The legal documentation determines your SPV’s direction and much of its potential future success.
At this stage of the game, your new capital-raising SPV is essentially an empty shell, and needs direction and guidance. It may have endless potential, but it needs leadership, structure and direction in order to move forward successfully. Creating the SPV fund documents requires mainly Legal expertise, with some Administration and Accounting tasks.
Your legal documents govern how this entity behaves, together with the rights and rules of those that belong to it. Of course, the documents and the included provisions will differ depending on the use and purpose of the entity. For capital-raising SPVs, we will focus on three core documents:
- The operating agreement
- The private placement memorandum (PPM)
- The subscription agreement
The operating agreement governs the relationship between all of the investors and managers of the capital-raising SPV. The private placement memorandum (PPM) advises all prospective investors of all the pertinent data they will need to consider in order to make an informed decision prior to investing their capital. As a matter of course, the PPM often advises prospective investors that they face the distinct possibility of losing all of their invested capital, i.e. they may not want to invest. The subscription agreement covers the committing of capital to the SPV by the investors.
These core documents dictate the structure from the outset--including the administration tax thereafter. For instance, if your documents claim you are going to provide everybody a monthly report, that dictates that on the administration side. Somebody must be doing the work necessary to push out said report every month. If your documents say you’re going to get an audit, then somebody on the administration side, perhaps an accountant or bookkeeper, needs to ensure that the audit gets done. In other words, these documents will dictate essential requirements and behaviors from the time the investment closes until the exit and shutdown. They also spell out the rights and obligations of everybody involved, from investors to organizers and managers.
The DOCUMENTATION phase highlights the heavy lifting that Assure has done to make the set-up and management of a capital-raising SPV exponentially faster, more simple and more cost-effective than ever before. The reality is that few attorneys (at best, only a few dozen in the U.S.) have significant experience drafting SPV documents. Most experienced lawyers will work on a handful of funds per year, whereas Assure has closed more than 5,000 in the past eight years--more than 600 annually.
As a result, using outside attorneys rather than Assure is likely to be a costly and time-consuming proposition. It is likely to cost investors $15,000-$200,000 and 90 days or more to complete documents that are often rife with errors that must be corrected before the deal can move forward.
Compare this nightmare scenario with the experience of working with Assure. The Assure team includes some of the nation’s most experienced venture-focused attorneys. Our innovative Glassboard technology platform automates many formerly manual processes. In addition, the sheer volume of venture investment documents we deal with has enabled us to develop a set of widely applicable legal templates that are reviewed at least ten times every year.
The result? Assure produces superior documents at a fraction of the cost, and can have your capital-raising SPV firing on all cylinders within 24-48 hours after it is set up. More deals get done faster and more accurately. Syndicates are able for the first time to bring a host of smaller investors into the market. More promising companies get funded, more quickly, so life-changing and world-changing innovations get to market faster.
Now that your capital-raising SPV is fully equipped with the right documents, the next step will be to OBTAIN AN EIN FROM THE IRS.