Tokens of Wisdom

Like I mentioned back in Episode 2, there are some down sides to relying on the private fund exemption – at the SEC level, the only “down” side is an AUM ceiling after which you have register (150mm…see ep 32). But many states require extra stuff if you’re managing any 3c1 funds: this varies by state, but many impose annual audit requirements and either increased investor accreditation thresholds, restrictions on who can pay performance-based comp, or both. EXCEPT those restrictions don’t apply to managers whose only clients are “venture capital funds”.So what is a “venture capital fund”? Tune it to today’s episode to find out!Key Points From This Episode:The “venture capital fund” definition. Quick summary: It’s a “private fund”;it represents to investors that it’s is pursuing a venture capital strategy;it severely limits any borrowing;it provides no redemption rights to investors except in extraordinary circumstances;it’s not registered under the Investment Company Act; andImmediately after acquiring any asset, it must hold no more than 20% of its aggregate capital contributions and uncalled commitments in assets that are not “qualifying investments”.What is a “qualifying investment”?Why do people hate Congress?Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

One of the underappreciated tasks a new fund manager needs to complete is its management company operating agreement. This is the agreement among the principals of the management company that controls how the entity is governed, how economics are split among the principals, etc.Key Points From This Episode:Why is it important to paper these agreements?Why they sometimes get put on the back burner.Brief discussion of the four primary areas to consider:Economics;Corporate governance;Exit provisions; andRestrictive covenants. Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

Recently, it seems like tokenizing things is all the rage. Everybody wants to talk about tokenizing real estate or art or securities or any other “real world asset”. Heck, even “RWA” has become a commonly understood acronym to describe things that exist in tangible form, as opposed to just digitally. Well, private investment funds are no different, and I’ve noticed an uptick recently in managers inquiring about tokenizing their fund offerings. Today’s episode is all about tokenized funds.Key Points From This Episode:What are RWAs?What is a tokenized fund?Similarities and differences in the launch process for a tokenized fund vs a traditional fund.Considerations unique to tokenized funds.Theoretical and practical reasons to tokenize a fund offering.Benefits and drawbacks to tokenized fund products.Is it worth it? Preview – it depends. Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Tokenized Fund Blog Post - https://hedgefundlawblog.com/tokenized-private-funds-hedge-funds-vc-funds.html Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

March Madness means something different for compliance professionals and investment management lawyers: it means a crush of ADV Amendments! Tune in to today’s episode for some nice bedtime listening about the ins and outs of one of the world’s least interesting regulatory filings. Key Points From This Episode:Who files a Form ADV?When are regular amendments due?What kinds of information typically change?How this amendment relates to a investment adviser registration obligations.Why is this similar to your annual gutter cleaning? Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

What does My Cousin Vinny have to do with third party marketers? Tune in to today’s episode to find out! Hint: nothing. Key Points From This Episode:What makes My Cousin Vinny such a great movie?How can I pay my cousin commissions for selling interests in my fund?Why your cousin is unlikely to be moonlighting as a broker-dealer. Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

A couple months ago, I did an episode discussing the Corporate Transparency and concluded that, while it’s annoying and kinda stinks, it’s not that big of a deal. Well, we’re now a couple weeks into the reign of the CTA and I’m back to tell you….I was wrong (kinda).Key Points From This Episode:Why CTA compliance might be annoying for your typical fund manager.Examples of the kinds of CTA amendments that might be necessary on an ongoing basis.Multiple analogies of questionable effectiveness. Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

Christmas is right around the corner, and that can only mean one thing: Dave’s year-end podcast episode!! As we say goodbye to 2023 and its rock-bottom crypto prices, let’s raise a glass to the future, and open an ear to a quick rundown of the year’s most significant crypto and fund storylines. Key Points From This Episode:Turning 2022’s frown upside down.BTC price action.A walk down memory lane, from bank runs to bull runs. Happy New Year!!Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

I talk to a lot of 1st time fund managers and one common mistake I hear is that they think the fund entity is their business. But it’s not. The fund is a passive investment vehicle. It might be the focus of your business; it might be your business’s only revenue source; it might take up almost all of your time; but your management company – not your fund – is your business. In today’s episode we’re talking all about management company structuring considerations. Scintillating stuff!Key Points From This Episode:Common management company structuring considerations.Quick rundown of the most common management company structures, from simplest to most complex:Single entity;Bifurcated;Bentley.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Soroban Capital Opinion - https://www.jdsupra.com/legalnews/tax-court-hampers-funds-ability-to-1321278/#_ftn1Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

Exciting (?) new law hits the books that will affect almost every business entity formed or operating in the United States! It’s the Corporate Transparency Act!Key Points From This Episode:What business entities are captured by the new law?What does the new law require?What is FinCEN?What kinds of entities are exempt from the CTA (hint, registered CTAs are among them)?What are the deadlines?What if I don’t do it?Why should I care?Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

Today we’re keeping the performance-based comp discussion going and looking at “Carried Interest” or “Carry” for short: performance-based compensation for closed-end funds – VC, PE, etc. One big structural difference from open-ended funds is that the GP typically doesn’t get performance-based comp on paper (i.e., unrealized) gains. For a refresher on closed-end vs open-end funds, listen to Episode 9.Instead, proceeds from monetization events get distributed among the partners in proportions dictated by a complicated cascading mechanism in the fund’s offering documents. That cascading mechanism is called: The Waterfall!Key Points From This Episode:Background on the Waterfall concept and an elegant analogy to help you visualize it.Examples of the waterfall in action – from simple to more complex.Descriptions of “preferred return” and “GP catchup” provisions.Ways to make the Waterfall even more complex.American vs European waterfalls.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

Building off our last episode’s discussion of performance allocations and high water marks, today we’re tackling hurdle rates. If you need more background on today’s topic, listen to Episode 24 first.Key Points From This Episode:What is a Hurdle Rate and how does it work?(Not so) surprising fact about Olympic gold medals.Hard hurdle rate vs Soft hurdle rate.Illustrative examples.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

Today we’re talking all about High Water Marks in a hedge fund-style vehicle. Of course, to understand HWMs, first you need a basic understanding of how performance allocations work, so we start there.Key Points From This Episode:Basic performance allocation mechanics.What is a High Water Mark and how does it work?A few ways to make it more complicated.Illustrative examples with math simple enough even I can do it.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

What’s a fund expense vs a manager expense? Fund managers are often curious about what expenses they will be responsible for, and what expenses the fund will cover itself. This is especially important for first-time managers forecasting cash needs for their new management company business.For the most part, if you accurately and fully disclose to fund investors what expenses the fund will bear, the fund is able to bear those expenses. But what’s typical? What will investors expect, and what might cause them to run for the hills? Listen up to find out! Hint: they don’t want to pay for your super yacht. Key Points From This Episode:Expenses typically borne by fund vehicles.Expenses typically borne by the management company.What expense provisions are often negotiated?Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

Feels like a lot has been happening in the crypto world lately, and while none of these stories/events is individually worthy of its own episode, everyone loves the occasional news roundup. So in this episode we take a quick ride through some recent newsworthy events affecting The Space. Key Points From This Episode:Grayscale’s court win.Financial Accounting Standards Board’s new fair value accounting rules for digital assets.New proposed Treasury Department rules.SEC’s enforcement action against NFT issuer Impact Theory.Terraform Labs Order.Industry groups sue the SEC to block implementation of the private fund adviser rule.Celebrating circles.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Grayscale win: https://www.reuters.com/legal/us-court-says-sec-wrong-deny-grayscales-spot-bitcoin-etf-proposal-2023-08-29/FASB Fair Value Accounting: https://www.coindesk.com/policy/2023/09/06/fasb-says-crypto-assets-should-be-marked-at-current-values/#:~:text=The%20first%20U.S.%20accounting%20rule,Accounting%20Standards%20Board%20(FASB).Treasury Department Proposal: https://dailyhodl.com/2023/09/08/u-s-treasury-and-irs-propose-new-rules-that-broaden-client-information-crypto-businesses-are-required-to-file/Impact Theory Settlement: https://www.sec.gov/files/litigation/admin/2023/33-11226.pdfTerraform Labs Order: https://storage.courtlistener.com/recap/gov.uscourts.nysd.594150/gov.uscourts.nysd.594150.51.0.pdfLawsuit vs Private Fund Adviser Rule: https://nvca.org/press_releases/nvca-asset-management-associations-file-lawsuit-to-set-aside-secs-new-private-fund-adviser-rule/Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

Big news in Private Fund Land, as the SEC Commissioners on voted August 23rd to adopt one of the more significant new private fund-specific rules in recent memory. This one was about 18 months in the making (the rule was first proposed in early 2022), and while the final rule pared back the most overreaching aspects of the proposal, it still has far-reaching impacts that will alter how pretty much all private fund advisers do business. This episode is a high-level summary of the more significant aspects of the 660-page rule.Key Points From This Episode:Summary of key provisions in the new rule – some of which only apply to registered investment advisers, and others of which apply regardless of registration status.When does the new rule become effective and when do managers have to comply with its various provisions?Dave’s quick take on the new rule.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:SEC Release adopting the rule: https://www.sec.gov/files/rules/final/2023/ia-6383.pdfDave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

If you’re a fund manager based outside the United States with no operations in the U.S., you may think American securities laws don’t extend to you. But if you’re seeking to raise capital from U.S. investors, you are wrong. As soon as you sell fund interests to even a single U.S. investor, you are selling securities in the United States (and you need to comply with the Securities Act), your fund is an investment company (and you need to comply with the Investment Company Act), and you – the manager – are acting as an investment adviser (and you need to comply with the Investment Advisers Act). If that sounds familiar, you’ve been listening to your Tokens of Wisdom! Back in episodes 1 and 2 we laid out the regulatory regime that applies to these businesses in the United States, and that same regime applies to non-U.S. based managers selling interests to U.S. investors. There are some key distinctions though, primarily in the Investment Advisers Act analysis, which we dig into today.Key Points From This Episode:Refresher on the “legislative triangle” from episode 1.The three levels of investment adviser regulation that might apply to your business: foreign private adviser exemption; private fund exemption; and investment adviser registration.How to determine which level applies to you.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

By now you’ve all heard the great news coming out of the Southern District of New York: Ripple defeated the SEC!! This is, no doubt, an enormous win for Ripple and the crypto community writ large, but it’s not the end of the fight. And and some of the hot takes you read on Twitter (or Threads?) are…less than accurate. Shocking, I know. On today’s episode, I share my brief summary of the order, what’s celebration-worthy, and what isn’t.Key Points From This Episode:Summary of the Ripple order: Is XRP a security? No. Did Ripple sell a security when it sold XRP? Sometimes.Difference between an asset, and an investment contract in respect of that asset.Why comparing this analysis to shares of Apple stock misses a key distinction.More of your favorite Supreme Court case from 1946 (Howey!).Why this order makes the SEC’s case against Coinbase (and others) harder.What’s head-scratchy in the order?Could this make actual crypto legislation more likely?Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Link to final order - https://www.nysd.uscourts.gov/sites/default/files/2023-07/SEC%20vs%20Ripple%207-13-23.pdf  Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

If you want early fireworks before the 4th tomorrow, listen to last week’s Unchained Podcast where Laura Shin “interviewed” Aaron Kaplan, co-CEO of Prometheum, and Paradigm Special Counsel Rodrigo Seira. I put “interview” in quotes because it’s more like she refereed a prize fight. Listen to that before you listen to this, then come back here and hear why Aaron’s arguments don’t hold much water.Key Points From This Episode:Reg D is an issuer exemption.What’s Rule 144 and why is it hard to apply in the context of digital assets?Why Prometheum can’t fulfill its mission to protect investors (hint: because it has none…because it has no tokens to list).Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Unchained from June 27 - https://unchainedcrypto.com/prometheum-and-paradigm-in-debate-can-the-status-quo-work-for-crypto/. Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

Armageddon or Salvation? Who knows! But everybody’s using AI all of a sudden, including fund managers in a variety of novel and interesting ways. Listen up for a handful of questions/observations from my recent experience. Mostly, make sure you’re thinking through the implications of any new technology you’re using. Key Points From This Episode:Best and worst use cases for various AI technologies.Robots hallucinating.Trust, but verify.Understand confidentiality and security issues, and be wary about sharing sensitive information with robots.Should you replace me with a robot?Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com

SEC vs Binance on Monday. SEC vs Coinbase on Tuesday. What a week! The gloves are officially off, and the SEC is coming hard after the crypto titans. What does it all mean? You’ve come to the right place.Key Points From This Episode:Similarities (unregistered offerings galore!) and differences (fraud!) between the Binance and Coinbase allegations.Why the allegations against Coinbase seem particularly disingenuous.Why if you try hard enough, everything fails the Howey Test.A glass-half-full conclusion (I am an eternal optimist after all).Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/SEC vs Binance Complaint - https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-101.pdfSEC vs Coinbase Complaint - https://www.sec.gov/litigation/complaints/2023/comp-pr2023-102.pdfParadigm Articles - https://policy.paradigm.xyz/writing/secs-path-to-registration-part-iMusic by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com