So the cat is out of the bag: Jay-Z is working with Jay Brown and Walden Venture Capital’s managing director, Larry Marcus, to launch a new venture fund: Marcy Venture Partners. Jay Brown is the president of Roc Nation, the massive entertainment firm founded by Jay-Z in 2008.
As the world’s third largest rapper, with a net worth of about $610 million, Jay-Z is not new to the world of startups and venture funding. He invested in Uber’s series B funding in 2011, when their stock was worth 200 times less than it is today. He has also invested in Jetsmarter, Robinhood, and Julep, and he is a prominent backer of Promise. Larry Marcus is an old hand as well. He made his name as an early backer of Netflix and Pandora.
In many ways, Marcy Venture Partners represents the culmination of an increasingly rare story about the American Dream. Jay-Z started out selling CDs out of his car. He launched his own record label because no major label wanted to sign him. And the rest is history.
This story have people asking: so what exactly do I need to start my own venture fund? Today, we’re providing a quick overview of the answer.
Starting Your Own VC Fund
From a purely economic perspective, starting your own VC fund requires one thing above all: a track record. You need to convince investors to back your fund, and that only works if they trust your judgment. There are a few ways to get started on building that track record. The first is to start out small, as an angel investor, and to be really good at it.
If you are able to spot successes, and back the right startups, your reputation will precede you. A second, much more predictable, way to boost your reputation is to go work for an established venture fund and make your name there. Finally, you always have to option to partner with someone who already has a track record.
Gaining the trust of startups and investors is a unique process for everyone. When it comes to the legal aspects of getting into the capital funding business, we have the specifics.
In most cases, venture capital funds are set up as limited partnerships. The fund itself (set up as an LLC) is then managed by a general partner who acts as the investment adviser to the portfolio of companies. These companies are almost always set up as Delaware corporations.
The General Partner (Fund Manager)
Investment advisers that manage only venture capital funds are exempt from registration with the Securities and Exchange Commission (SEC) (due to amendments to the Advisers Act enacted in the Dodd-Frank Act and the Consumer Protection Act). The SEC sets out very specific requirements for the definition of a VC Fund. If the fund complies with all those requirements, the fund manager need not register as an investment adviser with the SEC. In all other cases, registration is required.
The Venture Fund Itself
As long as the venture fund has less than 100 investors who obtained their securities via private placement, the fund need not register with the SEC under the Investment Company Act of 1940. If there are more than 100 investors, registration is required.
Depending on how the venture fund raises its capital, it will be subject to all the normal SEC requirements and regulations. In other words, if fundraising does not fall within one of the exemptions provided for by the SEC, securities must be registered with the SEC.
Hire a Commercial Attorney Today
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