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About the guest:
Yoni Tuchman is a fund formation Partner at DLA Piper. he has appeared on VC10X three times now — making him the show's most frequent returning guest.
He advises emerging and institutional managers on fund structuring, LP agreements, regulatory compliance, and everything that happens in the documents most GPs never read closely enough.
This is his third conversation on VC10X, and like the last two, it runs deep
Links to previous VC10X episodes with Yoni:
Most GPs think the question is whether to post about their fund on LinkedIn.
The real question is which legal exemption they filed under before they hit post.
That distinction — 506(b) vs. 506(c) — is not just a compliance checkbox. It shapes how you fundraise, who you can talk to, what you can say, and whether a single tweet could blow up your offering structure.
In this episode, Yoni Tuchman returns for a third masterclass on VC10X to cover the practical legal terrain that most GPs only encounter when something has already gone wrong.
From warehousing to cashless GP commitments to the politics of side letters, this is an episode you don’t want to miss.
506(b) vs. 506(c): The 'Be Quiet' vs. 'See Me' Decision
If you're a GP building a public profile — posting on LinkedIn, appearing on podcasts, tweeting your investment thesis — you are almost certainly triggering 506(c) territory, whether you know it or not.
Yoni lays out the dividing line clearly: it's the pre-existing relationship. Under 506(b), every investor you bring into your fund must be someone you had a pre-existing relationship with before you started fundraising. Under 506(c), you can talk to anyone — cast a wide net, go public, run ads — but every investor must be verified as accredited.
"If a client feels like they may want to talk publicly, most likely on social media, about their fund — I say it's a home run, slam dunk 506(c). Don't even try 506(b)."
A few things GPs consistently get wrong on this:
Using a placement agent does not automatically push you into 506(c). You're effectively buying the placement agent's pre-existing relationships, so their relationships become yours.
Meeting someone at a conference while fundraising under 506(b) doesn't sink your exemption — as long as you're not leading with your fund. Build the relationship first. Then talk shop.
You can migrate from 506(b) to 506(c) mid-raise. The reverse is impossible. Once you've gone public, the genie doesn't go back in the bottle.
The historical downside of 506(c) was burdensome accredited investor verification — GPs had to collect tax returns, pay stubs, or signed letters from investors' accountants. That calculus recently shifted. A no-action letter from the SEC now holds that if an individual invests more than $200K (or an entity invests more than $1M), checking the accredited investor box in the subscription agreement is sufficient verification. Only smaller investors still require the additional step.
One more thing Yoni is clear about: public doesn't mean unguarded. Under 506(c) you don't have to worry about who you're speaking to. But you still have to be careful what you say.
"Don't talk about target returns. Don't talk about historic returns. Don't talk numbers with the general world. Talk about who you are, your strategy, how to reach you. All numbers? Those need your lawyer to flyspeck them first."
Warehousing: Why the Conventional Approach Is Almost Always Wrong
Warehousing — holding a deal personally or through an SPV before your fund closes, then transferring it in — sounds practical. In Yoni's view, it's usually a trap.
The conventional structure creates a cascade of problems: a secondary transaction (the portfolio company has to cooperate with a cap table transfer), potential tax liability if the SPV's position has appreciated, conflicts of interest because the GP sits on both sides of the purchase price negotiation, and — critically for venture funds — the transfer counts as a secondary, eating into the 20% non-qualifying investment cap that governs venture fund structure.
"There's conflicts of interest that need to be navigated. There's practical questions about what the purchase price is. There's potential tax questions. And then there's the question of whether this is eating into your 20% bucket. I have a solution that just makes all this go away."
That solution: use the fund itself as the warehouse. If you have the capital to make a pre-close investment through an SPV, you have the capital to inject it directly into the fund entity before the first official close. The fund makes the investment. When LPs come in at close, you disclose that the fund already holds a position — it's not a blind pool. No secondary transaction, no transfer paperwork, no tax event, no cap concerns.
There's a tax angle here too. Qualified Small Business Stock (QSBS) treatment, when available, only benefits investors who held the shares from the moment of purchase. If you warehouse through an SPV and then sell to the fund, the QSBS benefit disappears — it's now a secondary acquisition. Invest through the fund directly, and investors who contributed capital for that initial deal maintain whatever QSBS eligibility exists.
The Cashless GP Commitment: A No-Brainer That Most GPs Skip
Most emerging managers assume they have to write a check for their GP commitment. They don't.
The cashless GP commitment — sometimes called a management fee waiver or deemed contribution — lets a GP fund their commitment by forgoing management fees rather than wiring cash. The mechanics: instead of the fund paying a $2M management fee and the GP paying taxes on it before reinvesting what's left into the fund, the LP simply directs those same dollars straight into the fund as a capital contribution on the GP's behalf. The LP is no worse off. The GP avoids the tax hit. The fund gets funded.
"It's a no brainer. People should do this. I tell every new client — did you do this in your other fund? Because you really ought to be considering it for this."
Yoni's practical guidelines:
Build the mechanics into the fund documents even if you're not sure you'll use them. You can't implement this retroactively without going back to investors for consent to amend.
There is a clawback risk. If the fund underperforms and the GP hasn't returned LP capital, the deemed contribution has to be returned. It must be structured as a profits interest, not a salary.
LPs who resist this on 'skin in the game' grounds are, in Yoni's view, misreading the situation. The GP is giving up real economic value — management fees — to fund the commitment. That is skin in the game.
Where LPs still push back emotionally, a workable compromise is 80% cashless / 20% cash. In Yoni's experience, that mix should satisfy even skeptical LPs.
For first-time fund managers, a 1% GP commitment — mostly cashless — is a reasonable market standard. Don't let LPs push you toward 2% or 5% and then penalize you for not being independently wealthy.
Side Letters: There's No Such Thing as Dead on Arrival — Just Bad Drafting
Institutional LPs routinely send side letter demands that can look, at first read, unreasonable. Yoni's posture is that very few provisions are truly non-starters. Almost everything has a version that works.
The most common side letter provisions:
Most Favored Nation (MFN) rights — the LP wants assurance they're getting terms at least as favorable as any other investor of comparable size. The key word is comparable. If a $1M LP demands MFN parity with a $10M LP, that's overreach. Push back on the scope, not the concept.
Co-investment rights — LPs frequently want the right to participate in deals alongside the fund. The terms matter enormously: no-fee/no-carry? 2x pro rata? These can be negotiated down to something workable. Don't reject the right, reshape the economics.
Transfer rights to affiliates — common and generally reasonable.
The pattern Yoni describes is consistent: a GP's job isn't to refuse side letter provisions. It's to distinguish between a provision that's overreaching in its current form and one that's overreaching in concept. Almost always it's the former.
"We hear what you're looking for. You're coming at it in a way that doesn't work for us. But here is a way that could work for us."
Removing a Non-Performing Partner: A Two-Layer Problem
When a GP relationship breaks down, the question isn't just how to remove someone — it's how to do it without triggering consequences at the fund level.
Yoni describes this as a two-layer structure. The fund documents sit at the base: LPs see these, they govern the investor relationship, and they include key person provisions. The GP entity documents sit above: internal governance, ownership, and removal rights among the GP principals. Most fights happen at the top layer. The risk is when those fights ripple down and paralyze the fund.
Key person provisions are the pressure point. If a departing GP is listed as a key person, their exit can trigger a fund suspension — even if the remaining GPs are fully capable of operating. The design principle: craft key person definitions and thresholds at the fund level to insulate the fund from legitimate but messy GP-level transitions.
"You want to craft this so that the fund is not paralyzed because of something happening up here that really ought not paralyze down here."
The practical advice: work through this at document drafting time, not when the relationship is already deteriorating. The right key person thresholds, the right removal triggers, and the right protections for continuing GPs all need to be built in before they're needed.
Venture Partner Compensation: Carry Yes, Equity Never
Venture partners and advisors are common additions to a fund's network. How you pay them matters more than most GPs realize.
Yoni's position is direct: venture partners should never receive equity in the management company. They are closer to consultants than partners, and giving them a stake in the firm creates governance complexity and long-term entanglements that rarely pay off. The right compensation is cash from the management company, carry in the fund, or both.
On carry structure, there's a meaningful preference Yoni expresses consistently: fund-wide carry over deal-specific carry.
"If you're going to give someone carry in your fund, the best way is to give them a piece of carry across the whole fund — not two percent of the carry generated by this one deal."
The reason is structural. Venture funds don't run on deal-by-deal economics — they run on a fund waterfall, where gains and losses are netted across the portfolio. Trying to carve out deal-specific carry within a fund-level structure creates accounting complexity and imprecision. Keep it simple: assign a fund-level carry percentage, calibrate it for the relationship, and move on.
Rapid Fire: Three Quick Takes from Yoni
Most overrated legal document?
The PPM (Private Placement Memorandum). A lot of funds don't have one, and many don't need one.
Biggest waste of money for Fund I?
Over-engineering the entity structure. Don't form a feeder fund until you actually need one. Don't create entities speculatively. Build for where you are, not where you imagine you might be.
One clause every GP should delete?
The GP removal provision. This is your firm. You built it. Yoni's view: GPs shouldn't accept language that gives LPs the ability to remove them without cause.
KEY TAKEAWAYS
If you might ever post publicly about your fund — do 506(c). Don't flirt with 506(b) and hope for the best.
The one-way door: you can move from 506(b) to 506(c) mid-raise. You cannot go back.
The SEC's recent no-action letter materially reduces the verification burden for 506(c) — the case for going public just got stronger.
Warehousing through the fund entity itself eliminates the secondary transaction, the conflict of interest, the tax questions, and the 20% bucket problem in one move.
The cashless GP commitment is almost always the right call. Build the mechanics into the documents even if you're not sure you'll use them.
Side letter provisions are rarely dead on arrival — they just need reshaping. The job is to find the workable version, not reject the concept.
Key person provisions at the fund level need to be designed to absorb GP-level disruption without triggering paralysis.
Venture partners get carry (fund-wide, not deal-specific) and/or cash. Never equity in the management company.
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