Sign Nebraska Travel Agency Agreement Fast

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okay so limited partnerships as the book says these this form of business organization is becoming less and less frequently used and the reason is that a common law at least it had some owners restrictions so what it required was that you had to have a type of partner called a general partner who's in charge of managing the enterprise and then you can have a series of other partners who are called limited partners now the benefit of being a limited partner was that you had limited liability but the problem with being a GP was while you were entitled to participate in the management of the partnership you had joined several liability for the liabilities of the partnership see how to choose are you going to be involved but be exposed or you're going to be not involved and they're forgiven and liability and that was annoying to people that that restriction existed especially when LLC's came along because LLC's have very much the same attributes of a limited partnership for example they have passed through taxation but they don't have the same restrictions you can have members of an LLC who have limited liability but who can all participate in the management of the LLC and so as soon as that became available as an option why I mess around with limited partnerships right I will tell you though that lawyers were smart and they realized hey if that's the problem I have an answer I'll just set up my general partner as a LLC or an Inc all right what does that let me do well it has a liability blocker if you will because now I can have an owner of this entity who actually does the decision-making and runs the business but because that person is a shareholder of an entity that has limited liability the liabilities of limited partnerships stop at this level and don't go all the way up all right and so in the end that picture resembles the outcome here by just simply being creative with the structure but it's messy and complicated why not just do this right and so for that reason we don't see these very much except we do see them in the so called alternative asset management business and that means in a venture capital or private equity or hedge funds right they tend to be organized as limited partnerships although we do start we have started to see quite a few of them show up as limit LLC's the predominant form for this industry is LP that's probably driven mostly by tradition people who invest in these kinds of funds are used to seeing limited partnership agreements and they don't want to learn a new kind of agreement it just you know takes time and why bother so let's just stick with what we've been used to it's pretty much the explanation and so that's the space you're going to be in and it's a very big and obviously very important space that lawyers were involved in you do still have to understand what limited partnerships are and how limited partnership of agreements are set up and so with that we're going to take a quick tour through the limited partnership agreement we were given in the textbook it's a limited partnership agreement for a venture capital fund these call the Wildcat Capital Partners fund for LP and with that example we'll go through a little discussion of how the alternative asset business works and how that the business deal in those funds gets translated into a limited partnership agreement okay so let's just talk about the basic deal that is behind an agreement like this one right the wildcat Capital Partners deal well we have a limited partnership right in this case we have a GP that's called wildcat Capital Management LLC right LLC and that's the GP right and we have a bunch of LPS right who are identified for us on the back right so this is the schedule of limited partners right and we have a list here of all the money they are putting into our limited partnership and so the deal is our LPS are putting money into the fund and in exchange for that what are they getting right so they're investing money and Wildcat Management Capital Management is saying to those LPS that it can find profitable investment opportunities in the venture capital space all right so it's going to do VC investments right that's investing in usually startup companies or early-stage companies right and so what's going to happen is with this Wildcat management expertise it's deal flow it's access to transactions it's going to go around and take the pile of money that was invested by the limited partners and put it into these VC deals and then hopefully down the road those VC deals are going to return to the fund you know 10 times or more of the money that was invested right that's the idea that's the model and now why is that deal being made in this limited partnership well presumably Wildcat Capital Management has some kind of track record some kind of way of establishing to the limited partners that it's likely and better than they are in finding way to invest capital in good transactions that have this kind of profit potential right and so in a sense this is a way of hiring wildcat for their investment talent right so these folks are putting in money that's their contribution these folks are contributing Talent right and we see that in the agreement quite obviously right because the is very clear capital contribution here article four says no capital contributions shall be required the general partner so even though they're the general partner and as we'll see later they're entitled to certain economics are going to get some of the money that gets earned they don't de put any money in right it's interesting whereas each limited partner shall contribute to the partnership the amount set forth on schedule okay you saw that a second ago but look these folks are putting in a total of a hundred and thirty-five million dollars collectively right the general partner is putting in nothing right and so obviously there has to be something else that Wildcat is doing in order to get its role as the general partner and the answer is it is presumably convinced it has convinced the LP that it can find good deals right and that's what it's offering okay so what else is going on in this agreement well presumably there is a assumption about what the reward will be if those deals turn out to be successful and so we can see later on a provision that talks about let's see allocations of profits and losses so our credit in charge the case may be as partners as to the partners as follows 80 percent shall be allocated to the limited partners and divided among them in proportion to their capital contributions so based on how much they put in how much the 135 million each of them put in and 20 percent reallocated to the general partner okay well what does that mean that means that let's say this partnership invests a hundred in company Y and then five years later it sells company Y for 500 ie creating a four hundred profit 20 percent of that 400 profit or eighty is going to belong to the manager even though the manager didn't put any money in the deal remember they made no capital contribution of limited partnership and the other 320 the 80 percent is going to go get paid out to the limited partnership limited partners in consideration of their investment so they're putting in all the money but only 80 percent of the profits are coming back 20 percent go back to Wildcat well so why is that and again the answer is you got to pay for talent right and so presumably these folks are so excited about these folks ability to make money with their money they're willing to cut them in to the tune of a 20 percent on what we call a carried interest meaning it's carried by them because they put in all the money even though they get part of the interest right so that's a very common structure in a hedge fund private equity fund venture capital fund but is that the end of the story right what else is going on well we're going to see here in a second there are other Oh not only are they getting paid that carried interest they're also getting paid fees for their services right so one it says they get reimbursed for everything it took to start partnership up so the legal fees of setting up this Agreement they get reimbursed for it extent they paid it out of their own pockets but more importantly it says they get paid by the partnership in advance on the first day of each month a management fee equal to 1/6 of 1% of the then net value right can you do the math that basically means they get a 2% per annum fee on the total value of whatever's inside this partnership so initially it'll be 135 million dollars and thereafter - based on how much the things they invest in our work at any given time you take that and add it all up and 2% of it is going to get paid to these guys once they go so that is a on top of the carried interest now why is that why are they getting it management fee and notice that management fee is not dependent on their being profits in fact it's based on how much the assets under management are here so even if LP never made a dime in profits from their investments they'd still be paying out this 2% per annum management fee - wild cat and the answer is again in order to induce the people who make up wild cat to go to work finding profitable investments for them the LPS have to fund the cost of doing that and the purpose of this 2% per annum atrophy as we see is to allow the general partner to pay the expenses of operating itself and of doing the deals all right so here we see the cost of normal legal and accounting fees associated the acquisition of investments in portfolio companies is included it is meant to be paid by the general partner out of the proceeds of having received these periodic in fees okay how long is all this meant to last well how long are we going to give our manager to go find 135 million dollars worth of deals to manage those deals so that the companies reach a stage where they are successful and then turn around and sell them right so that there's realized proceeds that can then be distributed 80/20 right and the answer is the general rule is ten years that's industry standard for so this agreement was created in 2011 and notice we can find section 3a term it says the partnership shall continue up to the 20 20 20 right which is roughly ten years later a little shorter right plus the addition of one year three one-year extensions now why might a General Partner elect to extend the partnership longer well it's probably because sometimes it takes longer than you think in order to sell all of your investments they've accumulated this portfolio of venture capital companies and some of them are still hanging around and that gives them a little leeway to get them old sold okay what other things are worth sussing out well if you think about it if you are a bunch of well-to-do institutions individuals families and you are placing a large amount of money 135 million dollars at the discretionary disposal of a group of investment managers okay and you're giving them ten years plus three extra years that they need it to put that money to work and make profits presumably and if they do oh and as they are doing that you're willing to pay them two percent of the amount of money that's in the pot every here as a way of the Fuhrer disperser was a cult dealing with their costs including probably salaries and benefits and so on right so they're only making a couple million bucks a year at least just by being bit just by having money in the kitty right and then on top of that you're going to give them a 20% carried interests of profits interests in whatever profits are realized by this venture right what are you going to want what are you going to expect to see in your deal in your limited partnership agreement well so for example how would you feel about it if Wildcat management the team that was investing the money that you had entered into this 10-year deal with came to you one day and said hey we're selling out where we've decided that we don't want to do this anymore and that we're going to sell our 20% interest our GP position to someone else who is then going to take over and invest the money for you right now you would imagine that the LPS would want to stay in that because obviously they were very interested in who it was they engaged in the first instance and so they would be equally interested in making sure that the person who would take over if that were ever to happen is someone acceptable to this and so as you would imagine the limited partnership agreement will say find it if we can transfers all right transfers of the general partners interest the general partner shall not transfer sell encumber market assign or otherwise dispose of any portion of his interest right so not only can it not sell its voting position obviously it can't even sell some stake in its interest in the partnership because that would water down the incentives that are in this arrangement between the LPS and the Wildcat management team the LPS want the wild cash management team in the seat for the period that ship is often money and that's what this says what else would you look for well do you think the folks at Wildcat management should be able to have a Wildcat fund five or six or seven or other activities that distract them from the focus they're supposed to have on investing 135 million that these guys have given them to do what I've managed and the answer again of course is you would expect that not to be permitted so let's see here this provision says while they may have some existing venture capital partnerships and presumably they do because that's the basis on which you decided if they were good at it right the deals we've been doing so far but from now on can they set up something similar another fund that's going to have similar activities to fund for and the answer is no unless the majority of the limited partners agree or 75 percent of the money 135 million has been put to work right so that's the idea is that until Wildcat management has done most of the work of deploying the money in the fund in the venture capital investments they have to focus on this fund can't start another one and again that's not super surprising provision given the nature of the deal there and so that's why we see this provision in the limited partnership agreement what else how about letting other people invest okay so suppose there's someone out here a stranger if you will to the partnership should Wildcat allow them to participate in one of the deals that the LT is doing now there could be very good reasons for allowing that to happen you know obviously it's probably not a bad idea to let the management team for example of the particular startup invest or maybe there's another co-invest or another fund that has a particular expertise in the deal in this that the deal is in or maybe that other fun brought the opportunity to fund for right and therefore is being compensated for that by letting them co invest in the deal there are all kinds of reasons why it would be a good idea so what does this provision say right it says that this general partner may not participate in that side investment right in other words they can't make any money from the fact that somebody else invested in the deal they have to make their money through the limited partnership through their carry interest right and why is that so important well because you want to make sure that when they make the decision about whether or not to let the stranger invest they are making that decision from the point of view of someone who has all their eggs in this basket in other words from the point of view of the shared incentives they have with a limited partner right Wildcat lets stranger in the deal because strangers going to make the deal better for the benefit of the limited partners of fun for and themselves via their carry not by some side deal right again a provision that makes sense when you understand the economics of venture capital investing a final provision that might need a little explaining is if you look at this document you know it's pretty favorable to the general partner most of the provisions are telling you it's all up to the GP the GP and the LP has to rely on the GP to for you know to do a good job but there's one place where i is specifically made clear that if the GP and the LP disagree then some third party has to come in and decide what the right answer is okay and that's when it comes to the valuation of the investments right now why would we think that would be the one place where some third party the idea of a arbiter or outside the decision-maker is contemplated by our partner agreement why would we think that we can't rely on either the GP to make the right choice or to give the GP the discretion to make the choice rather than inserting this idea of having there be some kind of dispute resolution process and the answer is well what's value mean why is it important when is it an issue that's going to come up and well when we remember how the management fee is calculated I remember the 2% per annum what is it calculated forms 1/6 of 1% or 2% a year of the then net value okay so a value is what drives how much the GP gets paid every year right and so you can see why it's quite normal for an agreement not to give someone who's getting paid the ability to decide how much that pay is every year for themselves without there being some mechanism for there to be a third party who can revisit that determination right because there's a natural conflict of interest right if I get to decide how much I'm going to get paid every year I might be a little bit more generous than might be justified and so we put in place a mechanism quite naturally to counter that human nature ok so again those are the kinds of things that we would expect to see in our limited partnership agreement for a venture fund they are explained by the story the narrative behind what's going on right so this is a very standard form of document but it has features in it that are driven by you know the nature of the deal and so what's interesting is to understand the Nair the backstory the business that terms that underlie what otherwise looks like a pretty legalistic document