Legal & Compliance
Last updated
Quick Answer
A clause that automatically renews or extends an agreement unless one party takes active steps to terminate it.
An evergreen provision is a contractual clause that automatically renews the terms of an agreement for successive periods unless one party provides notice of termination within a specified window. In venture capital, evergreen provisions can apply to management contracts, advisory agreements, partnership agreements, and portfolio company contracts. They ensure continuity but can also trap parties in unfavorable arrangements.
In Practice
The fund management agreement included an evergreen provision renewing the GP's management rights for additional 5-year terms unless 75% of LPs voted to terminate at least 12 months before the renewal date.
Why It Matters
Evergreen provisions create significant optionality for the party they protect. Understanding them helps LPs evaluate fund governance and founders assess the long-term implications of advisory and service agreements.
VC Beast Take
Evergreen provisions in fund management agreements are controversial because they can make it nearly impossible for LPs to remove an underperforming GP. The best practice is to include reasonable termination mechanisms even within evergreen structures.
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An evergreen provision is a contractual clause that automatically renews the terms of an agreement for successive periods unless one party provides notice of termination within a specified window.
Understanding Evergreen Provision is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Evergreen Provision falls under the legal category in venture capital. This area covers concepts related to the legal frameworks and compliance requirements in venture capital.
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