4.3 – Legal and Compliance
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Legal & Compliance in Venture Capital
Legal & compliance ensures a VC fund operates within the law and the fund’s own governing documents. It protects the firm, its LPs, and portfolio companies by reducing operational, financial, and reputational risk.
Note: Requirements vary by country, state, fund size, and investor base.
This page is educational only. Always consult qualified counsel and compliance professionals for specifics.
What “Legal & Compliance” Covers
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Governing documents: Following the Limited Partnership Agreement (LPA), side letters, subscription docs, and the GP/ManCo agreements.
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Regulatory obligations: Meeting applicable securities, marketing, privacy, and anti-money-laundering requirements.
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Deal compliance: Proper approvals and signed definitive documents for each investment and follow-on.
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Investor obligations: Honoring fee/carry terms, reporting commitments, and any negotiated side-letter provisions.
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Controls & recordkeeping: Accurate books, NAV/valuation policies, audit support, and retention of required records.
Typical Compliance Cycle
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Onboarding: KYC/AML checks on new LPs; sanctions screening; subscription verification.
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Investing: Verify authority to invest (per LPA), board/IC approvals, signed term sheets and definitive docs, cap-table accuracy, and IP assignments.
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Quarterly cadence: Portfolio valuations (per policy), financial statements, LP reports, and any required regulatory filings.
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Annually: Audit, tax returns/K-1s (or local equivalents), policy reviews, training refreshers, and vendor due-diligence updates.
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Ad hoc: Blue-sky or local notices, material change disclosures, side-letter compliance, and responding to regulator or auditor requests
Controls & Good Practices
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Document what you do; do what you document. Keep policies current and follow them consistently.
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Maintain a single source of truth. Central, access-controlled repository for LPAs, side letters, valuations, and filings.
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Evidence your work. Minutes, approvals, valuation workpapers, and distribution calculations should be reproducible.
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Segregate duties where feasible. Reduce key-person and fraud risk.
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Train the team. Annual refreshers on MNPI, conflicts, cybersecurity, and incident reporting.
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Test periodically. Sample reviews of fees/expenses, valuations, side-letter compliance, and marketing claims.
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Plan for incidents. Written escalation paths for data breaches, valuation errors, or compliance findings.
This is not legal advice. Specific obligations depend on your structure and jurisdiction—work with qualified counsel and registered professionals.
