🎉 Happy Friday, funds family!

This is going to be the first in a multi-part series on negotiating co-GP agreements. These are essentially JVs between two or more parties at the GP level. Then, that GP serves as the GP of an investment fund or syndication.

🔍️ Why do people enter into co-GP relationships?

Co-GP relationships form because one or more parties bring (1) investment or operational expertise and/or (2) money to the table. We’ll call group 1 the operators and group 2 the capital providers (or Mr./Mrs. Moneybags 💰️, depending on the jurisdiction). In some cases, you may have multiple operators or multiple capital providers.

🤝 15 common co-GP deal terms

Below are 15 common negotiating points. Remember, these are agreements between the members of the GP itself, not agreements between the GP and the LPs. Common terms as between the GP and LPs are explained 🛠️ in this article.

Structure and Economics

1. Capital Commitment Structure: Define the capital provider's commitment amount, timing, and any special fee arrangements (e.g., reduced management fees, reduced carry, commitments that ratchet up under certain circumstances).

2. GP Economics: Specify the capital provider's percentage of carried interest in the fund GP (often ranging from 10-50%).

3. ManCo Economics: Detail the capital provider's share of management fees and other fee income (ranging from 15-50%).

4. Management Company Investment: Include any direct investment into the management company itself (for working capital) and terms for repayment, if any.

 Governance and Control

1. Decision Rights: Clearly define day-to-day control versus major decisions requiring capital provider approval (e.g., amending governing agreements, hiring/firing personnel, related party transactions).

2. Investment Committee Structure: Establish composition, voting thresholds, and veto rights for the investment committee at the GP level.

3. Advisory Board Representation: Determine whether the capital provider has the right to appoint a representative to serve on LP advisory boards or committees.

 Future Funds and Protection

1. Subsequent Fund Rights: Outline the capital provider's rights to invest in and receive economics from future funds, including notification periods (e.g., 30-90 days before first closing).

2. Anti-Dilution Protection: Include provisions preventing dilution of the capital provider's economics without consent, with procedures for potential restructuring if new strategic investors are added.

3. Buyout Mechanism: Establish a framework for a potential future buyout of the capital provider's interests, including valuation methodology.

 Operational Aspects

1. Key Person Provisions: Define time commitment requirements for key principals and consequences if these aren't met (e.g., control rights shifting to capital provider).

2. Information Rights: Specify reporting requirements, including audited financials, quarterly reports, and access to books and records.

3. Co-Investment Rights: Grant the capital provider rights to participate in direct investments outside the fund structure.

4. Exclusivity/Non-Compete: Include any restrictions on the operator's ability to pursue competing funds or strategies.

5. Publicity and Branding: Address how and when the parties can reference each other in marketing materials and announcements.

Over the next several weeks, we’ll explore each of the above points in detail. Until then, enjoy the weekend!

⚠️ Note: This newsletter is for informational purposes only and nothing should be considered legal advice. For that, hire a lawyer! I am a lawyer, but not your lawyer (unless I actually am your lawyer because you’ve signed an engagement letter and we’re working together). This newsletter may be considered attorney advertising.