Download Cornerstone v3
The Cornerstone LPA, the easy-to-use limited partner agreement for venture capital funds, has been upgraded to Version 3.
Version 3 of the Cornerstone LPA incorporates the latest SEC regulation changes and supports both American and European waterfall structures. The upgrades reflect extensive feedback, enhancing the core agreement to meet evolving industry standards. It is recommended that everyone upgrade.
Having gained widespread acclaim and adoption, the Cornerstone LPA is fast becoming the standard agreement for emerging fund managers and has been reviewed by leading fund formation attorneys and endorsed by numerous limited partners.
As regulatory and market circumstances change, the Cornerstone is continuously updated to reflect best practices for managers and limited partners alike.
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Cornerstone Improvements
The Cornerstone LPA has been updated to include options for distribution methods, compliance with the latest SEC regulations, and other changes required by managers.…
Category: Venture Legal
The world of Venture Capital is often described as a ‘Black Box’ by founders, entrepreneurs, and onlookers. This complexity escalates significantly for those attempting to raise a VC fund, where navigating the intricate realms of domiciles, Limited Partnership Agreements (LPAs), and fund structures becomes a formidable challenge. One of the issues faced by fund managers is how to choose a domicile. This entire process is shrouded in mystery and fund managers often end up spending most of their time researching the many intricacies of this process rather than engaging with LPs.
Domicile: The legal residency of the fund.
Limited partners (LPs): Investors in the fund.
Limited partnership agreement (LPA): Agreements which set forth the parameters of the partnership.
For example:
Funds must return 100% of the investors capital, thereafter the remaining profits are split 80:20, (called ‘Carry’).…
In countries around the world, there are rules and regulations that govern pitching limited partners (LPs), the investors in venture capital funds. Publicly pitching for investment, called General Solicitation, is commonly regulated, and it is important for new managers to understand the local rules and regulations.
This is a practical overview of general solicitation for venture capital fund managers. This overview is not legal advice, and fund managers are encouraged to read the Legal Disclaimer.
Before you launch a web site, post on social, or send out a presentation, make sure you understand the general solicitation laws.
Quick Guidelines to Avoid General Solicitation
What is General Solicitation?
“General solicitation” refers to raising capital by making public statements and soliciting interest from strangers.…
The United States Security and Exchange Commission (SEC) has updated its investment rules on Wednesday, August 23rd, 2023, targeting transparency, fairness, ethics, and accountability in private equity and venture capital. These changes aim to standardize practices within the industry, leading to varied feedback from venture capitalists, fund managers, limited partners, and other stakeholders.
VC Lab and Decile Group already comply with these new standards. Ethical organizations should always aim to exceed legal mandates, which generally set a low bar. Most VC Lab alumni funds are in alignment with these regulations, as well.
In contrast, many other firms and funds will need to make adjustments to their operations, from how they close Limited Partners to how they operate their fund governance. The full implications of the changes will take months to understand, as there is a lot of “gray area” in the new regulations. …
Over 60% of new venture capital managers are choosing Delaware as the domicile for their firms and funds. As Europe becomes more regulated and expensive, the UK faces Brexit-related isolation, and traditional tax havens like the Caymans grow costly due to new Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, Delaware shines. Its clear regulatory framework, cost-effectiveness, and stability make it the preferred choice for venture capitalists globally.
Why is Delaware the Top Domicile
Cost-effectiveness:
While some jurisdictions offer various incentives for venture capitalists, Delaware stands out for its cost-effectiveness. The state’s corporate franchise tax structure is favorable for venture funds of all sizes, and the cost of doing setting up and running a fund is three to five times less expensive than most other domiciles.…
Fund formation attorneys are practitioners in the venture capital (VC) industry who facilitate the creation and operational organization of investment funds. Their work includes drafting and scrutinizing fund agreements, overseeing regulatory compliance, aiding in due diligence procedures, and providing advice on tax matters. While they play a role in forming the legal structure of a fund and addressing potential risks and conflicts, their engagement should be thoughtfully managed due to the high costs associated with their services. Their involvement forms a part of the broader field known as venture legal.
When to Hire the Attorneys
Do not retain fund formation attorneys or back office providers until you have real commitments from limited partners.
One common mistake new venture capital managers often make is rushing to engage fund formation attorneys before their fund Thesis is even proven viable.…
The Cornerstone LPA, the easy-to-use limited partner agreement for venture capital funds, has been upgraded to Version 3.
View the changes and download here.
Cornerstone V3
Version 1 and Version 1.1 of Cornerstone have been used by hundreds of funds around the world, reviewed by dozens of fund formation attorneys and signed by hundreds of limited partners. The agreement has also been localized to multiple fund domiciles.
The widespread adoption of the Cornerstone has provided feedback and ideas to improve the core agreement template. Each week, a diverse team of formation professionals and attorneys discuss the feedback and ideas to validate their merits, ultimately drafting any viable enhancements. Version 2 captures most of these improvements.
The following contains an outline of the improvements, instructions to upgrade from previous versions, a detailed change log and the Agreement itself.…
A Limited Partner Advisory Committee (LPAC) is a committee that plays an oversight role in the management of a venture capital fund and related entities. The exact roles, responsibilities and authority of a LPAC are defined in the Limited Partners Agreement (LPA) that governs the operations of a fund. The most common function of an LPAC is to resolve potential conflicts of interest and waive certain restrictions in the LPA. The LPAC normally consists of members determined by the General Partner and the Limited Partners of the fund.
Why is the LPAC important?
As a venture capital firm grows, there is an increased likelihood of running into potential conflicts of interest or issues related to fiduciary duties that need approval. The LPAC provides the General Partner with a direct line of communication to get approval necessary to resolve matters and to engage in the activity with more transparency under the LPA.…
This document is a version behind current. Please reference Cornerstone LPA v2.0
CORNERSTONE LPA V2
The Updated Cornerstone LPA further improves on key terms to give fund managers more flexibility. VC Lab has additionally consolidated essential sections while enhancing the overall readability of the document.
Key Updates:
KEY ECONOMIC TERMS
No major updates have been made to previous key definitions in this section.
Newly added definitions are:
Fund Thesis
Sector
Stage
Geography
Management Fee
As requested by fund managers, we’ve added a flexible ‘cascading management fee structure’ while improving readability
ARTICLE 2 – CAPITAL ACCOUNTS AND PARTNERS
2.2.2a – Capital Contributions
Removed post investment capital contribution limitations giving fund managers the option and flexibility to call capital post-investment period
2.3 – Default
Updated to enable GPs to take more actions regarding defaulting LPs
2.5 – Additional Limited Partners
Updated to enable GPs to bring in additional LPs after the close
Requiring said LPs to be on the same capital call schedules as other LPs and partners
ARTICLE 4 – OPERATIONS
4.1 – Investment Objectives
Improved follow-on investment language
4.3 – Authority of GP; Key Individuals; Conflicts of Interest; Advisory Committee
Tightened up conflicts of interest language
Flexibility to follow on investments with Special Purpose Vehicles (SPV)
4.92 – Management Fee
Update to payable management fees
ARTICLE 7 – SUBSCRIPTION
Added new Cornerstone subscription section
Conjoined from multiple sections to clearly define here
ARTICLE 8 – MISCELLANEOUS
Consolidated key terms:
8.2 Power of Attorney
8.3 Side Letters
8.4 AML and Combating the Financing of Terrorism
VC-Lab-Cornerstone-LPA [.PDF]Download…
The time has come for change in venture capitalAdeo Ressi
“The insane levels of complexity in the venture capital legal stack are excluding talent and wealth from entering the asset class,” says Adeo Ressi, CEO of VC Lab and the Founder Institute, who is also the Founding Member of TheFunded. “The documents are unreadable. Unless you are a high-paid lawyer, few understand what they are signing.”
VC Lab has re-written the main agreement used in fund formation, the Limited Partner Agreement (LPA). The new template, called Cornerstone, is a lightweight and easy-to-use template that can get fund managers started negotiating terms with Limited Partners, ahead of engaging high-priced fund formation attorneys. In a matter of minutes, fund managers can customize the Agreement and then immediately start negotiating terms with Limited Partners. …
Cornerstone by VC Lab is a lightweight and easy-to-use Limited Partnership Agreement (LPA) designed to simplify investing in the venture capital asset class by reducing the use of high-priced fund formation attorneys. Venture capitalists starting a new fund can customize and negotiate investment terms without engaging a law firm.
The Cornerstone Agreement is short, easy to read and easy to customize. The economic terms of the fund are clearly laid out in the beginning of the Cornerstone Agreement, and General Partners can customize certain terms to fit their fund’s needs. On a high level the process is as follows:
A General Partner takes the Cornerstone Agreement and customizes plug variables in the Key Economic Terms for a new fund offering.The General Partner shares the customized Cornerstone Agreement with potential Limited Partners for feedback on the terms.Once…
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.…