Legal frameworks, regulatory requirements, and compliance concepts in venture capital.
41 terms
A 409A valuation is an independent appraisal of a private company's common stock, used to set stock option exercise prices at fair market value.
A provision that triggers immediate repayment of outstanding debt upon certain events like default or change of control.
An individual or entity that meets the SEC's financial thresholds to invest in private securities — typically a net worth over $1M or annual income over $200K.
The process of confirming that an investor meets SEC criteria for accredited status, required under Rule 506(c) through documentation review and optional under Rule 506(b) via self-certification.
A contractual obligation requiring a company to take specific actions, such as maintaining insurance, filing taxes, or providing regular financial reports.
A parallel tax system that can create unexpected tax liability when exercising incentive stock options.
A for-profit company certified by B Lab for meeting rigorous social and environmental standards — relevant for impact-focused VC investments.
The structure and makeup of a company's board of directors, including the balance between founder, investor, and independent seats.
A non-voting participant in board meetings, typically a smaller investor, who can attend and speak but has no voting rights.
The governing body of a corporation, responsible for major strategic decisions, hiring/firing the CEO, and representing shareholders.
The process of maintaining accurate records of company ownership, including all shares, options, warrants, and convertible securities.
The total cost of meeting a fund's regulatory and contractual obligations, in outside fees and in the manager's own time.
A provision allowing majority shareholders to force minority shareholders to vote in favor of an acquisition or other liquidity event.
A share structure with two classes of common stock carrying different voting rights, typically giving founders disproportionate control relative to their economic ownership.
Funds held by a neutral third party in an acquisition to cover potential post-closing liabilities — sellers receive escrowed funds after a holdback period.
A category of investment adviser exempt from full SEC registration but required to file reports, available to managers of venture capital funds and smaller private funds.
The legal obligation to act in the best interest of another party, such as a GP's duty to their LPs or a board member's duty to shareholders.
A clause allowing a board to withdraw from a previously agreed deal if doing so is required by their fiduciary duties to shareholders.
The electronic notice an issuer files with the SEC on EDGAR within 15 calendar days of the first sale in a Regulation D private placement.
Generally Accepted Accounting Principles — the standard accounting framework required for audited financial statements in the US.
Publicly advertising a fundraise to non-preexisting relationships — allowed under Rule 506(c) for funds raising from accredited investors only.
A provision that exempts existing arrangements from new rules or terms, allowing prior agreements to continue under their original conditions.
Interest income the IRS assumes exists on below-market loans, even if no interest is actually charged.
A board member who is not affiliated with the company's investors or management, providing neutral perspective on governance decisions.
Contractual obligations requiring a startup to share financial statements and other operational data with investors on a regular basis.
The contractual remedies available to a fund when a limited partner fails to meet a capital call, including interest penalties, forfeiture of fund interest, and forced sale of the LP's position.
A contractual restriction that prohibits a company from taking certain actions without investor consent, such as issuing new equity or taking on debt.
A legal agreement preventing parties from sharing confidential information shared during discussions — less common in early-stage VC, more common in later-stage and M&A.
The governing document for an LLC-structured fund entity (typically the management company or GP entity), defining member rights, profit sharing, and operational procedures.
Qualified Small Business Stock — a tax exclusion allowing founders and investors to exclude up to $10M (or 10x basis) of capital gains on qualifying startup investments.
An investor with $5 million+ in net investments, a higher threshold than accredited investor, required for participation in funds exempt from Investment Company Act registration.
A real estate operating company: a fund that holds at least half its assets at cost in real estate it has the right to help manage or develop, and actually does so.
The SEC safe harbor allowing companies to raise capital from accredited investors without registering the securities offering — the legal basis for most private financings.
Statements of fact made by a seller in an M&A transaction that the buyer relies on — breaches can result in indemnification obligations.
A partnership tax election that adjusts the tax basis of fund assets when LP interests are transferred, preventing new LPs from being taxed on gains that accrued before they joined.
A contract among shareholders governing their rights, obligations, and the company's governance structure.
A supplemental agreement between a GP and specific LP granting customized terms beyond the standard LPA, such as fee discounts, enhanced reporting, or co-investment rights.
Rights allowing minority shareholders to join a sale when majority shareholders sell their shares, ensuring equal treatment in a transaction.
Contractual limitations on an investor's ability to sell, transfer, or assign their fund interest or shares.
A fund that keeps at least half its assets at cost in investments carrying management rights, so its holdings are not treated as ERISA plan assets.
Who gets to decide what, and with how many votes per share, across a company's charter, its voting agreement and its boardroom.