Legal & Compliance
Last updated
Quick Answer
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.
Fiduciary duty is a legal and ethical obligation requiring one party to act in the best interest of another. In venture capital, GPs owe fiduciary duties to their LPs, board members owe duties to all shareholders, and fund administrators owe duties to the fund. These duties typically include loyalty (avoiding conflicts of interest), care (making informed decisions), and good faith (acting honestly).
In Practice
The GP disclosed the conflict of interest when their fund led a round in a company where the GP's spouse was CEO — fulfilling their fiduciary duty of loyalty to LPs.
What good looks like
Why It Matters
Fiduciary duty is the legal backbone of trust in venture capital. It's what prevents GPs from self-dealing, board members from insider trading, and fund administrators from negligence.
VC Beast Take
Fiduciary duty sounds abstract until it's breached. Then it becomes very concrete in a courtroom.
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A board director has full voting rights on board decisions. A board observer can attend meetings and receives board materials but has no vote. Observers are common for smaller investors who want visibility without the legal responsibilities of a director.
What is a board of directors and how does it work at a startup?
A startup's board of directors is the governing body that hires/fires the CEO, approves major decisions, and represents shareholders. Early boards typically have 3-5 members.
Fiduciary duty is a legal and ethical obligation requiring one party to act in the best interest of another. In venture capital, GPs owe fiduciary duties to their LPs, board members owe duties to all shareholders, and fund administrators owe duties to the fund.
Understanding Fiduciary Duty is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Fiduciary Duty 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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