LP Co-Investment Term Negotiation: Challenges and Solutions by Evolve Venture Capital
Negotiating co-investment terms between Limited Partners (LPs) and fund managers is a complex process that often puts strain on the partnership opportunity. LPs are usually faced with vague or overly restrictive term sheets that hinder their investment flexibility and/or investment returns. Differences in co-investors' and lead investors' interests can prolong the negotiation process and uncertainty, ultimately leading to missed opportunities. Unclear terms related to fees and expenses, governance rights, exit preferences, and follow-on investments obliterate co-investment negotiation clarity and level of risk for all parties involved.
Co-investment term sheets are essential legal documents that enumerate the rights, duties and economic rights of Limited Partners (LPs) and lead investors. Unfortunately, these term sheets often lack balance or clarity which can lead to conflict when negotiating these deals.There are many examples of LPs potentially losing their appropriate protections in co-investment transactions without holding up deals. There are occasions in which startups and funds have delays in funding rounds and even more complicated exits due to poorly negotiated co-investment agreements and transaction terms. Without being able to have a standardized negotiation strategy and process, managers will often go through a disorganized negotiation process while incurring legal costs which improve partnerships.
How Evolve Venture Capital Provides Effective Solutions
Evolve Venture Capital understands that negotiating co-investment terms in a seamless and transparent manner is critical to the overall investment experience. We guide LPs through complete review and negotiation of term sheets, balancing LP needs with lead investor collaboration. We concentrate on:
Comprehensive Term Sheet Analysis: We disassemble difficult clauses, detailing risks and potential changes.
Custom Negotiation Strategies: Customized tactics that align LP interests with fund's investment objectives while achieving a fair balance of economic and control rights.
Open Communications Infrastructure: We encourage open conversations to ameliorate any misunderstanding and build trusts between co-investors.
Developing Standard Practices: We develop a standard practice for agreement process to draw on industry benchmarks to minimize cumbersome negotiations.
Post-Negotiation Consulting: We will advise you fully on the on-going governance, reporting and follow-on investment aspects of the cooperation.
LPs Working with Evolve Venture Capital
Better clarity on fee structure and carried interest arrangements with LP,
Balanced governance and voting rights that offer LP oversight but don't interfere with fund management,
Defined liquidity and exit provisions designed to protect investor capital,
Efficient timelines on negotiations to eliminate overall deal fatigue and legal fees,
Increased comfort in co-investment opportunities that align with intended long-term return strategies.
