Glossary - Sydecar

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What is a 3(c)(1) Fund?

3(c)(1) Funds (which make up the majority of venture capital funds) are privately traded funds that are exempt from certain registration and reporting requirements with the SEC (under the Investment Company Act of 1940). 3C1 Funds can only accept 100 or 250 investors depending on the amount raised, and must invest primarily in private companies.

What is a 3(c)(1) Fund?

What is a 3(c)(7) Fund?

The 3(c)(7) exemption allows certain qualifying private funds to avoid certain SEC regulations, including registration and regular disclosure. 3(c)(7) funds can only accept Qualified Purchasers as investors, and must demonstrate that they do not plan to IPO.

What is a 3(c)(7) Fund?

What is a 409A Valuation?

409A valuation is a method of valuing a private company based on its securities, generally including common stock, preferred stock, and convertible securities. 409A valuations typically occur when a private company is planning to go public or get acquired, although valuation reporting comes into play at other points in a startup's lifetime as well. The process for performing a 409A Valuation generally involves the following steps: Determine the type of security being valued Gather financial and other relevant information Identify comparable companies and transactions Estimate the discount or premium to apply to comparable company/transaction data Develop an implied common share value per unit at the valuation date Calculate the value of the preferred shares in question

What is a 409A Valuation?

What is a 506(b) Fund?

Regulation D Rule 506(b) is a provision under the U.S. Securities and Exchange Commission (SEC) that allows companies to raise an unlimited amount of capital without registering the securities offering with the SEC. Key features include: Unlimited Capital Raising: Issuers can raise an unlimited amount of capital under Rule 506(b). Accredited Investors: Managers or deal sponsors can sell securities to 99 or 250 accredited investors and up to 35 non-accredited investors who meet certain sophistication standards. Purchasers can self-verify their accreditation status; GPs aren't responsible for verifying accreditation. Information Requirements: Companies must provide non-accredited investors with disclosure documents that generally contain the same type of information as provided in registered offerings. No General Solicitation or Advertising: Issuers are not allowed to use general solicitation or advertising to market the securities. The company must have a pre-existing relationship with the investors. Restricted Securities: Securities sold under Rule 506(b) are considered restricted, meaning they cannot be freely traded in the secondary market after the offering. Filing Requirements: Companies must file a Form D with the SEC within 15 days after the first sale of securities in the offering. State Securities Laws: While Rule 506(b) offerings are exempt from federal registration, they are still subject to state securities laws, which vary from state to state.

What is a 506(b) Fund?

What is a 506(c) Fund?

Rule 506(c) permits issuers to broadly solicit and generally advertise an offering, provided that: All purchasers in the offering are accredited investors The issuer takes reasonable steps to verify purchasers' accredited investor status Certain other conditions in Regulation D are satisfied ---

What is a 506(c) Fund?

A

What is AML?

Anti-Money Laundering ("AML") is the execution of transactions to eventually convert illegally obtained money into legal money. AML activities aim to fight money laundering by establishing processes, policies, and enforcement of regulations and laws that require businesses to actively monitor the entities with whom they do business. They target such practices as market manipulation, illegal goods trading, tax evasion, bribery, and other forms of financial corruption under the secrecy act.

What is AML?

What is an Accredited Investor?

As defined by the SEC, an accredited investor is an individual who meets one of the following requirements: Individuals with annual income over $200K (individually) or $300K (with spouse or spousal equivalent) in each of the last 2 years and an expectation of the same this year Individuals with net assets over $1 million, excluding the primary residence (unless more is owed on the mortgage than the residence is worth) An institution with over $5 million in assets, such as a venture fund or a trust An entity made up entirely of accredited investors SEC- and state-registered investment advisers Exempt reporting advisers filing with the SEC Individuals with certain professional certifications (Series 7, Series 65, and Series 82 license) "Family Offices" with over $5 million in assets under management and their "family clients" Any entity with over $5 million in investments and that was not formed for the specific purpose of investing in the securities offered

What is an Accredited Investor?

What is an Allocation?

Allocation refers to the amount a person or fund is able to invest in a given company. *Example: A company may be raising $500K, and have offered a specific investor the right to invest $50K.*

What is an Allocation?

Allocation refers to the amount a person or fund is able to invest in a given company. *Example: A company may be raising $500K, and have offered a specific investor the right to invest $50K.*

What is an American Waterfall?

An American waterfall is a structure under which a fund manager receives carried interest on a deal-by-deal basis, prior to fund investors receiving their initial money back. This is sometimes referred to as a deal-by-deal waterfall and is more favorable for the fund manager. This is the opposite of the European waterfall structure, which is the more common structure in VC.

What is an American Waterfall?

What is AUM?

Assets under management (AUM) is the total market value of the investments that a person or entity handles on behalf of investors. AUM fluctuates daily, reflecting the flow of money in and out of a particular fund and the price performance of the assets. Funds with larger AUM tend to be more easily traded. A fund's management fees and expenses are often calculated as a percentage of AUM. ---

What is AUM?

B

What are Blocker Structures?

Blocker structures are corporations that effectively "block" taxable income at the corporate level for U.S. federal, state and local income tax purposes. Most commonly they are U.S. corporations that absorb tax. Taxable income passed through on a Schedule K-1 by a portfolio company generally falls into the category of income "effectively connected with a U.S. trade or business" (ECI) for foreign investors and unrelated business taxable income (UBTI) for U.S. tax-exempt investors. A blocker structure prevents the flow-through of ECI to the investor; however, the blocker corporation will be fully subject to U.S. taxation.

What are Blocker Structures?

What are Blue Sky Fees?

Blue Sky laws are US state-level regulations established as safeguards for investors against securities fraud. Issuers of securities must register in each state where they wish to do business. Blue Sky filing fees vary by state.

What are Blue Sky Fees?

What is a Beneficial Owner?

A ultimate beneficial owner (UBO) is a person who is the primary beneficiary when an institution initiates a transaction. Beneficial ownership is distinguished from legal ownership, though in most cases, the legal and beneficial owners are one and the same. The threshold for beneficial ownership may vary between jurisdictions, but typically falls in the range of 10–25%. For SPVs formed in the state of Delaware (as those on Sydecar are), a ultimate beneficial owner is anyone who owns over 25% of the SPV.

What is a Beneficial Owner?

What is a Benefit Plan Investor?

Benefit Plan Investors are typically entities that manage money from a retirement plan or employee benefit package. A "Benefit Plan Investor" manages: An "employee benefit plan" (as defined in Section 3(3) of ERISA), that is subject to part 4 of Title I of ERISA, OR A "plan" (as defined in Section 4975(e)(1) of the Code), that is subject to Section 4975 of the Code

What is a Benefit Plan Investor?

What is a Bridge Round?

An interim financing round intended to keep the company afloat until the next, larger financing round.

What is a Bridge Round?

An interim financing round intended to keep the company afloat until the next, larger financing round.

What is a Broker-Dealer?

A broker-dealer is a firm or individual responsible for purchasing securities for its customers as well as on its own behalf. In the context of venture capital, broker-dealers may help companies fundraise from investors and take a transaction fee for doing so. In order to legally take brokerage fees, broker-dealers are required to register with both the SEC and FINRA and pass a certification exam. ---

What is a Broker-Dealer?

C

What does Cap/Uncapped Mean?

A "cap" refers to the valuation cap. When entrepreneurs and investors agree to a capped round, this means that they place a ceiling on the valuation at which investors' notes convert to equity. An "uncapped" round means that the investors get no guarantee of how much equity their money purchases.

What does Cap/Uncapped Mean?

What is a Cap Table?

A capitalization table (or "cap table") is a simple spreadsheet that lists all the owners of your company, their percentage ownership in the company, and their equity. It can be used to determine how much ownership each shareholder has and what it would be worth if the business is sold. The cap table is one of the most valuable tools for venture-backed companies because it enables them to keep track of investor dilution over time.

What is a Cap Table?

What is a Capital Call/Drawdown?

A capital call is the process a GP, deal lead, or fund administrator uses to request funds from investors or LPs. Capital calls typically occur when a fund or SPV is going to make an investment or pay certain expenses. In most cases, LPs will fund a portion of their overall commitment when they sign their investment docs, known as the "initial drawdown."

What is a Capital Call/Drawdown?

What is a Carry Share?

A carry share is the process by which a deal lead shares a portion of their carried interest with another individual who has contributed to managing the deal. This is done by executing a carry share agreement. The individual receiving the carry share must have contributed to the management of the deal, including deal sourcing, due diligence, administrative or portfolio support. An individual may not receive carry solely for driving capital to a deal unless they are a registered broker-dealer.

What is a Carry Share?

What is a Clawback?

A clawback is the refund or repayment of money that has already been contributed. In venture capital, a clawback obligation is when an adviser has to return a carried interest amount that exceeds the carried interest percentage provided in a fund agreement. Excess carried interest occurs when (1) a fund is using an American waterfall where distribution happens on a deal-by-deal basis and (2) some deals overperformed while other deals in the fund underperformed.

What is a Clawback?

What is a Control Person?

A Control Person refers to a director or executive officer of a licensee or a person who has the authority to participate in the direction, directly or indirectly, of the management or policies of a licensee. Control persons include senior managers, members of the board of directors, and officers such as the CEO and CFO.

What is a Control Person?

What is Carried Interest/Carry?

Carried interest is a share of any profits that the fund lead receives as compensation regardless of whether they contribute any initial funds. Carried interest acts as a type of performance fee, and motivates the fund's overall performance. However, carried interest is often only paid if the fund's returns meet a certain threshold.

What is Carried Interest/Carry?

What is Common/Preferred Stock?

Common stock is a security that represents ownership in a corporation. Holders of common stock elect the board of directors and vote on corporate policies. Venture capital firms are issued preferred stock, rather than common stock. Preferred stock comes with certain rights attached — it generally has dividends paid out to its owners before common stock and has priority in a liquidation event, but usually does not have voting rights.

What is Common/Preferred Stock?

What is Convertible Debt/Note?

Convertible debt (aka convertible notes) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value. Convertible debt allows startups to raise money while delaying valuation until the company is more mature. We support three common methods for calculating interest: Per annum — calculates daily interest using the actual number of days in the year Actual/360 — calculates daily interest using a 360-day year Actual/365 — calculates daily interest using a 365-day year ---

What is Convertible Debt/Note?

Who are Co-Investors?

Co-investors are the other investors participating in the round. This includes venture capital firms or well-known angel investors.

Who are Co-Investors?

Co-investors are the other investors participating in the round. This includes venture capital firms or well-known angel investors.

D

What is a Deal Memo?

An investment deal memo is a document that summarizes the startup and the opportunity behind it in a concise, single-page format. It's typically used by investors, startup scouts, and startup entrepreneurs during the fundraising process. A deal memo provides context for the major assumptions behind your model for success, what is driving those assumptions, and how you will know if they are correct.

What is a Deal Memo?

What is a Discount?

When convertible notes or SAFEs convert into equity, they do so at a certain price per share. To incentivize and reward early investors, convertible notes or SAFEs often come with a discount, meaning they convert into shares at a price per share that is lower than the price per share paid by new investors. The Discount Price is the price per share of the Standard Preferred Stock sold in the Equity Financing multiplied by the Discount Rate (usually around 80%).

What is a Discount?

What is a Down Round?

A down round refers to the scenario where a startup raises a subsequent round of funding at a lower valuation than a previous round. ---

What is a Down Round?

A down round refers to the scenario where a startup raises a subsequent round of funding at a lower valuation than a previous round. ---

What is DPI (Distributions to Paid-In Capital)?

Distributions to Paid-In Capital (DPI) is a key fund performance metric that shows how much money a fund has returned to investors compared to how much they've contributed. A DPI of 1.0x means investors have received back exactly what they put in; anything above that indicates profit. Unlike metrics based on unrealized value, DPI reflects actual cash returns. Formula: DPI = Total Distributions ÷ Paid-In Capital

What is DPI (Distributions to Paid-In Capital)?

E

What is a European Waterfall?

In a European waterfall, the fund manager only receives their portion of carried interest after the fund investors have received both their initial capital back, as well as their preferred return. This is the most common waterfall structure in VC, as opposed to the American waterfall.

What is a European Waterfall?

What is an Exempt Reporting Adviser?

An exempt reporting adviser (ERA) is an adviser to "qualifying VC" funds that registers with FINRA and the SEC using the short-form Form ADV.

What is an Exempt Reporting Adviser?

An exempt reporting adviser (ERA) is an adviser to "qualifying VC" funds that registers with FINRA and the SEC using the short-form Form ADV.

What is an Exit?

An exit is when a company either goes public (via IPO) or gets acquired by another company. Exits are notable for venture investors because they are typically accompanied by a liquidity event (distribution of cash or stock to investors). ---

What is an Exit?

What is Effectively Connected Income?

Non-U.S. investors that are engaged in a trade or business in the United States are taxed on their income that is "effectively connected" with that business, often referred to as "effectively connected income" or ECI. Non-U.S. investors that are engaged in a U.S. trade or business are required to file U.S. tax returns. To avoid ECI, the fund cannot invest in flow-through operating entities, except through a blocker structure.

What is Effectively Connected Income?

F

What is a Family Company?

"Family company" means a company that is owned, directly or indirectly, only by or for 2 or more natural persons who are related as siblings or spouses (including former spouses), or direct lineal descendants by birth or adoption, spouses of such persons, the estates of such persons, or foundations, charitable organizations, or trusts established by or for the benefit of such persons.

What is a Family Company?

What is a Family Office?

A family office is an investment management company that serves one high-net-worth family. Family offices frequently invest in real estate, public markets, and private equities. Family office participation in venture investing is quickly increasing.

What is a Family Office?

What is a Fund of Funds?

A fund-of-funds is a pool of capital that is aggregated to invest into many other venture funds. A fund-of-funds allows LPs to gain greater exposure to venture capital investments without having to individually meet the minimum commitment for every fund they want to participate in. Note: fund-of-funds incur an additional layer of fees (carried interest and management fees) that could be avoided if you were to invest into a typical venture fund directly. ---

What is a Fund of Funds?

What is Form ADV?

Form ADV is the uniform form used by investment advisers to register with both the SEC and state securities authorities. The form consists of two parts, both of which are available to the public on the SEC's Investment Adviser Public Disclosure (IAPD) website.

What is Form ADV?

G

What is a General Partner/Deal Lead?

A general partner (known as a "GP") or deal lead is a manager of a venture fund. GPs analyze potential deals and make the final decision on how a fund's capital will be allocated. General partners get paid through management fees, carried interest, and distributions from the fund.

What is a General Partner/Deal Lead?

What is a GP's Lead Commitment?

This refers to how much money the GP themselves is investing into the deal. This is also referred to as "skin in the game." ---

What is a GP's Lead Commitment?

This refers to how much money the GP themselves is investing into the deal. This is also referred to as "skin in the game." ---

What is General Solicitation?

General Solicitation is the process of offering securities to the public. Practically speaking, general solicitation allows VCs to raise money for an investment vehicle (SPV or fund) from individuals that they don't have a pre-existing relationship with. This includes marketing the investment opportunity on social media, websites, television, radio, or any other public channel. General solicitation is only allowed for funds that operate under Rule 506(c).

What is General Solicitation?

I

What are Information Rights?

Information rights dictate what company data (such as financial details) an investor has the rights to access or request. This type of advanced right is typically only granted to larger investors (dictated by an ownership percentage). If these rights are granted, they will be granted to the SPV rather than the individual investors who own a stake in the SPV.

What are Information Rights?

What is an Investment Instrument?

An investment instrument is any type of financial arrangement that provides the holder or recipient with the promise of earning some sort of return from that investment. ---

What is an Investment Instrument?

An investment instrument is any type of financial arrangement that provides the holder or recipient with the promise of earning some sort of return from that investment. ---

What is Individual Income?

For purposes of investor accreditation and qualification, "individual income" means adjusted gross income as reported for U.S. federal income tax purposes, less any income attributable to a spouse or spousal equivalent or to property owned by a spouse or spousal equivalent, increased by certain amounts including: tax-exempt interest income, losses claimed as a limited partner in a limited partnership, deductions claimed for depletion, and amounts by which long-term capital gains income was reduced.

What is Individual Income?

What is Internal Rate of Return (IRR)?

Internal Rate of Return (IRR) is a percentage metric that shows the annualized return that a fund has earned from its portfolio companies. Gross IRR ignores fees paid to the manager (carry and management fee), while Net IRR calculates the return to LPs once those fees have been factored in. IRR is a helpful tool to analyze funds across different vintages, since it takes into account the amount of time it took for a fund to earn returns.

What is Internal Rate of Return (IRR)?

What is the Investment Advisers Act of 1940?

The Investment Advisers Act of 1940 is a U.S. federal law designed to regulate and supervise the activities of investment advisers. It mandates the registration of investment advisers with the Securities and Exchange Commission (SEC), and emphasizes transparency and ethical practices. The Act mandates investment advisers to act in their clients' best interests, uphold fiduciary duties, and ensure full and fair disclosure of material facts.

What is the Investment Advisers Act of 1940?

J

What is Joint Income?

For purposes of investor accreditation and qualification, "joint income" means adjusted gross income as reported for U.S. federal income tax purposes, including any income attributable to a spouse or spousal equivalent or to property owned by a spouse or spousal equivalent, increased by certain amounts including: tax-exempt interest income, losses claimed as a limited partner in a limited partnership, deductions claimed for depletion, and amounts by which long-term capital gains income was reduced. ---

What is Joint Income?

K

What is a Knowledgeable Employee?

"Knowledgeable employee" means: An executive officer, director, trustee, general partner, advisory board member, or person serving in a similar capacity of a private fund or its management company; OR An employee of a private fund or its manager (other than one performing solely clerical, secretarial or administrative functions) who participates in the investment activities of such fund and has been performing such functions for at least 12 months.

What is a Knowledgeable Employee?

What is KYC?

Know Your Customer ("KYC") is a standard due diligence process used by financial institutions and other financial services companies to assess and monitor customer risk and verify a customer's identity. KYC ensures that a customer is who they say they are. ---

What is KYC?

L

What are Look-Through Rules?

Look-through rules, as established by Section 3(c)(1) of The Private Investment Company Exclusion, pertain to the limit on the number of investors that a venture fund can accept. The rules dictate that any company that invests in a venture fund can be counted as a single investor, unless the company owns more than 10% of the fund — in which case the fund must "look through" and count all shareholders in the company towards their investor limits.

What are Look-Through Rules?

What is a Liquidation Preference?

Liquidation happens when a business goes bankrupt — its assets are sold and the money is distributed to credit holders and then to shareholders. Liquidation preferences determine who gets paid what and when during these events.

What is a Liquidation Preference?

What is an LP/Investor?

A limited partner is a part-owner of a company whose liability for the firm's debts cannot exceed the amount that an individual invested in the company. Limited partners are often called silent partners. ---

What is an LP/Investor?

What is Liquidity?

Liquidity refers to how easily and quickly one can exchange/sell an asset for cash. Venture capital is an illiquid asset, as it cannot easily or quickly be exchanged for cash.

What is Liquidity?

Liquidity refers to how easily and quickly one can exchange/sell an asset for cash. Venture capital is an illiquid asset, as it cannot easily or quickly be exchanged for cash.

M

What is a Management Company?

A management company is an entity (typically an LLC) that is created for the purpose of managing the operations of a venture capital fund. This includes collecting management fees, paying out and accounting for operational expenses, organizing employment or other business agreements, and handling regulatory filings. Facilitating these activities through a management company protects fund managers from complete liability when it comes to the fund's activities. The management company is typically created and owned by one or multiple fund partners. Sydecar customers typically use the Delaware Registered Agent website to create their management companies as an LLC registered in Delaware.

What is a Management Company?

What is a Management Fee?

Management fees are the cost of having an investment fund professionally managed by an investment manager. The management fees cover not only the cost of paying the managers but also the costs of investor relations and any administrative costs. Fee structures are usually based on a percentage of AUM and tend to range from 0.10% to more than 2% of AUM.

What is a Management Fee?

What is Most Favored Nation (MFN)?

The most favored nations clause (MFN) protects early investors by giving them access to the same rights and benefits received by later investors, if those rights and benefits are more favorable. MFN rights are typically relevant when an investor uses a SAFE or convertible note and wants to protect their access to a favorable valuation cap, discount, or interest rate given to future investors. This type of advanced right is typically only granted to larger investors. If these rights are granted, they will be granted to the SPV rather than individual investors. ---

What is Most Favored Nation (MFN)?

N

What is Net Worth?

For purposes of investor accreditation and qualification, "net worth" means the excess of total assets at fair market value (excluding the value of the primary residence) over total liabilities (excluding the amount of indebtedness secured by the primary residence up to its estimated fair market value, except that if the amount of such indebtedness outstanding at the time of investment exceeds the amount outstanding 60 days before such time, the amount of such additional indebtedness shall be included as a liability). ---

What is Net Worth?

P

What are Passive Foreign Investment Companies (PFICs)?

PFIC (Passive Foreign Investment Companies) are non-U.S. based companies that either (i) generate 75% of gross income from "passive income" sources or (ii) use 50% of the company's assets to generate "passive income." In general, most investors want to avoid PFICs because the IRS taxes gains from these investments at the ordinary income tax rate, as opposed to the lower capital gains tax rate.

What are Passive Foreign Investment Companies (PFICs)?

What is a Pass-Through Entity?

A pass-through entity refers to a type of business structure that allows the income and losses of the entity to pass through to its owners (investors) for tax purposes. The entity itself does not pay income taxes; instead, the owners report their share of the entity's income or losses on their individual tax returns. The most common types of pass-through entities used in venture capital include: LLC (Limited Liability Company) — income and losses "pass through" to members' personal tax returns Limited Partnership (LP) — income and losses flow through to the partners' personal tax returns S Corporation — passes through income and losses to its shareholders

What is a Pass-Through Entity?

What is a Pay-to-Play?

Pay-to-play is a provision included in some financing agreements that requires existing investors to participate in a subsequent funding round to avoid the loss of certain rights, including anti-dilution protection, liquidation preferences, or conversion of preferred stock into common stock. The intention is to protect the company by ensuring ongoing financial support from its existing investors, especially during down rounds.

What is a Pay-to-Play?

What is Pre-Money/Post-Money Valuation?

The valuation represents how much a company is worth, expressed as either Pre-Money or Post-Money Valuation. Pre-Money valuation refers to the value of the company excluding funding — how much a startup is worth before receiving investments. Post-Money valuation refers to how much the company is worth after receiving investments. *Example: A company receiving a $1M investment at a $5M valuation is worth $5M pre-money or $6M post-money.*

What is Pre-Money/Post-Money Valuation?

What is Pro-Rata?

A pro-rata right is a right given to an investor that allows them to maintain their initial level of ownership percentage during later financing rounds. This type of advanced right is typically only granted to larger investors. If these rights are granted, they will be granted to the SPV rather than the individual investors who own a stake in the SPV. ---

What is Pro-Rata?

Q

What are Qualifying Investments?

In venture capital, a qualifying investment is a direct investment into a private company, while a non-qualifying investment is an investment into any other asset (including investments into other funds, cryptocurrency, real estate, secondaries transactions, and other alternative assets). Investors who participate in non-qualifying investments over a certain threshold (over 20% of their entire portfolio), and who manage $150M+ in investments overall, may no longer benefit from certain VC exemptions. ---

What are Qualifying Investments?

What is a Qualified Client?

"Qualified client" thresholds for charging performance fees are a net worth of $2.7M (excluding the primary residence and related debt) or $1.4M under management with the adviser.

What is a Qualified Client?

"Qualified client" thresholds for charging performance fees are a net worth of $2.7M (excluding the primary residence and related debt) or $1.4M under management with the adviser.

What is a Qualified Purchaser?

A Qualified Purchaser is defined as: An individual (or family-owned business not formed just to buy into a fund) that owns $5,000,000 or more in investments A trust not formed for the specific purpose of acquiring the interest in the fund which is sponsored by and managed by qualified purchasers An individual (or any entity not formed just to buy into a fund) which owns and invests at least $25,000,000 in investments An entity of which each beneficial owner is a qualified purchaser

What is a Qualified Purchaser?

What is Qualified Small Business Stock (QSBS)?

A Qualified Small Business (QSB) is any active domestic C corporation whose assets don't exceed $50 million on or after the issuance of stock. Qualified small business stock (QSBS) refers to shares of a QSB as defined by the Internal Revenue Code (IRC). QSBS is treated favorably for capital gains purposes if both the investor and the company meet certain requirements. Investors who sell their QSBS before the end of the required holding period can defer capital gains by investing the proceeds in another company's QSBS.

What is Qualified Small Business Stock (QSBS)?

R

What is a Registered Agent?

A Registered Agent is an individual who is designated to receive official papers, such as court papers, tax notices, or business renewal notices, on behalf of a business entity. A business must submit a person as their registered agent in the states in which they register to do business.

What is a Registered Agent?

What is a Registered Investment Advisor (RIA)?

A Registered Investment Advisor (RIA) is an individual who is recommending investment decisions and taking fees for their advisory services. RIAs are required to register with the SEC and fulfill certain obligations, such as reporting and audits. Venture funds are typically exempt from registering with the SEC if they meet certain requirements (see 3(c)(1) Fund).

What is a Registered Investment Advisor (RIA)?

What is Recycling?

In venture capital, recycling refers to a process whereby money that is returned to a fund (from an exit) is reinvested into additional companies rather than distributed to fund LPs. If LPs are not particularly concerned with early liquidity, recycling proceeds can create higher long-term returns because more capital is deployed into companies overall.

What is Recycling?

What is Redemption?

Redemption in venture capital refers to the right an investor has to withdraw from a fund by redeeming their interest in the fund.

What is Redemption?

Redemption in venture capital refers to the right an investor has to withdraw from a fund by redeeming their interest in the fund.

What is Right of First Refusal (ROFR)?

Right of first refusal (ROFR) is a provision granted in venture deals that gives investors the right to either approve or block future sale of equity shares into the company. ROFR is typically activated when an investor wants to entertain a secondary sale — if an investor wants to sell some of their shares, they have to offer those shares to existing investors with ROFR before offering them to external third parties.

What is Right of First Refusal (ROFR)?

What is Runway?

A startup's runway refers to how many months a business can keep operating before it's out of money. Startup runway is a crucial tool for budgeting, strategizing, forecasting, and fundraising throughout your company's lifecycle. ---

What is Runway?

S

What is a SAFE?

Y Combinator introduced the SAFE (simple agreement for future equity) in late 2013, and since then, it has been used by almost all YC startups and countless non-YC startups as the main instrument for early-stage fundraising.

What is a SAFE?

What is a Schedule K-1?

A Schedule K-1 is a tax document that is commonly used in partnerships and certain other types of pass-through entities, including some venture capital funds. It is used to report the income, gains, losses, deductions, and other tax-related information that a partner or investor in such an entity needs to report on their individual tax return. At the end of each tax year, the venture capital fund will prepare a Schedule K-1 for each of its investors. Each investor will use the information on it to report their share of the venture capital fund's income and losses on their personal income tax return.

What is a Schedule K-1?

What is a Secondary Transaction?

A secondary transaction (or "secondary") is any sale of ownership in a startup (typically common or preferred stock) where the seller is anyone other than the company itself. For instance, an investor may purchase Series Seed stock and then resell it to another investor several years down the line prior to the company going public or getting acquired (known as an "exit").

What is a Secondary Transaction?

What is a Series LLC?

A series LLC is a form of LLC that allows a group of LLCs to be owned in a tiered structure. The top-tier LLC, or "parent LLC", controls the "child series" or "sub-LLCs" below it. Owners of a series LLC can create an unlimited number of sub-LLCs. This form of LLC was created in Delaware in 1996 and has been adopted in several other states.

What is a Series LLC?

What is a Side Letter?

A side letter is essentially a secondary agreement used to create bespoke terms between two parties. Side letters can exist between venture capitalists (including fund managers/GPs and deal leads) and their limited partners (LPs), as well as between startup companies and their VCs. The primary purpose of a side letter is to give an investor some special or additional rights that are not granted to all of the other investors involved in a transaction.

What is a Side Letter?

What is an SPV (Special Purpose Vehicle)?

An SPV ("Special Purpose Vehicle") enables a group of investors to pool capital to invest in a single deal. It's basically crowdfunding for accredited investors: Deal leads acquire an allocation and "crowdfund" capital via the SPV, which invests as a single shareholder on the cap table. ---

What is an SPV (Special Purpose Vehicle)?

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What is a Tax Shelter?

Defined as a partnership that has at least 35% of its losses allocable to members (aka "syndicate"). Pertains to Sec 448(a), which prohibits tax shelters from using the cash method. Although a business with less than $25M in gross receipts may use the cash method of accounting, tax shelters are expressly denied the benefit.

What is a Tax Shelter?

What is a Term Sheet?

A term sheet is a document that outlines the key terms and conditions of an agreement, such as the size of a potential investment, the amount of equity and cash to be invested, vesting periods for stock options, board representation rights, management compensation, and so on. Term sheets are typically used by startups to raise capital from venture capitalists or private equity firms.

What is a Term Sheet?

What is Total Value Paid In (TVPI)?

Total Value Paid In (TVPI) is a primary measure of fund performance in venture capital. TVPI is calculated as the current value of a fund's investments (unrealized gains) plus the cumulative value of distributions (minus fees/expenses), divided by the total amount of capital sent into a fund to date. The total capital into a fund includes any recycled capital. ---

What is Total Value Paid In (TVPI)?

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What is Unrelated Business Taxable Income (UBTI)?

Tax-exempt organizations (such as pension plans, individual retirement accounts, foundations, and endowments) are subject to "unrelated business income tax" (UBIT) on their "unrelated business taxable income," often referred to as UBTI. In connection with their investments in private investment funds, many tax-exempt investors seek to avoid or limit the funds' generation of UBTI. To avoid UBTI, the fund cannot incur indebtedness and cannot invest in flow-through operating entities, except through "blocker" structures. ---

What is Unrelated Business Taxable Income (UBTI)?

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What is a VCOC Letter?

A Venture Capital Operating Company (VCOC) letter, also known as a Management Rights Letter (MRL), is a contract granting an investor specific management and operational participation rights in a portfolio company. These rights often include attending board meetings, receiving financial reports, and advising the management team. ---

What is a VCOC Letter?

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What are Warehoused Deals?

A warehoused deal (also called a "warehoused investment" or simply "warehousing") is an investment a GP makes before forming a fund. The GP then transfers the investment into the fund once it is live. This approach lets a GP contribute earlier bets — whether syndicate SPV or angel investments — into a new fund at their original cost, not at their appreciated value when the fund forms. Warehousing also signals early deal-flow quality.