Choose Your Fund Structure
The architectural decision that shapes everything else
Before you file a single document or call a lawyer, you need to decide how your fund will be structured. This decision affects your tax treatment, liability exposure, regulatory obligations, and how attractive you are to institutional LPs. Getting this right from the start saves you from expensive restructuring later.
The vast majority of emerging venture capital managers use a Limited Partnership (LP) structure with a separate General Partner (GP) entity. This is not just convention — it is the structure that institutional LPs expect, that fund administrators are built to support, and that tax counsel will recommend in nearly every case.
Common fund structures compared
Delaware LP (Recommended)
The gold standard for emerging managers. Provides pass-through taxation, limited liability for LPs, and GP control over investment decisions. Most fund formation attorneys, administrators, and auditors are deeply familiar with Delaware LP structures.
Best for: First-time fund managers, institutional LP fundraising, funds of $5M+
Delaware LLC
Offers more flexibility in structuring management rights and economics, but less familiar to institutional LPs. Can work for smaller, friends-and-family funds where you want a simpler operating agreement.
Best for: Very small funds, co-investment vehicles, solo GP with few LPs
SPV (Special Purpose Vehicle)
A single-deal entity used for one-off investments. Typically structured as a Delaware LLC. Useful for deal-by-deal investing before launching a committed fund, or for co-investment opportunities alongside your main fund.
Best for: One-off deals, syndicate leads, co-investment alongside a fund
Fund-of-Funds
Invests in other venture funds rather than directly into companies. Requires a different LP pitch, different due diligence processes, and typically higher minimum fund sizes to make the economics work.
Best for: LPs seeking diversified VC exposure, $50M+ fund sizes
For most readers of this guide, Delaware LP is the right answer. Delaware has the most developed body of partnership law in the United States, the Court of Chancery provides predictable dispute resolution, and your LPA will benefit from decades of established precedent. Even if you and your LPs are based in California, New York, or Texas, you should still form your fund entities in Delaware.
“We see first-time managers occasionally try to use an LLC to avoid the perceived complexity of an LP structure. This almost always creates more problems than it solves — especially when you start talking to institutional LPs who have specific expectations around GP/LP governance.”
Legal Entity Setup
Forming the entities that will hold and deploy capital
Once you have decided on a Delaware LP structure, you need to form at least two entities: the General Partner (GP) entity and the Fund LP itself. The GP entity is almost always a Delaware LLC that serves as the managing partner of the fund. Some managers also form a separate management company to employ staff and receive management fees, but this can wait until you are closer to first close.
Entity formation checklist
Form the GP entity (LLC) in Delaware
File a Certificate of Formation with the Delaware Division of Corporations. Cost: ~$90 state filing fee plus registered agent fees. This entity will serve as the general partner of your fund and carry unlimited liability for fund obligations.
Form the Fund LP entity in Delaware
File a Certificate of Limited Partnership. Cost: ~$200 state filing fee. The LP is the actual fund — it holds the investment assets, issues capital calls, and makes distributions to LPs.
Obtain EIN for each entity from the IRS
File IRS Form SS-4 for each entity. This is free and can be done online at irs.gov. You will need separate EINs for the GP LLC and the Fund LP. You cannot open bank accounts or file tax returns without them.
Appoint a Delaware registered agent
Delaware law requires every entity formed in the state to maintain a registered agent with a physical address in Delaware. Annual cost: $50-300. Common providers include CSC, CT Corporation, and Registered Agents Inc.
Consider a separate Management Company (optional)
A management company LLC receives management fees, employs staff, and pays operating expenses. This separates the economics of running the business from the fund itself. Not strictly necessary for Fund I, but recommended if you have employees.
The entire entity formation process can be completed in two to four weeks if you move quickly. Many fund formation attorneys will handle the filings for you as part of their engagement, or you can use a service like Clerky or Stripe Atlas for the initial entity formation and then engage counsel for the fund documents.
Draft Fund Documents
The legal backbone that governs your fund
Your fund documents are the legal contract between you and your LPs. They define the fund's investment strategy, economics, governance, and the rights and obligations of every party. This is where you will spend the bulk of your legal budget, and it is worth every dollar. Poorly drafted fund documents create problems that compound over the life of a 10-year fund.
You need an attorney who specializes in fund formation — not a generalist corporate lawyer, not your startup attorney, and not a template from the internet. The nuances in LP agreement drafting are significant, and experienced institutional LPs will scrutinize every provision.
Core fund documents
Limited Partnership Agreement (LPA)
40-80 pagesThe master governing document of your fund. Covers fund term, investment period, economics (management fee, carried interest, hurdle rate), GP removal provisions, key person clauses, LPAC rights, distribution waterfall, and reporting obligations. This is the document LPs and their counsel will negotiate most heavily.
Private Placement Memorandum (PPM)
60-120 pagesThe disclosure document that describes the fund offering to prospective LPs. Contains the investment strategy, GP background, risk factors, tax considerations, and regulatory disclosures. While not legally required for a Reg D offering, sophisticated LPs expect one, and it provides important legal protection for the GP.
Subscription Agreement
15-25 pagesThe contract each LP signs to commit capital to the fund. Includes the commitment amount, LP representations and warranties (accredited investor status, no bad actor disqualification), power of attorney, and signature pages. Typically accompanied by an investor questionnaire for regulatory compliance.
Side Letter Templates
3-10 pagesSeparate agreements granting specific LPs modified terms — such as reduced management fees, co-investment rights, most-favored-nation clauses, or reporting accommodations. Common for anchor LPs committing 15%+ of the fund. Keep a template ready, but negotiate individually.
Legal cost expectations
Expect to pay $15,000-$50,000 for a full document suite from experienced fund formation counsel. Emerging manager-friendly firms like Gunderson Dettmer, Cooley, Goodwin, and smaller boutiques may offer deferred fee arrangements or flat-fee packages for first-time managers. Do not try to save money here — a $5,000 template package will cost you far more in LP negotiations, compliance gaps, and future amendments.
Banking & Operations
Where the money lives and how it moves
With your entities formed and documents drafted, it is time to build the operational infrastructure that will support your fund for the next decade. This means opening bank accounts, selecting a fund administrator, establishing compliance processes, and setting up the technology stack that will power LP communications and portfolio tracking.
Fund bank account
You need separate bank accounts for the Fund LP and the Management Company. Never commingle these funds. Banks that commonly work with venture capital funds include:
Mercury
Modern banking, excellent API, popular with emerging managers. Free wire transfers.
Silicon Valley Bank
Deep VC ecosystem relationships. Capital call lines of credit available.
First Republic
White-glove service, relationship banking. Good for managers with existing personal accounts.
Fund administrator selection
A fund administrator handles NAV calculations, capital account maintenance, K-1 preparation, investor onboarding, and capital call processing. For a first-time manager with a sub-$50M fund, expect to pay $30,000-$60,000 per year. Key considerations:
- •Experience with emerging VC managers (not just large PE funds)
- •Technology platform quality — LP portal, reporting dashboards, document management
- •Responsiveness and dedicated relationship manager
- •K-1 delivery timeline (March 15 deadline matters to LPs)
- •Ability to handle capital calls and distributions on your behalf
- •Integration with your fund management platform
You should also establish your compliance calendar at this stage. Key dates include Form D filing deadlines, blue sky renewal dates, annual audit completion, K-1 delivery, quarterly report distribution, and annual meeting scheduling. Missing a compliance deadline can have serious consequences, from SEC penalties to LP clawback rights.
Finally, set up your AML/KYC (Anti-Money Laundering / Know Your Customer) procedures. You are legally required to verify the identity of your investors and screen them against OFAC sanctions lists. Your fund administrator can help with this, or you can use a service like Passbase, Persona, or your subscription agreement's investor questionnaire to collect the required information.
Regulatory Filings
Securities law obligations you cannot skip
Raising a fund means selling securities, which means you have obligations under federal and state securities laws. Most VC funds rely on Regulation D exemptions — specifically Rule 506(b) or Rule 506(c) — to avoid full SEC registration of the fund offering. But “exempt” does not mean “no filings.”
Required regulatory filings
Form D (SEC)
Within 15 days of first sale of securitiesFiled electronically on EDGAR. Discloses basic information about the fund, the offering, and the GP. This is a federal requirement. Failure to file on time can jeopardize your Reg D exemption. Amend the Form D annually and whenever there are material changes.
Blue Sky Filings (State Level)
Varies by state — typically within 15-30 days of first saleMost states require notice filings when you sell securities to residents of that state. The requirements and fees vary by state. If you have LPs in 10 states, you need 10 separate blue sky filings. Your fund formation attorney or a blue sky filing service can handle this.
Exempt Reporting Adviser (ERA) — Form ADV
Within 60 days of relying on the exemptionMost emerging VC managers qualify as Exempt Reporting Advisers under the Venture Capital Fund Adviser exemption or the Private Fund Adviser exemption (fewer than $150M in AUM). You still must file a partial Form ADV with the SEC via IARD. This is not optional.
Full SEC Registration (if applicable)
When AUM exceeds $150M or you have 15+ clientsIf you grow past the ERA thresholds, you must register as an investment adviser with the SEC and comply with the full Investment Advisers Act. This brings additional compliance obligations including a Chief Compliance Officer, written compliance manual, annual compliance reviews, and custody rule requirements.
A common mistake among first-time managers: assuming that “exempt” means “no obligations.” The SEC exemptions let you avoid registering the offering itself, but you still have filing obligations, anti-fraud provisions apply in full, and you must maintain accurate books and records. Hire a compliance consultant even if you cannot afford a full-time CCO.
Start Fundraising
From data room to first close
With your legal structure in place, documents drafted, bank accounts open, and compliance processes established, you are finally ready to raise capital. Fundraising for a first fund typically takes 6-12 months, with some managers closing faster (strong existing network) and others taking 18+ months (building LP relationships from scratch).
Build your data room
Your data room is the first impression sophisticated LPs have of your operational maturity. It should be organized, professional, and contain everything an LP needs for due diligence. At minimum, include:
LP outreach strategy
Fundraising is a pipeline business. You will need to talk to 100+ potential LPs to close 15-30 commitments for a typical emerging manager fund. Prioritize your outreach in this order:
Tier 1: Warm network
Former colleagues, founders you have backed as an angel, co-investors, personal network HNWIs. These are your fastest path to a first close.
Tier 2: Fund-of-funds & family offices
Emerging manager-focused fund-of-funds (Industry Ventures, Greenspring, Top Tier) and family offices actively allocating to new managers.
Tier 3: Institutional LPs
Endowments, foundations, pension funds. Longer diligence cycles (6-18 months), but larger check sizes and strong signaling value.
First close vs. final close
Your first close is when you have enough committed capital to begin investing — typically 25-50% of your target fund size. After first close, you can start deploying capital while continuing to raise. Your final close is the deadline (usually 12-18 months after first close) by which all LPs must have committed. Most LPAs allow 2-3 interim closes between first and final. LPs who join after first close typically pay interest on the capital already called by existing LPs, so there is a financial incentive to commit early.
Total estimated formation costs
These costs are typically paid from the management fee or classified as organizational expenses charged to the fund (capped at the amount specified in your LPA, usually $100K-$200K). Anything above the cap is borne by the GP.
Skip the spreadsheets
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Data room, LP portal, capital call management, compliance calendar, portfolio tracking, and investor reporting. One platform that replaces the operational chaos of launching your first fund.
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