Legal & Compliance
Grandfathering Clause
Last updated
Quick Answer
A provision that exempts existing arrangements from new rules or terms, allowing prior agreements to continue under their original conditions.
What it is
A grandfathering clause exempts existing stakeholders from changes that would otherwise apply to them under new rules, regulations, or agreement terms. In venture capital, grandfathering commonly appears in fund amendments, regulatory changes, fee restructuring, or governance modifications — ensuring that existing LPs, portfolio companies, or agreements maintain their original terms even as new arrangements adopt different structures.
In Practice
When the GP restructured management fees for Fund IV (reducing from 2% to 1.75%), a grandfathering clause preserved the 2% rate for Fund III LPs, ensuring their fund economics remained as originally negotiated.
Operational context
What good looks like
The term is tied to a real workflow, not just a definition.
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Why It Matters
Grandfathering clauses protect against retroactive changes to deal economics and governance. They're particularly important when regulatory changes or fund restructurings could adversely affect existing stakeholders.
VC Beast Take
The absence of grandfathering clauses can create significant problems. LPs who committed based on specific terms feel betrayed when those terms change retroactively. Smart fund counsel always considers grandfathering when drafting amendments that affect existing stakeholders.
Term Family
Related concepts
Frequently Asked Questions
What is Grandfathering Clause in venture capital?
A grandfathering clause exempts existing stakeholders from changes that would otherwise apply to them under new rules, regulations, or agreement terms. In venture capital, grandfathering commonly appears in fund amendments, regulatory changes, fee restructuring, or governance modifications —...
Why is Grandfathering Clause important for startups?
Understanding Grandfathering Clause is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Grandfathering Clause fall under in VC?
Grandfathering Clause falls under the legal category in venture capital. This area covers concepts related to the legal frameworks and compliance requirements in venture capital.
Sources & References
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