Cornerstone is a lightweight and easy-to-use Limited Partnership Agreement for next-generation venture capital funds. It was released by VC Lab in October of 2021. Cornerstone is designed to reduce mundane and expensive fund formation activities, removing barriers of entry for new managers and new limited partners to enter and grow the venture capital asset class.
A Limited Partnership Agreement (LPA) is the document that forms and governs a venture capital fund. It specifies the rules between the general partners, who make portfolio investments, and their investors, the limited partners. It serves as the operating manual for the venture business.
Traditionally, the LPA is accompanied by a Term Sheet and a Subscription Agreement, and this set of documents normally runs over a couple hundred pages in length. Cornerstone unifies a Term Sheet, a Limited Partnership Agreement and a Subscription Agreement into one document, and Cornerstone is just 36 pages long.
Cornerstone is currently localized for fund formations in Delaware, United States. In surveying 73 next generation venture capital firms from around the world, 52% have chosen Delaware for their domicile. Additional localizations for Cornerstone are being planned for other popular fund formation domiciles. You can learn more about fund domiciles in this Venture Capital Domicile Report.
How to Use Cornerstone
Cornerstone is designed for a General Partner and Limited Partner to start discussing terms for a new venture capital fund without needing an expensive fund formation lawyer on either side. Here are the three steps to use Cornerstone:
- A General Partner takes the Cornerstone template agreement and customizes plug variables in the Key Economic Terms for a new fund offering.
- The General Partner shares the customized Cornerstone with engaged limited partners for feedback on the terms.
- Once the terms are agreed, the general partner engages with a law firm to form the fund entities using pre negotiated agreement.
The simplified process eliminates billable hours with fund formation attorneys, who often charge an hourly rate in excess of $1,000 USD. VC Lab is making Cornerstone available for free.
Four venture capital firms have used Cornerstone and this three step process to close on capital, and more have started subsequently. More funds are in process to use Cornerstone now, and a few of their experiences are quoted below:
I decided to create my fund in Delaware as a general partner in Latin America, and we selected Cornerstone for our LPA. My investors loved it because it is easy to understand, despite being from outside of the United States, and, for many of them, it was their first investment as an LP. It helped with my closing.David Alvo Verdugo, Impacta VC
I’ve been in fund management for more than a decade before launching my own Fund. Compared to the massive and complex LPAs I have seen in the past, the Cornerstone LPA is dead simple to use. This will enable more high net worth individuals to understand and enter VC as LPs.Kevin Brockland, Indelible Ventures
I was able to edit Cornerstone and send it to my Limited Partners without the help of attorneys. The negotiation was very efficient, and I was able to manage the process in the way that I wanted to.Bade Aluko, White Hibiscus Capital
If you have suggestions, questions or comments, please add them under “Leave a Reply” below. Cornerstone will be updated with new versions semi-annually, and you can download the most up-to-date agreement here.
Legal Innovations of Cornerstone
Cornerstone was written by lawyers for business people, whereas most Limited Partnership Agreements are written by lawyers for lawyers. A number of legal innovations are introduced with the agreement, including:
- Cornerstone consolidates all of the key economic terms into the front of the agreement, saving readers the ability to scan through dozens of pages to find critical information.
- Cornerstone moves complex tax and regulatory language to the back of the agreement, allowing the document to read more clearly and be localized more easily.
- Cornerstone simplifies the operational components of the fund to 13 pages by eliminating definitions of numerous eventualities, leaving multiple decisions at the description of general partners and limited partners.
- Cornerstone introduces concepts of fairness and ethics, adding an optional affirmation for all signatories to pledge support for the Mensarius Oath.
- Cornerstone removes references to specific laws that already govern the agreement and reduces cross referencing, allowing the agreement to be read without needing to refer to other documents.
VC Lab would like to thank everyone for their contributions to this groundbreaking legal agreement. Cornerstone was drafted over five months by VC Lab in conjunction with Rich Gora and Hans Kim. A number of U.S. and global law firms have reviewed and provided feedback on the drafting. Dozens of limited partners and general partners have also contributed feedback and ideas.