Venture Share is a template agreement for venture capital firms to quickly engage top Venture Partners worldwide. The following is an outline of the topics covered:
- Venture Partners are part-time members of a venture capital team.
- Venture Partners are compensated with carried interest in a fund.
- Venture Partners help with 5 types of activities at a fund: executive functions, fundraising, strategic, operating and portfolio assistance.
- Venture Partner compensation ranges based on the type of activity and the seniority of the individual.
- There are 4 steps to negotiate a Venture Partner engagement using Venture Share.
- Download the Venture Share Agreement to engage and compensate Venture Partners.
A Venture Partner is a part-time team member of a venture capital firm, providing strategic, operating and portfolio support. Venture Partners are experts in a field, and they are compensated with a share in the upside from venture capital firms, called carried interest.
VC Lab has developed a free Venture Share Agreement (see below) that is designed to be used by venture capital firms and Venture Partners alike to quickly start working together. The template agreement is designed to specify the duties and compensation of a Venture Partner by checking boxes.
Venture Partner Model
Venture Partners are normally compensated with carried interest, versus receiving a salary. Carried interest or carry is generated from the fund performance, and it aligns incentives well, since Venture Partners only get compensated when the fund has positive returns. Here is an example to explain how it works.
In this hypothetical situation, there is a Venture Partner with 5% carry in a $10 MM fund. The fund has 20% carry from the limited partners, which are the investors. The fund returns $30 MM, and all returns over $10 MM have the carry of 20% deducted. So, we take 20% of the $20 MM, which is $4 MM, and we then take 5% of $4 MM for the Venture Partner, which is $200,000. In this hypothetical, a 5% Venture Partner position will earn $200,000.
Fund models commonly project between 5x and 7x, which is greater than the 3x above. A Venture Partner will normally put in a few hours per week over a couple of years, and then get paid over ten years as portfolio companies exit in the fund.
Venture Partner Activities
There are five major types of activities for Venture Partners defined in the Venture Share Agreement:
Executive Venture Partner assists with the management of General Partner:
- Complete due diligence on potential investment opportunities.
- Expand branding on social media and help with the overall exposure of the fund.
- Help complete investments into target portfolio companies.
- Serve as a director or advisor to target portfolio companies.
- Source deals from pre-agreed networks and channels.
Fundraising Venture Partner assists General Partner with fundraising activities:
- Coordinate follow-up between interested investors and General Partner.
- Create awareness of the Fund among desired target audiences.
- Identify contacts that are suitable for the Fund’s fundraising pipeline.
Strategic Venture Partner provides General Partner with credibility by providing their knowledge and expertise in an industry or subject matter:
- Advise General Partner on strategic matters in the Venture Partner’s area of expertise.
- Identify publicly they work with General Partner.
- Share news and information with their relevant networks to help General Partner.
Operating Venture Partner provides day-to-day assistance with activities related to the management and operations of the Fund, which may include marketing, accounting, finance, legal, diligence or other back office support:
- Assisting General Partner to increase the value of the Fund and support any stakeholders.
- Provide back office support.
- Respond to inquiries from General Partner.
A Portfolio Venture Partner works on one or more deals where they are actively involved in the management of the investment.
- Support the onboarding and growth of a portfolio company in the Fund.
Venture Partner Compensation
Venture capital firms have a range of compensation for the different types of activities performed by Venture Partners. VC Lab surveyed a few hundred venture capitalists to identify the generally accepted ranges, which is used in the Venture Share Agreement:
Venture Partner Compensation with the Venture Share Agreement
|Base Carry||Middle Carry||Advanced Carry|
|Help Monthly||Help Weekly||Help Daily|
The base, middle and advanced carry levels relate to the time commitment of the Venture Partner, as well as their seniority.
Venture Partner Negotiation
The Venture Capital Firm and the Venture Partner can quickly agree on core economic terms using the Venture Share Agreement. There are four steps.
- First, select the relevant activities that a Venture Partner will perform (like above).
- Next, look at the “Venture Partner Compensation Guidelines” table for the highest category of any activity, such as Operating or Executive.
- Then, determine if the Venture Partner is helping monthly (Base Carry), weekly (Middle Carry) or daily (Advanced Carry).
- Lastly, decide on the years of vesting for the carry, the duration of the vesting cliff and whether expenses will be reimbursed.
Venture Share Agreement
The Venture Share Agreement is a free template to quickly structure a Venture Partner relationship. It can not be signed until all of the entities are formed. It can be used for negotiation before forming the entities.
Version 1 of the template focused on a United States domiciled fund in Delaware is available below:
This template is designed to be used only in coordination with your Fund’s attorney, who will determine if it is suitable for your particular circumstances. Decile Partners customers should contact their fund operations team for assistance.
Frequently Asked Questions
Can I issue shares to Venture Partners after the first close date?
Yes, but there may be changes to the valuation of the units if you wait too long. Generally, we recommend distributing carry within three months of the first close to avoid any issues with valuation changes.
How much carry should I issue to a Venture Partner?
Sections C and D of the template Venture Share Agreement are intended to provide guidance regarding how much carry should be issued to Venture Partners. You could also use time to determine the amount of carry that should be issued to a Venture Partner.
Note, because the template Venture Partner Agreement does not contemplate issuing phantom carry, you cannot use this agreement to issue deal by deal carry. If you intended to issue deal by deal carry, please reach out to VC Lab.
What should the vesting schedule be for a Venture Partner?
Four years with a one year cliff is typical, however you can specify a bespoke vesting schedule with each Venture Partner depending on their anticipated role and involvement with the GP entity.
Should my Venture Partner make an 83(b) election?
We will defer to your personal tax adviser, however typically an 83(b) election is made in connection with property subject to a substantial risk of forfeiture. A substantial risk of forfeiture may be established only through a service condition (such as a requirement for an employee to work for a specified period to become vested) or a condition related to the purpose of the transfer (such as a performance-based condition, for example, the attainment of a certain share price).
In the Venture Share Agreement, Venture Partners are shareholders in the General Partner entity for compliance with U.S. 409a tax regulations. The Venture Share Agreement does not contemplate issuing “phantom carry.” Phantom carry refers to an arrangement by which the recipient of the phantom carry owns no interest in the entity, but instead has a contractual right to profits. Issuing phantom carry has a potential tax impact as it involves paying the carry recipient deferred compensation, which could result in potential 409A issues. Read more about deferred compensation and 409(A) here and here.