Emerging Fund Manager Advisory
“Launching a first fund is an act of entrepreneurship. You’re building a business—one that happens to invest in other businesses. The legal foundation you set on day one determines whether you can scale to Fund II, III, and beyond.” — John Montague
Emerging managers—first-time and second-time fund managers—face a unique set of challenges. They need institutional-quality legal documents to credibly raise from sophisticated LPs, but they’re operating with the budget constraints of a startup. They need to navigate SEC and state regulatory requirements, structure carried interest and management fees in a way that attracts and retains their investment team, and build operational infrastructure while simultaneously sourcing deals and managing a portfolio.
I work with emerging fund managers because I understand their position. I built my own firm from the ground up in North Florida, so I know what it’s like to be the founder, the operator, and the rainmaker simultaneously. That entrepreneurial perspective, combined with over 15 years of experience working with technology companies and investors—including structuring venture fund and private equity transactions at Locke Lord LLP (now Troutman Pepper Locke), an AM Law 200 firm—means I deliver big-law-caliber fund formation work with the practical judgment and cost sensitivity that an emerging manager actually needs.
What I Handle for Emerging Fund Managers
Fund formation strategy and structuring. Before drafting a single document, I work with emerging managers to think through the structural questions: What’s the fund’s investment thesis and how does that affect entity selection? Is a 3(c)(1) fund sufficient for the anticipated LP base, or should you structure for 3(c)(7) to accommodate growth? Should you establish a separate co-investment vehicle? What’s the right management fee structure for a small fund? I help managers think through these decisions with the benefit of having seen what works and what creates friction as funds scale.
Institutional-quality document preparation on an emerging manager budget. I prepare the full suite of fund formation documents—limited partnership agreement, general partner operating agreement, management company agreement, private placement memorandum, subscription agreements, and side letter forms—to the standard that institutional LP counsel expects. The quality of your legal documents is one of the first signals an LP uses to evaluate your professionalism and readiness. I don’t cut corners on document quality; I find efficiencies elsewhere to keep the engagement cost-effective.
Regulatory compliance and adviser registration. Emerging managers must determine whether they need to register as investment advisers with the SEC or their state regulator, or whether they qualify for an exemption. The venture capital fund adviser exemption under Section 203(l) of the Investment Advisers Act is available to managers who solely advise “venture capital funds” as defined in Rule 203(l)-1. I advise on exemption eligibility, prepare or review Form ADV filings, and establish the compliance policies and procedures that exempt and registered advisers need.
GP economics and team structuring. How the GP entity is structured internally—who owns what percentage of the management company, how carried interest is allocated among partners, vesting schedules for carry, what happens if a partner leaves—can make or break a fund’s long-term stability. These are sensitive conversations that require both legal precision and practical wisdom. I draft GP operating agreements and carry allocation plans that align incentives and anticipate the scenarios that partnerships don’t want to think about at the start but inevitably face.
LP relationship management and reporting. Emerging managers sometimes underestimate the operational burden of LP reporting and communications. I advise on establishing reporting cadences, quarterly letter templates, capital call and distribution procedures, and LP advisory committee governance—building the operational backbone that lets managers focus on investing rather than administration.
What Makes Emerging Manager Representation Different
Established fund managers raising their third or fourth fund have a track record, existing LP relationships, and operational infrastructure. Emerging managers have a thesis, a network, and conviction. The legal work needs to bridge that gap—presenting the fund as credible and institutional while remaining practical and affordable.
The most important thing I do for emerging managers is help them avoid expensive mistakes that are hard to fix later. Choosing the wrong entity structure can create tax inefficiency. Setting management fees too high can turn off LPs; setting them too low can starve the operation. Allocating carry without vesting exposes the fund to a partner leaving with economics they haven’t earned. Failing to qualify for the venture capital fund adviser exemption can trigger registration requirements and compliance costs that a small fund can’t absorb.
As someone who teaches Entrepreneurial Law at the University of Florida’s College of Business, I see the pipeline of future fund managers—operators, engineers, and investors who have deep domain expertise but are navigating the legal and regulatory landscape of fund management for the first time. My goal is to make that navigation straightforward, so they can focus on what they’re actually good at: identifying and supporting great companies.
John’s Tip: Before you spend a dollar on legal fees for fund formation, have three conversations: one with a potential LP (to understand what they need to see in your materials), one with an established fund manager (to understand the operational realities), and one with your tax advisor (to understand the personal tax implications of GP economics). These conversations will save you time and money in the legal process because you’ll know what you actually need—not just what a template says you should have.
Frequently Asked Questions
How much capital do I need to launch a venture fund?
There’s no legal minimum, but practically, the fund needs to be large enough to execute its investment strategy and sustain operations through the investment period. Micro-funds in the $2-10 million range are common for first-time managers, particularly those focused on pre-seed and seed-stage investing. The management fee (typically 2% of committed capital) funds the manager’s operations—so a $5 million fund generates $100,000 annually in management fees, which may or may not be sufficient depending on the team size and operating model. I help managers model the economics to ensure the fund is viable at its target size.
What is the venture capital fund adviser exemption?
Section 203(l) of the Investment Advisers Act exempts from SEC registration any adviser that solely advises venture capital funds. To qualify, the fund must meet the definition of a “venture capital fund” under Rule 203(l)-1, which requires (among other things) that the fund invest at least 80% of its capital in qualifying investments in qualifying portfolio companies, not borrow or otherwise incur leverage exceeding 15% of committed capital for more than 120 days, and not offer redemption rights to investors. Exempt advisers must still file Form ADV with the SEC as “exempt reporting advisers” and comply with antifraud provisions.
Should I form my fund in Delaware?
Delaware is the dominant jurisdiction for venture fund formation, and for good reason: its Limited Partnership Act is well-developed, its courts (particularly the Court of Chancery) have extensive experience with partnership disputes, and institutional LPs and their counsel expect and are comfortable with Delaware entities. Unless there’s a specific reason to use another jurisdiction (such as a state tax advantage for the GP), Delaware is the standard choice. I form the limited partnership, general partner LLC, and management company LLC in Delaware for most fund clients.
How long does it take to form a venture fund?
From engagement to first close, fund formation typically takes 8 to 16 weeks, depending on the complexity of the fund structure, the speed of LP diligence, and whether side letter negotiations are involved. The legal document preparation itself—LPA, PPM, subscription documents, and ancillary agreements—takes approximately 4 to 6 weeks for a straightforward fund structure. I advise managers to begin the legal process well before they expect to hold a first close, as LP diligence often surfaces questions that require document revisions.
About John Montague
John Montague advises emerging fund managers on venture fund formation, regulatory compliance, and GP structuring. Having built his own firm from the ground up and spent over 15 years working with technology companies and institutional investors—including at Locke Lord LLP (now Troutman Pepper Locke), an AM Law 200 firm—John combines institutional legal expertise with the entrepreneurial perspective that first-time managers need. He holds a J.D. from the University of Florida’s Fredric G. Levin College of Law and an accounting degree from Stetson University, and serves as a visiting professor of Entrepreneurial Law at UF’s College of Business. Montague Law has offices in Fernandina Beach and Coral Gables (Miami), Florida.
Contact: 904-234-5653 | Schedule a Consultation