USA Law and Practice Contributed by: D. Scott Bennett, Nicholas A. Dorsey, Virginia M. Anderson and Ellen H. Park, Cravath, Swaine & Moore LLP
second-highest total deal values in 2024, with 2,065 deals and USD29 billion in proceeds. Exit activity in the USA was similarly driven by the software sector, with 517 deals and USD60 billion in deal value. The pharma and biotech sector experienced the second-highest number of exits by deal value, with USD40 billion across 82 deals.
investment vehicles in respect of one or more specific investments for participation by some or all investors as needed for legal, tax, regulatory or similar reasons. Governing Documentation Like the private funds industry broadly, venture capital funds are primarily governed by an oper - ating agreement – either a limited partnership agreement or limited liability company agree - ment – that sets out the fund’s economic and governance terms. Individual investors acquire fund interests pursu - ant to a subscription agreement, which includes standard representations and warranties, certain disclosures and a questionnaire for self-reported information about the investor’s legal, tax and suitability status, such as “accredited investor” and “qualified purchaser” status. There may also be an investment management agreement in place to document the payment of the management fee to the management com - pany in exchange for the investment manage - ment services it provides to the fund. Finally, certain investors may request to enter into side letters from the fund to memorialise certain preferential treatment around economics, governance and transparency or other require - ments related to their specific legal, regulatory The primary forms of economic participation for fund sponsors and their principals include management fees and carried interest. The most common closed-end venture capital fund fea - tures are summarised here – although exact eco - nomic packages vary depending on a variety of factors, including the fundraising environment, and tax circumstances. 2.2 Fund Economics
2. Venture Capital Funds 2.1 Fund Structure Sponsor and Investor Roles
Venture capital funds in the USA are typically organised as limited partnerships or limited lia - bility companies (pass-through for tax purposes) and structured as private, closed-end, pooled investment funds, with exceptions for evergreen structures adopted by certain well-established venture capital fund sponsors. Fund terms are typically long, given the asset class, and com - monly last at least ten years. Investors (limited partners, or LPs) are passive with limited liability. Fund governance is vested in the general partner (GP) or managing member, subject to limited remedies exercisable by LPs. Day-to-day management of fund operations and investment advisory functions may be delegated to a management company (an affiliate of the GP that employs the sponsor’s personnel). Structuring The simplest venture capital fund structure is a single Delaware-organised entity for all inves - tors. More varied investor and investment pro - files may result in additional parallel funds or funds organised in a primary-feeder structure, each across various jurisdictions. There is typi - cally flexibility for funds to create alternative
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