The allocation of shares in the Management Company, where the owners or managing partners of a Venture Capital firm are located, should be based on the overall contribution of each partner. This includes factors such as the amount of capital contributed, the time and effort dedicated to the firm, and the value each partner brings in terms of expertise, network, and other resources. It's recommended to have a clear agreement outlining the share allocation and responsibilities of each partner.
Consider very carefully the following factors while deciding on the allocation of shares between two owners and/or managing partners:
- overall contribution;
- value (expertise, network, etc.)
It is critical to have a clear understanding, as this is a business relationship that must last 10 years minimum, if not 15 or more. It is also important to think carefully about allocating the shares equally between the 2 owners/managing partners. This can create a deadlock situation (depending on certain majority thresholds in the Management Company's operating agreement) where decisions cannot be made quickly and in an efficient manner.
It is common for one managing partner to hold a very slight majority in order to facilitate ease of decision making. For those working with Decile Partners, carefully review the Majority of Interests and the Majority of Managers thresholds in the Alignment Agreement as well.
It is common for one managing partner to hold a very slight majority in order to facilitate ease of decision making. For those working with Decile Partners, carefully review the Majority of Interests and the Majority of Managers thresholds in the Alignment Agreement as well.