Lawyers are not exactly known for producing work that is brief or straight to the point, and the language often gets ridiculously complex. Limited Partnership Agreements (LPAs) and other fund formation documents are definitely no exception. ”The insane levels of complexity in the venture capital legal stack are excluding talent and wealth from entering the asset class”, says Adeo Ressi, CEO of VC Lab and the Founder Institute. He adds: ”The documents are unreadable. Unless you are a high-paid lawyer, few understand what they are signing.” A consequence of this is that the asset class is exclusionary, something VC Lab wants to change.
VC Lab, which can best be described as an accelerator for VC firms, wants to lower barriers of entry to the world of VC, so that more funds can be raised and more Limited Partners (LPs) can invest in and back the entrepreneurs and technologies of tomorrow. Currently, one of the biggest bottlenecks is the massive complexity of the legal stack.
As part of their mission to simplify VC, they have re-written the main agreement used in fund formation, the LPA. They call their new template Cornerstone, which is a lightweight and easy-to-use template that, according to VC Lab, can get fund managers started negotiating terms with LPs ahead of engaging high-priced fund formation attorneys. Says VC Lab on their website: ”In a matter of minutes, fund managers can customise the LPA and immediately start negotiating with LPs. Cornerstone is authored to be read and understood by all professionals, not just those with specialised knowledge of the VC industry.”
The result is an agreement that includes both term sheet, LPA and a subscription agreement, all of which totals 33 pages. An impressive feat, considering how long these agreements normally are.
“We spent months taking overly complicated legal language and working to make it readable by business people,” says Hans Kim, who is another author of Cornerstone. “The team would simplify the language, send it to fund formation attorneys for review, and then simplify the language again. In the end, we have something legally solid and easy to understand.”
Techquity’s vision to simplify private equity and venture capital investments goes hand in hand with VC Lab’s initiative, and we applaud it. Techquity’s platform simplifies the private equity and venture capital investment process by automating the creation and management of subscription documents. Instead of filling out long and complex application forms – where most of the content will be irrelevant to you – you get to fill out a dynamic, intelligent form where the questions are customised in real-time depending on your input. After having filled out the form, you get a 100% customised application form based on your input, which may be up to 80% shorter than the original one.
Cornerstone, which is available for free, is currently set up to work with funds domiciled in Delaware, which is the location most popular to launch funds worldwide. Additional domiciles are said to be coming in the next few months.
You can download Cornerstone here, and read about how to customize Cornerstone here. Read VC Lab’s own article about Cornerstone on their website here.