Two alternative investment industry organizations — the National Venture Capital Association and the Institutional Limited Partners Association — released new, updated and enhanced model agreements to standardize negotiation terms, reducing cost.
On July 22, the ILPA released a template for a deal-by-deal waterfall model limited partnership agreement, which distributes carried interest faster than when carried interest is calculated based on the performance of the entire fund.
In the whole-of-fund model, carried interest distribution is likely to be delayed, and managers are concerned that their investment professionals will be less motivated if they have to wait years to receive their share of the profits, said Bob Perez, Seattle-based principal at law firm Foster Garvey PC.
It helps new managers hire and retain talent by distributing carried interest sooner, said Chris Hayes, ILPA's senior policy counsel.
The NVCA on July 28 released a new enhanced version of its term sheet, which summarizes a deal's main points in a venture capital agreement. The NVCA partnered with Aumni, a venture capital-backed investment analytics company, to provide more than 150 hyperlinks to data showing how often terms in executed venture capital financing contracts are used.
Venture capital firms and company owners can use the model term sheet as a starting point for negotiation and see what "peers are doing and decide for themselves," said Jeff Farrah, Arlington, Va.-based general counsel of the NVCA.
The NVCA also released updated versions of its nine model agreements, which now are used as a negotiation starting point in more than 90% of venture capital manager and business owner agreements, Mr. Farrah said.