Venture capital companies You have some scouting to do.
On August 23, the Securities and Exchange Commission Passed A handful of new fund disclosure rules regarding clawbacks, preferential treatment of limited partners, and fees.
However, fund managers may not have paid much attention to this; The rules passed by the SEC were a watered-down version of the initial proposals, including removing a potential rule change in which venture capital firms appeared to be most concerned about fiduciary duty. But there are still some things that venture capitalists, especially emerging managers, should pay attention to.
The rule changes, while not radical, have the potential to make fundraising more difficult for venture capital firms. The penalty for not following the rules correctly will fall on the GPs themselves; They can’t turn to LPs for financial help anymore.
“My initial thoughts about this were that it was like trying to learn a new dance,” Chris Harvey, emerging funds lawyer at Harvey Esquire APC, told TechCrunch+. “Everyone’s waltzing, [but now] We’re ditching the waltz, moving on to a new style. There will be some toe stepping, and not everyone will be familiar with the rhythm.
Treatment of LPs
There are two major rule changes that venture capitalists should consider.
First, there is new language regarding preferential treatment. New fund disclosure rules require companies to disclose any preferential treatment of an LLC that could have a material or adverse effect on other LLCs participating in the fund. This could include giving the investor a different capital call structure, different rights to co-investments or different fees.