FAQ

Our platform allows you to launch your Syndicate or VC Fund in a quick and fully compliant way.

Please check the scope of our services in a Pricing section.

Syndicates and VC Funds will be registered in Delaware, the USA.

Delaware is one of the most business-oriented States with multiple options for setting-up an investment vehicle. It also offers a business-friendly environment in the field of corporate law and corporate governance.

One of the key features of Delaware law is a possibility to establish Series LLC, which offers unique opportunities for the structuring of investment vehicles (see Question 3 and Question 4).

Furthermore, the cost of establishing and operating investment vehicles in Delaware is relatively cheaper and less time-consuming in comparison to other U.S. States.

Finally, Delaware is known for its tax regime that is favorable for fund managers and investors (see Question 9).

In case Delaware structures are not suitable for your business strategy, we will be glad to contact you and discuss other possible jurisdictions. In this case section ‘Pricing’ will not be relevant and fees will be discussed with you personally.

Funds and Syndicates are two of the most popular structures of investment vehicles and have a lot in common. Both Funds and Syndicates have a limited liability meaning that the personal liability of their investors is limited to the amount of money invested in a Fund or a Syndicate.

However, Funds and Syndicates have different corporate constitutions – Limited Partnership Agreement in Funds and LLC Agreement in Syndicate.

Because of their different legal natures (partnership and corporation), Funds and Syndicates are regulated by different acts and are applied by different legal concepts. This can be illustrated, for example, by the terminology used in relation to investors (Limited Partners in Funds and Members in Syndicate) and managers (General Partners in Funds and Managing Members in Syndicate). However, these legal differences are rather nominal and insignificant in a business sense. The main distinction between these entities relates to their structures (see Question 4).

The main difference between Funds and Syndicates is their internal structure. While Funds are treated as a single entity, Syndicates may be compared to a holding company but where subsidiaries are not fully independent companies.

To put it in more detail, Syndicates consist of master (or umbrella) LLC and one or more Series that are established under master LLC.

Each Series has some characteristics of an independent company: it has its own assets, managers, investment policy, members. And the main thing is that debts and obligations of a particular Series may only be enforced against this Series. This means that a Series is not liable for the debt of its sister Series (or master LLC) and assets of one Series may not be used to satisfy debts of another Series (or master LLC).

This characteristic opens an opportunity for Fund Managers to allocate different portfolio companies (or different funding rounds of a portfolio company) to separate Series. In other words, each series may be used as a separate ‘fund’ with its own corporate documents that define investment strategy, management fee rate, a minimal amount of capital contribution, and other issues.

Furthermore, establishing a Series is a much cheaper and less time-consuming procedure than forming a new company or a Fund.

Compared to Syndicates Funds are ‘single entities’. All Fund’s investments, gains and losses are divided among all its investors proportionally to their investments and a particular investor cannot choose whether he wants to invest in a particular portfolio company or not. Furthermore, funds are used for investments in several portfolio companies (however, it is possible to form a Fund for a single investment).

Therefore, Funds are more appropriate when there are several prospective portfolio companies and it is intended that all investors will participate in all investments of a Fund in a proportion to their respective commitments. And Syndicate is a more appropriate form when there is a need to establish several investment vehicles with different investment objectives and pools of investors.

Syndicate (and its particular Series or Master LLC) may be managed by its members. This is the default option that is established under Delaware Law and it is called members-managed LLC.

In members-managed LLC decisions are taken by a simple majority – the decision of members owning more than 50% of Series’s interest.

It is also possible to form a manager-managed LLC (or its particular Series). However, in that case, LLC Agreement should clearly state that LLC (or its particular Series) is managed by a manager and establish a procedure for how a manager is chosen (or just designate a manager).

Delaware law also allows to have more than one manager of a Series LLC (or its particular Series).

A Fund Manager is an individual  responsible for the implementing Fund’s (or Syndicate’s) investment strategy and managing its investments.

The role of a Fund Manager is performed by a General Partner (in Funds) and a Managing Member (in Syndicates) whose powers and functions are regulated by corporate documents (LLC Agreement or LPA). An admission of investors, consent to the transfer of interest by an investor, representation of a Fund (or a Syndicate) with ‘outsiders’ (service providers, portfolio companies, government authorities) and others may be included.

However, since the primary role of Fund Managers is to manage investments, they are covered by a definition of Investment Advisor and should be registered, unless any exemption applies to them (see Question 7).

An Investment Advisor is a Fund’s (or Syndicate’s) service provider whose role is to provide investment recommendations or conduct securities analysis on a commercial basis.

In the USA, the general rule is that Investment Advisors should be registered. However, there is an exception for Investment Advisors of Venture Capital Funds and Private Funds.

Investment Advisors of these funds may apply for the status of Exempted Reporting Advisor. This status relieves Investment Advisors from registration but obliges them to submit certain reports.

For a Fund (or a Syndicate) to be qualified as a Private Fund or a Venture Capital Fund, it should not propose to make a public offering of its securities and either have less than 100 investors or be limited to solely qualified investors.

Furthermore, there are specific requirements for a fund to be considered as a Venture Capital Fund. The USA legislation has a complete list of such requirements. It includes the following: a fund should show the investors that it pursues venture capital strategy; a fund should hold less than 20% of its capital in not qualifying investments; a fund should not incur leverage in excess of 15% of its capital and other.

Concerning Private Funds, the exception only takes place when a particular Investment Advisor advises solely Private Funds and has in total less than $150 mln. under management in the USA.

Therefore, depending on Fund’s (or Syndicate’s) structure and investment policy, Investment Advisors of both may claim the status of Exempted Reporting Advisor, and, consequently, there will be no need for them to be registered.

In order to sell a Fund (or a Syndicate) a Fund Manager has to register the offer and sale of its securities. However, there are two main exemptions to this rule that are available for Fund Managers.

Under the first exemption (known as ‘Rule 506 B’) it is possible to offer shares of a Fund (or a Syndicate) without registration in the case if following conditions are met:

1. Purchasers of the shares are ‘accredited investors’ (companies with total assets of $5 mln. and individuals with a net worth of $1 mln. or annual income of $200,000); and
2. Offer of the shares is conducted without the use of general solicitation or general advertisement (articles in newspapers, media, and other public means).

This exemption also allows the sale of Fund’s (or Syndicate’s) shares to up to 35 sophisticated investors. Sophisticated investors are those who have sufficient knowledge and experience in financial and business matters to evaluate the investment, but do not have the status of ‘accredited investors’.

The second exemption (‘Rule 506 C’) allows the use of general solicitation or general advertisement. However, Fund Managers should take reasonable steps to verify that all purchasers are ‘accredited investors’ (the first exception allows investors to self-verify their status as ‘accredited’). Such steps may include reviewing bank statements, tax reports, and other documentation.

Both of these exemptions may be used by a Fund Manager only if it (or its associates) were not convicted for violation of securities law (not ‘bad actors’).

Furthermore, Fund Managers should file a special form with the SEC within 15 days after the first sale of Fund’s (or Syndicate’s) share. This form contains brief information about a Fund (or a Syndicate) and its related persons.

*It should be noted that this analysis relates to advertisement of a Fund (or a Syndicate) only to the USA investors. The rules may be different if you intend to advertise a Fund (or a Syndicate) in other jurisdictions than the USA.

Yes, Fund Managers may receive Management Fee.

Management fee is remuneration of a Fund Manager. This fee covers management expenses (salary of management company’s team, rent costs, operation costs and others) as well as costs associated with the provision of investment advice (investment advisory fee).

Management Fee is regulated by Fund’s (or Syndicate’s) corporate documents. The amount of Management Fee may vary from 1.5% to 2.5% per year of total commitments. Furthermore, it is common to include Management Fee reduction provisions so that after the end of the investment period the amount of Management Fee will gradually reduce.

There are no regulatory restrictions on the amount of management fee. However, there is a restriction concerning investment advisory contracts. An Investment Advisor may not receive a performance-based fee unless all investors in a Fund (or a Syndicate) are qualified investors.

Funds and Syndicates formed as Delaware Limited Partnerships and Series LLCs are pass-through entities. This means that Funds and Syndicates do not pay taxes themselves and ‘pass’ tax obligations to their investors. Therefore, investors pay taxes based on their share in Fund’s (or Syndicate’s) income (or losses) for the particular year.

However, a Fund (or a Syndicate) should annually provide each investor with a tax form reflecting this investor’s gains and losses resulting from its participation in a Fund (or a Syndicate). This form is known as K-1 Form.

A Fund Administrator is a person responsible for back-office activities of a Fund (or a Syndicate).

Functions of a Fund Administrator include calculation of Net Assets Value (NAV), preparation of reports for investors and a Fund/Syndicate, calculation and distribution of dividends services, liaising with Fund’s/Syndicate’s service providers, compliance functions, and so on.

The exact scope of Fund Administrator’s functions is defined in a Fund Administration Agreement and may take a separate schedule to list them.

It is possible for a Fund Manager to perform the functions of a Fund Administrator. However, most Funds (or Syndicates) outsource these functions. Outsourcing allows Fund Managers to fully concentrate on their primary role and be confident that other issues are handled by professionals. Furthermore, a well-known Fund Administrator makes a Fund (or a Syndicate) more reliable in the eyes of investors.

We provide simple, straightforward pricing for setting up Syndicates and VC Funds. Learn more about our prices here.

The set up costs can be deducted pro-rata from the investors in the Syndicate of Fund.

In case you need additional services not mentioned in the Pricing section, please address your issue via the contact form and we will get back to you.