Private funds are investment vehicles formed by investment managers, also known as sponsors, looking to raise capital in an effort to make multiple investments under a specified investment mandate. Private funds are "blind pools" under which passive investors make a commitment to invest a set amount of capital over time, entrusting the fund's sponsor to source, acquire, manage, and divest the fund's investments. Contact The Chawla Law Firm in Houston to learn more and keep reading to discover the essentials of forming and planning a private equity fund.
Forming and Planning a Private Equity Fund
Define Your Business Strategy
The core of your private equity fund is the business strategy, which outlines your financial plan and the focus of your fund’s goals. While there are a variety of private funds with different investment types and purposes, it is important that you determine your fund’s purpose from the start. This may include forming funds for venture capital (investment in a promising start-up or early stage venture), growth equity (investment in an established, growing company), buyouts (investments in mature companies by outright purchasing them or one of their divisions), or distressed funds (investment in debt securities in financially distressed companies). In addition, your business strategy should highlight potential focus areas such as geography, industry, operation, and other priorities of your fund.
Operational Plan & Timeline
To establish cash flow expectations, chronological projections, future investor targets, and an executive summary, it is critical to create an operational plan and timeline. During this phase, it is also wise to explore resolutions for potential portfolio-related threats that may develop throughout the lifespan of your fund. The Chawla Law Firm can act as your advisory board during each step of your fund’s development so you can establish your fund with confidence. Contact Us
Establish Investment Vehicle & Fee Structure
As the founder of a private equity fund, you will have the right to decide the investments that drive the fund as well as the fee structure in place. The professional team at The Chawla Law firm will help you determine a proper fee structure based on your experience and ability to attract new capital. Additionally, we will draft agreements for limited partnership and other operational rights that determine loss association and liability.
Ultimately, this all leads to establishing terms, partnerships, agreements, private placement memorandums (PPMs), questionnaires, and marketing materials that will help you formulate a value proposition and engage with others to invest in your fund. You must prepare to invest your capital alongside institutional, accredited and/or sophisticated investors to jump start the fund and realize the anticipated returns as soon as reasonably possible. SEC compliance and determining the applicability of an exemption or safe harbor is crucial at this stage. The Chawla Law Firm will guide you through the process of establishing your private equity fund, which includes fundraising, fund closing, and the principle legal documents necessary in establishing a successful fund.
This is a broad overview of how to properly form and plan a private equity fund and when you resource our team at The Chawla Law Firm, we will help you navigate all of the more intricate details. Our goal is to provide you with services that can help your private equity fund grow and thrive, so if you are in need of a professional attorney who can help you do just that, reach out to Chawla Law Firm in Houston today!