## Before You Launch an SPV

The legal, structural, and regulatory foundations for running SPVs.

### Learn More

#### [Are You Ready to Launch an SPV? Find Out in 2 Minutes](/content/spv-readiness-quiz/index.html)
Use Sydecar's SPV Readiness Quiz to ensure you're ready to move at the speed of the deal and prevent any operational delays.

#### [3(c)(1) vs. 3(c)(7): What Every SPV Manager Needs to Know](/content/learn/3c1-vs-3c7-spv-exemptions/index.html)
Section 3(c)(1) and Section 3(c)(7) of the Investment Company Act of 1940 (ICA) let special purpose vehicles (SPVs) and private funds operate without Securities and Exchange Commission (SEC) registration.

#### [A Guide to Co-Syndication](/content/learn/co-syndication/index.html)
Co-syndication occurs when two or more syndicate leads team up to run a single SPV, combining their LP networks and sharing economics.

#### [A Guide to Layered SPVs](/content/learn/layered-spvs/index.html)
Layered SPVs are structures that allow emerging managers to access high-demand deals by investing through other SPVs.

#### [A Guide to Legal and Regulatory Compliance for VCs](/content/learn/legal-and-regulatory-compliance/index.html)
Venture fund managers must navigate several core U.S. regulatory regimes, including the Securities Act of 1933, the Investment Company Act of 1940, and the Investment Advisers Act of 1940.

#### [A Guide to Management Companies](/content/learn/management-companies/index.html)
A management company is a separate entity, often an LLC, that handles the operations of a venture fund, including fees, expenses, and regulatory filings.

#### [A Guide to PFIC](/content/learn/pfic/index.html)
Passive Foreign Investment Companies (PFICs) are non-U.S. corporations that meet specific income or asset tests tied to passive income.

#### [A Guide to Secondary Transactions](/content/learn/secondary-transactions/index.html)
Secondary transactions allow investors to buy or sell startup equity outside of a traditional exit, offering liquidity in an otherwise illiquid asset class.

#### [A Guide to Term Sheets](/content/learn/term-sheets/index.html)
A term sheet is a document that outlines the key terms of a proposed investment from a venture capital firm into a startup that is raising capital. It serves as a starting point for negotiating the details of the investment before drafting binding legal agreements.

##### Breaking Down a Term Sheet
A term sheet serves as a framework for investment negotiations, outlining financial and operational terms that can shape the company’s growth, decision-making structure, and potential outcomes in future funding rounds or exits.

To evaluate a term sheet effectively, VCs should be mindful of several critical areas:

- **Valuation & Ownership**: How much is the company worth, and what percentage will the investor own?
- **Investor Protections**: What rights does the investor have in decision-making, liquidation, or future fundraising rounds?
- **Governance & Control**: How will board seats be allocated, and who has voting power over key company decisions?
- **Exit & Liquidity Terms**: What happens in the event of an acquisition, IPO, or another exit scenario?

##### Are Term Sheets Legally Binding?
Most aspects of a term sheet are non-binding, meaning either party can walk away before finalizing legal agreements. However, certain provisions, such as confidentiality clauses and exclusivity clauses, may be legally enforceable.

##### Common Terms Found in a VC Term Sheet
1. **Investment Terms**: Specific terms depend on the type of security being acquired.
2. **Liquidation Preference**: Investors holding preferred shares typically receive their investment back before common shareholders in a liquidity event.
3. **Equity Conversion**: Preferred shares generally convert into common stock.
4. **Anti-Dilution Protections**: Provisions ensure the investor’s ownership percentage doesn’t shrink unfairly.
5. **Investor Participation in Future Rounds**: Some term sheets require investors to participate in subsequent funding rounds to retain their preferred stock.
6. **Board Structure**: Dictates how board seats are divided among founders, investors, and independent members.
7. **Voting Rights**: Often negotiated to give investors a say in major decisions based on their ownership percentage.
8. **Dividend Policies**: Some term sheets include cumulative or non-cumulative dividends.
9. **Drag-Along Rights**: Allows investors to force all shareholders to sell the company if certain conditions are met.
10. **Use of Proceeds**: Outlines how the invested capital will be allocated.

##### Are There Standard VC Term Sheets?
Venture capital term sheets have become more concise, with a growing emphasis on transparency and clear definitions. Y Combinator has published a recommended term sheet template reflecting common industry standards: [Y Combinator Term Sheet](https://www.ycombinator.com/series_a_term_sheet/)

##### What Does Sydecar Look For in a Term Sheet?
When clients share a term sheet with Sydecar, we review it for specific operational alignment focusing on two core areas:

- **Platform Compatibility**: We confirm that the proposed investment is something Sydecar can support.
- **Product Consistency**: We verify the deal details input into the Sydecar platform match the source documentation.