Venture Capital Structuring
Objectives of structuring a capital venture fund.
Limited Liability
Investors would like to see their liability for their investment in the fund limited to the amount of their investment, as they will not be usually playing an active part in the management of the investments.
Avoiding an additional level of tax
The investors main requirement is to avoid tax payable once receiving a dividend and then again paying a tax when the investments are realized.
Suitability to all kind of investors
It is desirable to have a single fund structure for all types of investors, whether they are exempt pension funds, insurance companies, banks, industrial or trading companies or private individuals. Often there are multiple layers of funds – a feeder fund that would get funds from one type of investors and then make investments in the venture fund.
Tax efficient management charge
If possible the management charge should be structured to minimize the impact of the irrecoverable value added tax on fund.
Tax efficient carried interest.
Carried interest is normally structured as an interest in the fund itself although it could structured as a bonus management charge. There is trade-off or a fine balance between the tax efficiency and the management charge to optimize the financial structure.
Commercial Structure
Self Liquidating fund
The most typical commercial structure for a venture capital fund is the limited life self liquidating fun, often structured as a limited partnership. Here a number of investors, which are usually institutions, commit to advance up to a certain amount to the fund during its lifetime. Commitments are drawn down as funds are needed to make investments or pay costs, expenses or management charges. Usually, proceeds of sale are not reinvested and often the fund manager raises a new fund in approximately two to three years.
Evergreen fund
Funds that don’t give dividends and proceeds, and instead reinvest them in further
Limited Liability
Investors would like to see their liability for their investment in the fund limited to the amount of their investment, as they will not be usually playing an active part in the management of the investments.
Avoiding an additional level of tax
The investors main requirement is to avoid tax payable once receiving a dividend and then again paying a tax when the investments are realized.
Suitability to all kind of investors
It is desirable to have a single fund structure for all types of investors, whether they are exempt pension funds, insurance companies, banks, industrial or trading companies or private individuals. Often there are multiple layers of funds – a feeder fund that would get funds from one type of investors and then make investments in the venture fund.
Tax efficient management charge
If possible the management charge should be structured to minimize the impact of the irrecoverable value added tax on fund.
Tax efficient carried interest.
Carried interest is normally structured as an interest in the fund itself although it could structured as a bonus management charge. There is trade-off or a fine balance between the tax efficiency and the management charge to optimize the financial structure.
Commercial Structure
Self Liquidating fund
The most typical commercial structure for a venture capital fund is the limited life self liquidating fun, often structured as a limited partnership. Here a number of investors, which are usually institutions, commit to advance up to a certain amount to the fund during its lifetime. Commitments are drawn down as funds are needed to make investments or pay costs, expenses or management charges. Usually, proceeds of sale are not reinvested and often the fund manager raises a new fund in approximately two to three years.
Evergreen fund
Funds that don’t give dividends and proceeds, and instead reinvest them in further