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Chris Harvey
@ChrisHarveyEsq
Emerging Fund Lawyer • #Writing @LawofVC
Los Angeles
lawofvc.substack.com
Joined June 2014
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    Chris Harvey
    @ChrisHarveyEsq
    Jan 21, 2024
    Starting Fresh for 2024! 🍃 Law of VC Database • Start Here: roamresearch.com/#/app/Funds/pa… What is it? For over two years, I have loosely maintained a database in Roam that covers research on the law, primarily fund law. In 2024, this will become my professional research project.
    This db covers a wide range of topics related to VC fund law, including deep dives into legal aspects, articles, tweets, and random thoughts. Structured for easy navigation, with sections on LPs, securities, Regulation D, and more. Includes diagrams, visuals, and references to external resources for further understanding. Importance for Emerging Fund Managers: Information access: Provides emerging managers with a centralized resource to learn about legal requirements, best practices, and potential pitfalls in launching and managing a VC fund. Clarity and depth: Combines basic explanations with more technical details, catering to various levels of knowledge and interests. Staying up-to-date: Regularly updated with the latest legal developments and industry trends, ensuring information is relevant and reliable. Building understanding: Helps emerging managers navigate complex legal jargon and regulations, making them more informed and confident in their decisions. Potential cost-saving
    17 CFR § 275.211(h)(2)-1 Private fund adviser restricted activities SANCTIONS Related Fees: Prohibited 🛑. No action allowed. Non-SANCTIONS Fees: Consent 🟡. Requires 50%+ LP consent. Rule 275.211(h)(2)-1(a)(2): Regulatory Fees: Disclosure 🔵. Notify LPs with fee details within 45 days of fiscal quarter-end. Rule 275.211(h)(2)-1(a)(3): GP Clawbacks: Disclosure 🔵. Notify LPs of clawback amounts pre & post-taxes within 45 days of fiscal quarter-end. Rule 275.211(h)(2)-1(a)(4): Non-Pro Rata Fees: Disclosure 🔵. Must be fair & equitable; pre-allocation notice required. Rule 275.211(h)(2)-1(a)(5): Borrowing: Disclosure 🔵. Notify LPs of terms; requires 50%+ non-affiliated LP consent. https://docs.google.com/spreadsheets/d/1Q3ckCGFE60sd9Uw3YLDk3FrT6eHIQ2I98DJ3Bn-2rCI/edit?usp=sharing
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    Chris Harvey
    @ChrisHarveyEsq
    Sep 7, 2023
    Replying to @ChrisHarveyEsq
    A cheat sheet for new VC fund regulations. Link to Google spreadsheet + rule expander below. This is for the Private Fund Advisers Rules enacted by the SEC on 8/23/2023. (Still waiting for publication in federalregister.gov) x.com/ChrisHarveyEsq…
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    Chris Harvey
    @ChrisHarveyEsq
    Jan 10, 2024
    Replying to @AnnMLipton
    I've had a client call me on a mayday flight going down with rough turbulence- instead of dictating their last testamenary wishes, if instead their directions were to buy Boeing puts and give it all to their family, at least now, I'll be prepared how to answer.
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    Chris Harvey
    @ChrisHarveyEsq
    Aug 19, 2020
    Writing is the best filter for thinking. And writing regularly helps you think better.
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    Chris Harvey
    @ChrisHarveyEsq
    Mar 19, 2019
    Standard terms for $50M VC fund: • Management fees: 2%/yr • Carry: 20% • Waterfall Distributions: 100% to LPs, then 80% to LPs, 20% to GP • Investment Period: 4-5 yrs • Term of Fund: 10+ yrs • Minimum Subscription: $500K • GP Commit: ~1% @Samirkaji what have you seen?
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    Chris Harvey
    @ChrisHarveyEsq
    Dec 11, 2023
    With Down Rounds at 20%+ of all venture deals closed in 2023, a second order effect is coming into play: Broken cap tables. What are broken cap tables? • Simply put: Taking too much dilution, too early. Broken cap tables and down rounds go hand-in-hand. Why? Sam Altman said
    This is a chart showing the percentage of founder holdings post-round (+/- 5%), with different sections for different funding rounds and scenarios The chart ranges from 100% founder holdings at the pre-seed stage to 20% founder holdings at the Series D stage for the best-case scenario, and from 50% founder holdings at the pre-seed stage to 10% founder holdings at the Series D stage for the broken cap table scenario. The chart shows that founders can expect to lose a significant portion of their ownership in their company as they raise more funding rounds. This is because investors typically receive equity in the company in exchange for their investment. The amount of equity that investors receive is determined by the valuation of the company and the amount of money they invest. Founders can expect to retain more ownership if they raise less money at lower valuations.
    How much equity do founders give investors each round? Founder holdings post-round: Percentage of ownership founders retain in their company after each funding round. • Pre-seed: This is the earliest stage of funding for a startup. Founders typically have 100% ownership in their company at this stage. • Seed: This is the first stage of venture capital funding. Founders typically retain 50-70% ownership in their company after a seed round. • Series A: This is the second stage of venture capital funding. Founders typically retain 20-50% ownership in their company after a Series A round. • Series B: This is the third stage of venture capital funding. Founders typically retain 10-30% ownership after a Series B round. • Series C: This is the fourth stage of venture capital funding. Founders typically retain 5-20% ownership after a Series C round. • Series D: This is the fifth stage of venture capital funding. Founders typically retain 1-10% ownership after a Series C round.
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    Chris Harvey
    @ChrisHarveyEsq
    Mar 26, 2024
    All YC insiders know this little secret but there's an off menu SAFE Form that has a $1.78M valuation cap & that YC itself exclusively uses—here's the secret revealed: But first, here are 3 things you probably didn't know about SAFEs: 1) Discounts on a Pre-Money & Post-Money
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    Chris Harvey
    @ChrisHarveyEsq
    Mar 12, 2024
    Series A offer from Tier 1 VC: $20M on $75M pre-money • 10% available option pool post-money • 1x liquidation preference • weighted-average anti-dilution • dividends paid as/if declared basis with common • 1:1 conversion Would you take this offer? What else are we missing?
    Amount of Investment: $20,000,000 Valuation: The price per share of the shares of Series A Preferred Stock (the “Original Issue Price”) shall be the price determined on the basis of a fully-diluted pre-money valuation of $75,000,000 (which pre-money valuation shall include an unallocated and uncommitted employee option pool representing 10% of the fully-diluted post-money capitalization). Series A Preferred Terms: ● It will have a senior participating liquidation preference of 1x the Original Issue Price plus declared but unpaid dividends (the “Preference Amount”). After payment of the Preference Amount in full, the remaining proceeds will be allocated between the Series A Preferred Stock and the Common Stock on an as converted basis. A sale of all or substantially all the assets of the Company, a merger, change of control, reorganization or similar transaction will be deemed a liquidation event. ● For dividends or distributions, participation with Common Stock on as-converted basis.
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    Chris Harvey
    @ChrisHarveyEsq
    Aug 12, 2022
    Good breakdown of Emerging Managers: • Fund I-III (IV) • Primarily investing in Seed+ • >2,000 US seed-stage firms • 10x+ increase in Seed rounds b/w 2015-2019 vs. 2005-2009 • High variance % perf. The Rise of Emerging Managers in Venture Capital— @Samirkaji / @joinallocate
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    Chris Harvey
    @ChrisHarveyEsq
    Feb 24, 2017
    HUGE WIN for free speech!! A quack sued a Yale MD for telling the truth and got owned. @marcorandazza #SlappHappy techdirt.com/articles/20170…
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    Chris Harvey
    @ChrisHarveyEsq
    May 23, 2024
    In 2021, 7,500 US startups raised $1M+ in VC equity financing. Just 6 law firms served as outside company counsel in 60% of these deals: • Gunderson—16% • Cooley—14% • Goodwin—8% • WSGR—7% • Orrick—6% • Fenwick—5% We don't live in a normal world, we live under a power law
    The Dominance of Six Law Firms in 2021: Gunderson Dettmer: Represented 16% of transactions. • Cooley: 14% • Goodwin: 8% • Wilson Sonsini: 7% • Orrick: 6% • Fenwick & West: 5% Combined: These six firms accounted for over 56% of the 7,500 equity financing rounds with at least $1 million in VC financing in 2021. 2. Adoption Rates of NVCA Forms in 2022: • Cooley: 100% • Goodwin Procter: 91% • Fenwick & West: 89% • Orrick: 83% • Wilson Sonsini (WSGR): 59% • Gunderson Dettmer: 36% 3. Shift Towards Standardization: • 2004: ~3% of Series A charters were based on the NVCA model. • 2022: Nearly 85% of Series A charters adopted the NVCA model, reflecting a major shift towards standardization over 18 years. Delaware Incorporation: Increased from 56% in 2004 to 100% in 2022, further indicating the adoption of standardized practices. We plan to open-source knowledge on NVCA documents and invite you to contribute by sharing checklists, tips, forms, and cap tables.
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    Chris Harvey
    @ChrisHarveyEsq
    Mar 8, 2024
    ⬛ The U.S. House of Reps just passed a transformative bill for VCs & emerging fund managers: ✅️Expanding "Qualifying Venture Capital Funds": Increases investor limits for VC funds from 250 to 600 limited partners (LPs) and assets under management (AUM) from $10 million to
    Title III—Improving Capital Allocation for Newcomers Sec. 2302. Qualifying Venture Capital Investment Company Act of 1940 to increase the number of persons a qualifying venture capital fund can have from 250 to 600 persons and increases the AUM from $10M and $150M. Title III—Risk Disclosure and Investor Attestation Sec. 3302. Investor Attestation: Introduces a form of investor self-certification regarding understanding of risks associated with investing in private issuers. This could simplify the process for investors to participate in private offerings. Title IV—Accredited Investors Include Individuals Receiving Advice from Certain Professionals Sec. 3401. Accredited Investors Include Individuals Receiving Advice from Certain Professionals: Expands the definition of an accredited investor to include individuals receiving personalized investment advice, potentially increasing access to venture capital investments for more individuals.
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    Elizabeth Yin 💛
    @dunkhippo33
    Mar 8, 2024
    Today HR 2799, a legislative bill, has passed the House of Representatives in the US. This bill will have a huge impact on startups and emerging fund managers if it can become a bill. Who cares and why is this important? More >>
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    Chris Harvey
    @ChrisHarveyEsq
    Feb 23, 2022
    Venture law is complex & opaque. There's no playbook for how to get started as a venture fund manager. Google gives inconsistent info, making it intimidating for new GPs. So... AMA!
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    Chris Harvey
    @ChrisHarveyEsq
    Apr 15, 2022
    Replying to @TrungTPhan
    Great thread. It's pretty wild a Board of Directors can do this legally without shareholder approval. In an ironic twist, Delaware treats the freedom to govern corporations very liberally. In the eyes of the law, corporations are people too—they have free will!
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    Chris Harvey
    @ChrisHarveyEsq
    Nov 19, 2021
    After 12 years of practicing law each year I learn something new that surprises me—but shouldn't. 2021 • VC fund advisers who file with FINRA qualify as accredited investors, regardless if they themselves are accredited or not. New Rule: All VC funds = accredited investors.🤯