There can be a lot of funding for some startups these days. But many companies will tell you otherwise. VC Lab, accelerator of venture capital companies, wants to create investors who will support the rest of the world.
A basic hurdle to this goal is the standard paperwork you need to create a new fund. It currently requires specialist attorneys whose time can cost over $ 100,000 per fundraising.
Today, VC Lab provides a set of freely available standard documents intended to streamline the process, save everyone time and money, and make fund governance structures more accessible.
“We have general partners who are launching funds all over the world,” explains co-founder Adeo Ressi. “The latest cohort recruited venture capitalists from 62 different countries, including Central Asia, Africa and every other place you can imagine.”
The last thing they need is legal fees.
“New managers who take the plunge come with a passion for change – funds often have a very focused thesis and they tend to be smaller in size. They really want to help the companies they work with succeed at all costs. They don’t need 200 to 400 pages of legal agreements governing every little decision they make. They need lean, light and easy to use chords.
The package, which VC Lab calls Cornerstone, is a short 33 page that includes a terms sheet, subscription agreement, and LPA (and this user guide). Similar fund formation documents are regularly hundreds of pages long.
“It has been widely recognized that fund formation documents are ridiculously complex and in need of an overhaul,” says Hans Kim, a longtime start-up lawyer in Silicon Valley who co-wrote the new package. “I have had many founding clients who have made money and want to put their capital to good use by investing. But if they get more serious than personal angel investing, you refer them to a fundraising lawyer. Then they see the price and have to think twice.
The improvements include a streamlined list of definitions, streamlined sections on management fees, and triggers for limited operator mode, according to co-author Rich Gora of Gora LLC. The current document includes details of the business domicile in the United States with plans for other popular locations like Canada, the Netherlands and Singapore to come.
As a fundraising lawyer who works with a wide variety of investors, he says the goal is to help business people solve business problems in layman’s terms. Once the parties have discussed what they want to agree on, they can turn the product over to an expert like him to finalize it.
“Over the past 10 months,” he says of the writing process, “we’ve looked at every industry LP deal we can find. We took 20-line concepts and distilled them into three. The concepts are there, but the verbiage of the lawyers is gone.
Ressi estimates that the new documents can cut legal costs by half or more, depending on factors such as the number of LPs you bring in. There is also a shortage of lawyers with expertise in fund training, he notes. Providing standard documents will speed up this process and help the global venture capital ecosystem grow faster.
VC Lab was formed within the Founder Institute, a global startup accelerator that has already made similar contributions to the startup ecosystem. Almost nine years ago, he helped develop the concept of convertible shares, the precursor to the SAFE note, which removes the debt elements of convertible notes.
“We believe all bottlenecks need to be removed,” Ressi says of investing in startups. “Then there will be an explosion of new VCs and new LPs around the world entering the asset class. It will create real positive change for humanity because wherever you are in the world you can pursue an idea to make the world a better place and find the resources you need to make it a reality. Unfortunately, this is not true today.
