assembling executed documents, etc can be done after the official "closing" so it's usually not a big deal.

There are obviously a hundred other things that might come up with each fund, but these are the basics. I would say my time as a junior was split 40% answering emails from investors/40% turning comments/20% drafting documents for a new fund.

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Re: VC Fund Formation

Postby Anonymous User » Tue Feb 20, 2018 12:13 pm

Most of the junior tasks you mentioned are done by paralegals/staff attorneys at my shop and reviewed by juniors. PE firms are not willing to pay associates to build a matrix.

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Re: VC Fund Formation

Postby Anonymous User » Tue Feb 20, 2018 12:38 pm

Anonymous User wrote:Most of the junior tasks you mentioned are done by paralegals/staff attorneys at my shop and reviewed by juniors. PE firms are not willing to pay associates to build a matrix.


Anon above. Agreed that most of them, especially the matrix, can be done by paralegals. You'll likely do it yourself as a junior the first time, though. And IME our PE clients couldn't care less about fees. All passed on to the investors.

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Re: VC Fund Formation

Postby Anonymous User » Tue Feb 20, 2018 12:49 pm

If you could go back, would you do Fund Formation or would you have rather been a PE deal attorney?
Also, obviously you probably don't have actual experience with this, but if you happen to know - do you think a VC Fund Formation lawyer could lateral to a firm doing a PE Fund Formation (or vice versa) or are the areas different enough that the experience isn't really transferable?

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Re: VC Fund Formation

Postby Anonymous User » Tue Feb 20, 2018 1:14 pm

Anon's long post above is really accurate per my own experience (former PE fund associate, now in-house at big asset manager). I also spent a year or two while in biglaw doing M&A, which has proven to be a huge asset while in-house, as I can do fund formations/fund raises and then also be involved when the fund starts doing deals. I wouldn't go into biglaw and zero in on just fund formation right away - better to get a more well-rounded corporate experience (that is, if your firm is flexible/allows this).

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Re: VC Fund Formation

Postby Anonymous User » Tue Feb 20, 2018 1:48 pm

Anonymous User wrote:If you could go back, would you do Fund Formation or would you have rather been a PE deal attorney?
Also, obviously you probably don't have actual experience with this, but if you happen to know - do you think a VC Fund Formation lawyer could lateral to a firm doing a PE Fund Formation (or vice versa) or are the areas different enough that the experience isn't really transferable?


I lateraled after almost 2 years to do PE M&A/Corporate (this was a tough move to make happen and I had to move to a smaller firm to do so). I didn't touch on exit opps in my original post, but that was the reason for the move. I saw one avenue open to me (in terms of in-house) as a fund formation attorney, and that was being in-house funds counsel at a big shop in NY. I wasn't entirely sure I wanted to help roll out funds products for the rest of my life, so I made the move to do M&A with the hope that it would open a wider variety of in-house roles down the road. Tough to say whether the move was worth it until I actually make a move in-house (I am still at the firm I lateraled to).

The thing to understand is that fund formation work is not transferable - your experience is useful to big PE shops that are constantly raising new funds. There are some exceptions where I've seen associates from the fund formation group go in-house to small PE shops as their first or second legal hire, but, generally, the types of in-house roles for fund formation lawyers are with big asset managers that raise enough funds to warrant in-house legal support. I also saw that most of the lawyers who were more in management roles at our clients (e.g. GC, etc) were from M&A backgrounds, not fund formation (although dedicated fund formation groups have grown like crazy in the past decade so maybe you'll see more management-type lawyers in-house coming from fund formation in the future). That being said, at the end of the day most corporate law is the same drudgery and the lifestyle for fund formation lawyers both at a firm and in-house is pretty great. Plus the pay tends to be pretty high compared to other in-house gigs. Unless you can make the move from M&A to a management-type role in-house, being a fund formation lawyer will probably net you more money in the long run and a better lifestyle in the short run.

To your second question, I think a VC fund formation lawyer would have no problem lateraling to a firm that does PE or Hedge fund formation. It's all under the umbrella of "investment funds" work. As long as you are working on the types of documents I described above and dealing with 40 Act issues, it's probably very similar, especially at a junior/midlevel level.



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