If you’re forming a hedge fund (including cryptocurrency hedge funds), private equity fund, angel/venture capital fund, real estate investment fund, or other fund that involves raising money from investors, I can help. Fund formation usually entails three distinct projects within the overall project – fund and founder formation, fund investor offering, and fund advisor compliance.
The first project – fund and founder formation – is the creation of the fund entity and the fund manager (it’s rare that we don’t have two entities in a fund formation). Years ago, this was almost always a limited partnership with a general partner (often an LLC even back then) that managed the fund (and the investors were limited partners, or LPs). Today, many securities lawyers (including me) have moved to using limited liability companies (LLCs), although still using two of them to give the managers a little distance personally from the fund. Also, where there are multiple founders/promoters, the second LLC (the fund manager) is the vehicle where we iron out their deal together. We often use Delaware entities, although that isn’t always the default option. Part of that decision depends on your vision for the fund (e.g., how large will you grow it)?
The fund investor offering is a regular ol’ securities offering. This is where the fund issues interest in it to investors (in an LLC, the fund issues limited liability company membership interests). We use Regulation D Rule 506(b) often, although depending on how much you’re raising, who you’re raising it from, and other factors, there are other available securities law exemptions. It’s fairly rare that we don’t produce a private placement (confidential offering) memorandum – fund raising usually calls for a PPM, although, again, that’s not always the only approach. And, PPMs aren’t cheap. For quality, custom work (and be very careful of something spit out of a software program or “PPM mill” – you need to spend some time getting the risk factors specific and candid and covering the right risk factors), you’ll pay a minimum of $10,000. Big law may hit you for $50,000+ on a PPM. I’m usually in there around $12,500. They’re a lot of work, although on even a small fund raise, it’s relatively nominal and wise insurance. If someone quotes you less than $5,000 for a PPM, you are almost certainly better off without that PPM – this is an area where you really can get hurt if you don’t meet a minimum standard (i.e., it hurts more than it helps).
The compliance piece depends on what the fund will invest in. if you’re investing in securities, you’ll be acting as an investment advisor and need to deal with state or SEC registration under the Investments Advisors Act. I will help guide you on this, although often we’ll dial-in an RIA compliance company, which can help you with creating all the policies you need more cost-effectively than I can. A lot of cryptocurrencies and digital assets are commodities. I set up a couple cryptocurrency hedge funds and, at least as of late 2017/early 2018, the regulation (there’s also a commodity pool operator piece to navigate) on these is relatively light if you do it right.
I enjoy this work – lots of moving parts in an exciting context. My sweet spot for this work in my current law practice involves a fund size of $1,000,000 to $100,000,000. If you’re raising a much larger fund than that right out of the gate, I may not be the perfect choice for you, although I’m happy to explore if I am. If you want to talk more about what you’re doing – whether a hedge fund, private equity/venture capital fund, real estate fund, or some other type of fund, give me a call.
I do quite a bit of seed and Series A equity financing work with startups. Typically, I represent companies (founders) raising financing rounds. At times, I will represent investors. I bring to the table my experience raising capital for my own startups, as well as the time I spent working as a Silicon Valley venture capitalist for a publicly-traded media company during dotcom 1.0. This part of my practice is exciting – it’s all about growth!
During the seed stage, a startup is generally raising money from angel investors. Angel investors may be wealthy individuals who put their own money into deals from time to time. Or, angel investors may be “institutional” angels, meaning they make a lot of investments and know their way around the early-stage investment arena. Angel investors generally invest in return for common stock or preferred stock. They usually price their rounds (a round is a distinct financing event, which may include multiple investors), although occasionally they will invest with convertible notes. This is more common with the one-off angel investors than the institutional ones.
Most of the startup equity (sale of stock) legal work that I do is in Austin, although I have two technology company clients in Dallas and a few energy and other industry startup clients in Houston. Both Dallas and Houston are growing technology sectors and all of Texas has a come a long way in competing to take some of the startup activity from Silicon Valley.
I do most of my work for startups raising early-stage capital on a flat fee basis. You can read more about this at flat-fee billing.