After 12 years of practicing law each year I learn something new that surprises me—but shouldn't.
2021
• VC fund advisers who file with FINRA qualify as accredited investors, regardless if they themselves are accredited or not.
New Rule: All VC funds = accredited investors.🤯
Now, this is a "new" rule, but it has been on the books since Aug 2020. How did I miss it?
I was researching on a website that hadn't been updated since mid-2020 (Cornell Law).
Eventually someone would have probably called me out.
But how I found out was answering an email.
I generally brush up on my research when someone asks me a question. I try not to take for granted that I know a lot. The reason is laws get constantly updated, and the more enmeshed in the law as an "expert," the less flexible you are when things change.
Things always change.
So, now I have to go back and debunk a few years of telling people that the SEC hasn't granted a waiver for VCs as accredited investors. That's BS. They have, since at least August 2020.
Frameworks and articles I have written have to be updated, but the good news is I found it
Here's the part I missed on the new law—taken directly from the eCFR page:
Instead of teaching founders the nuances of discounts, valuation caps and MFNs, why not simplify the Safe and treat it like a cap table with fixed ownership?
2/ After five years of testing pre-money Safes, YC made two major changes to the Original Safe:
1) Pro rata rights removed by default 2) Valuation Cap is now "Post-Money"
What does that mean?
Here's a chart explaining the differences and how to count the other pre-money stuff.
3/ To see the differences between pre-money and post-money Safes we need to do a little math.
Five Reasons Why Raising a VC Fund is So Difficult: 1. Lack of Transparency & Trad Biases 2. Reliance on Two Types of LPs—FOs and HNWs 3. Risk Aversion 4. Strong Competition 5. Covid-19
2/ Traditionally, #SPVs (special purpose vehicles) were used for structured financing transactions. These entities blew up in the 2009 financial crisis.
Today, it's very common to see SPVs on a Silicon Valley startup cap table. For example, in @Uber's #IPO there were 100+ SPVs.
3/ Founders & employees are more active as operator angel investors. The broad swath of Silicon Valley CEOs invest. As a bridge between solo angel investor & full time GP, SPVs close that gap. They offer a chance for future GPs to test the waters. See @jmj@briannekimmel, et al.