NAIM LAW FIRM PLLC
Practice Area FAQs
These FAQs cover the firm's two principal transactional practice areas: Fund Formation (private investment funds — venture capital, private equity, real estate, credit, rolling funds, and syndicates and SPVs) and PPM Services (operating-company and private funds Regulation D offerings — SAFEs, convertible notes, and priced equity rounds). The answers below are general guidance only and not legal advice; specific engagements turn on facts the firm develops at intake. To begin an engagement, please contact the firm directly.
FUND FORMATION
The firm represents fund sponsors forming and operating private investment funds across strategies — venture capital, private equity, real estate, credit, rolling funds, syndicates and SPVs. A fund-formation engagement covers entity formation, the offering documents (PPM, LPA or LLC Operating Agreement, Subscription Agreement, Investor Questionnaire), federal and state regulatory filings, side-letter negotiation, and closing through first close.
Qualifying & Scoping
Do I need a lawyer to launch a fund, or can I use a template?
Templates are tempting because the headline cost is zero, but the actual cost shows up later. A private fund is regulated under the Investment Company Act, the Investment Advisers Act, and Regulation D — three overlapping regimes that interact differently depending on the fund's size, investor base, strategy, and marketing approach. A template can't make the structural choices that drive those interactions, and small mistakes (the wrong waterfall, an inconsistent management-fee base, a missed Bad Actor disclosure) often only surface during anchor-LP diligence or a side-letter negotiation, when they're expensive to fix.
The right framing is that fund formation isn't document production — it's a sequence of judgment calls (3(c)(1) vs. 3(c)(7); 506(b) vs. 506(c); European vs. American waterfall; Investment Adviser registration vs. exemption) memorialized in a coherent set of documents. The firm builds those judgment calls with you, then drafts a PPM, LPA, Subscription Agreement, side-letter template, and Form D filing that reflect them.
What's included in a fund formation engagement — and what isn't?
A standard engagement covers (i) entity formation (the Fund LP, the GP entity, and where appropriate a Management Company), (ii) the offering documents (LPA, Subscription Agreement, Investor Questionnaire, PPM if applicable), (iii) federal and state regulatory filings (Form D within 15 days of first sale, blue-sky notice filings, Form ADV for an Exempt Reporting Adviser if applicable), (iv) a side-letter template plus negotiation of anchor-LP side letters, and (v) closing mechanics through first close.
Outside the standard scope — but commonly added: parallel-fund or feeder structures for non-US or tax-exempt LPs, ERISA plan-asset analysis if benefit-plan investors will exceed 25%, and ongoing post-close compliance support. Tax structuring beyond the basics (offshore parallels, blocker corporations, ECI/UBTI mitigation) is typically coordinated with a tax specialist; the firm flags those issues early and brings in the right specialist when they apply.
How long does fund formation take from kickoff to first close?
Plan on roughly 2–3 weeks from intake to first LPA and PPM drafts, and 6–10 weeks total from intake to executable closing documents at first close. The exact timeline depends on engagement complexity, the speed of side-letter negotiations with anchor LPs, and whether any regulatory issues surface mid-stream (Investment Adviser registration triggers, ERISA plan-asset analysis, FOIA-subject pension investors).
The variables that drive the most schedule slippage are (1) changes in basic terms that might warrant redrafting and (2) the intake itself: blanks force a follow-up email cycle that adds days. Submitting the intake form with flagged best estimates ("Approx. $25M, TBD") rather than blanks meaningfully accelerates the first-draft turnaround.
What does fund formation cost, and what drives the price?
Fee quotes are engagement-specific and provided after the firm understands the scope, but the principal price drivers are predictable: (i) the complexity of fund terms; (ii) the regulatory profile (an Exempt Reporting Adviser filing is meaningfully less work than a full SEC-registered adviser), (iii) the number and complexity of vehicles (a single Delaware LP is far simpler than a master-feeder with offshore parallels and a blocker), (iv) anchor-LP side letters (every additional negotiated side letter adds drafting and review time), (v) tax structuring needs, and (v) whether the fund will be on a platform (rolling fund / AngelList / Sydecar) versus a closed-end stand-alone.
The firm generally offers hourly-based engagements and provides a written fee estimate before work begins. The estimate is generally limited to a good first draft of the documentation. Investor-fronted expense allocations (formation expenses charged to the fund) are standard market practice and discussed at intake.
I'm a first-time manager. Will the firm work with emerging managers?
Yes. A meaningful share of the firm's fund-formation work is for first-time managers — sometimes spinning out from a larger platform, sometimes building from an angel track record, sometimes converting a syndicate or an SPV practice into a permanent vehicle. The firm's intake process and field-level FAQ are designed with first-time managers in mind, and the engagement includes guided onboarding rather than assuming familiarity with fund mechanics.
Structural Choices
Should my fund be a closed-end fund or a rolling fund?
A closed-end fund has a defined fundraising window, a defined Investment Period (typically 3–5 years), and a defined Fund Term (typically 10 years with two 1-year extensions). LPs commit dollar amounts and the GP draws capital down via capital calls. This is the traditional VC and PE structure; it gives the GP committed capital to deploy and gives LPs a clean fund life.
A rolling fund is a Series of a Master Partnership formed under DRULPA § 17-218. New "Classes" of LPs are admitted each quarter; each Class has its own investment period and economics. Rolling funds enable continuous fundraising, lower investor minimums (often $10K–$25K per quarter), and 506(c) general solicitation.
Closed-end is the right answer for concentrated capital strategies with a defined deployment window — PE buyout, real estate, growth equity. Rolling fund is the right answer for a continuously-raising VC product with a smaller-LP audience and public marketing.
What's the difference between a 3(c)(1) and a 3(c)(7) fund — which is right for me?
Both are exemptions from registration under the Investment Company Act of 1940. Section 3(c)(1) allows up to 100 beneficial owners, all of whom must be Accredited Investors under Regulation D. Section 3(c)(7) has no count cap (de facto 1,999 holders, to avoid Exchange Act Section 12(g) registration), but every investor must be a Qualified Purchaser — generally individuals with $5M+ in investments or entities with $25M+ in investments.
The general rule: funds under approximately $50M raising from a small investor base typically choose 3(c)(1); larger funds and institutional-investor strategies typically choose 3(c)(7). Conversion from 3(c)(1) to 3(c)(7) requires unanimous LP consent and may force the redemption of any non-QP investors, so the choice should account for upsizing plans at intake.
What's a typical management fee and carried interest, and what's negotiable?
For traditional VC: "2 and 20" remains common — a 2.0% per-annum management fee on committed capital during the Investment Period (often stepping down to 2% of invested capital at cost thereafter), plus 20% carried interest with an 8% preferred return and a European whole-fund waterfall. For PE buyout: similar headline economics, with the management fee often stepping down more aggressively post-Investment Period (commonly to 1.5%). For rolling funds: typically 2% management fee per Class on Class capital commitments, 20% carry on Class-level realized gains, plus a separate Administrative Fee paid to the platform, if applicable.
What's negotiable in practice: anchor LPs frequently obtain side-letter management-fee discounts (10–25 basis points is common, with carry typically untouched); the management-fee base (committed vs. invested capital) can be negotiated for first-time funds; and the preferred-return rate is sometimes adjusted in lower-return strategies (credit, real estate) to a more conservative figure.
European vs. American waterfall — which should I pick?
The waterfall determines when the GP starts collecting carried interest. Under a European (whole-fund) waterfall, the GP earns no carry until LPs have received 100% of contributed capital plus the full preferred return. It is LP-friendly and is standard for institutional VC. Under an American (deal-by-deal) waterfall, the GP earns carry on each realized investment as it closes, subject to a fund-end clawback obligating the GP to return excess carry if the aggregate fund-level math doesn't ultimately support it. American is GP-friendly cash-flow-wise and is more common in PE buyout and real estate. The firm drafts whichever is selected.
Do I need a parallel fund, blocker, or master-feeder for non-US or tax-exempt LPs?
It depends on the investor mix. Non-US investors generally prefer to avoid "effectively connected income" (ECI) and the U.S. tax-return filing obligation it triggers. U.S. tax-exempt investors (pensions, endowments, charitable foundations) generally prefer to avoid "unrelated business taxable income" (UBTI). The standard solutions are (i) a Cayman or Delaware feeder routed through a blocker corporation for offshore investors, and (ii) a parallel fund structure that excludes UBTI-generating leverage for tax-exempt investors.
For most first-time funds raising primarily from U.S. taxable individuals and family offices, none of this is necessary and adds disproportionate cost. The trigger for adding parallels and blockers is typically (i) the first material institutional commitment from a tax-exempt LP, or (ii) committed offshore capital exceeding the threshold where the structure pays for itself. Tax structuring is coordinated with a tax specialist; the firm flags these issues at intake and engages the right specialist when they apply.
Syndicates & SPV Formation
What’s a syndicate or SPV — and how is it different from a fund?
A Special Purpose Vehicle (SPV) is a single-investment entity (typically a Delaware LLC or LP) formed to make one specific investment in one specific portfolio company. A syndicate is a recurring SPV practice run by a “syndicate lead” who sources deals and offers per-deal SPV investments to a network of “backers” — the lead’s standing investor list.
The contrast with a fund is sharp. A fund is a pool of committed capital deployed across a portfolio over time, governed by an LPA with annual management-fee economics, an Investment Period, and a multi-year fund term. An SPV is a one-deal vehicle with no Investment Period, no portfolio diversification, no annual management fee, and no fund term beyond the life of that one investment. The legal documents are correspondingly simpler — an LLC Operating Agreement or LP Agreement, a Subscription Agreement, an Investor Questionnaire, and a Form D, with offering disclosures specific to the underlying deal rather than a broad investment program.
When does an SPV make more sense than a fund?
SPVs are the right answer when the investor pitch is deal-specific rather than strategy-specific. Common scenarios: (i) a one-off allocation to a hot deal; (ii) a co-investment opportunity offered to LPs alongside an existing fund; (iii) a follow-on round where the lead wants to consolidate small-check investors into a single line on the company’s cap table; (iv) a scout investment where the lead is testing a thesis without committing to a multi-year fund product; (v) a syndicate practice where the lead builds a backer network deal by deal rather than raising a blind-pool fund.
Funds are the right answer when the pitch is the manager’s judgment across an unknown portfolio, when committed capital is needed to act decisively, and when the manager wants ongoing management-fee economics rather than per-deal carry alone.
Do I need to register as an investment adviser to run a syndicate or SPV practice?
Generally no, for the same reasons most private fund managers do not register. Please see below “Do I have to register as an investment adviser with the SEC or my state?”.
Regulatory & Operational
Do I have to register as an investment adviser with the SEC or my state?
Federal first: investment advisers register with the SEC or with the states, not both. The default split is at $100M of regulatory AUM — advisers above that threshold generally register with the SEC; advisers below register at the state level (New York applies a $25M threshold rather than $100M). Two federal exemptions are commonly available to private-fund managers — the Venture Capital Fund Exemption under Advisers Act Section 203(l) and the Private Fund Adviser Exemption under Section 203(m) (under $150M AUM, advising only private funds). Both result in Exempt Reporting Adviser (ERA) status with an abbreviated Form ADV filing rather than full registration.
State analysis next. The default rule across most states is that an adviser must register if it has either (1) a place of business in the state or (2) more than five clients who are residents of the state during any 12-month period — unless an exemption applies. A private fund typically counts as a single “client” rather than looking through to its investors, which makes the five-client prong material only for advisers with many separate funds or separately managed accounts. State exemptions fall into three buckets: states with a Private Fund Adviser Exemption (the most common pattern, often modeled on the NASAA Model Rule); states with a self-executing client-count de minimis exemption; and a residual set of states with no relevant exemption.
Private Fund Adviser Exemption states. A majority of states — including California, Massachusetts, Texas, Colorado, Iowa, Maryland, Minnesota, Missouri, Nebraska, New Mexico, Oklahoma, Rhode Island, South Dakota, Vermont, Virginia, Washington, Wisconsin, Wyoming, and others — exempt advisers whose only clients are private funds (3(c)(1) and 3(c)(7)), regardless of client count or place of business. Most PFAE states require an abbreviated Form ADV filing (ERA-equivalent status). Several states impose additional conditions on advisers to 3(c)(1) funds that are not venture capital funds — typically additional investor disclosures, annual audited financial statements, and a “qualified client” beneficial-owner test. A handful of states (Connecticut, the District of Columbia, New Hampshire) extend the exemption only to venture capital fund advisers; Delaware extends it only to 3(c)(7) funds.
De minimis exemption states and residual no-exemption states. A smaller group grants a self-executing de minimis exemption based on client count, with no filing requirement and (in most of these states) no place-of-business condition: Florida (fewer than 6 in-state clients, subject to a “does not hold itself out” condition); Georgia, New Jersey, and New York (fewer than six in-state clients); Illinois (five or fewer in-state clients); Louisiana, North Carolina, and Tennessee (fewer than 15 in-state clients, each subject to the holding-out condition); Pennsylvania (in-state adviser with five or fewer total clients in or out of state, subject to the holding-out condition); plus hybrid private-fund-and-de-minimis tests in Indiana, Kansas, and Ohio.
The remaining states — including Alabama, Alaska, Hawaii, Idaho, Kentucky, Mississippi, Montana, North Dakota, South Carolina, and West Virginia — have no relevant exemption, meaning an adviser with either a place of business in-state or more than five in-state clients must register.
The firm performs the state-by-state analysis at intake — accounting for the principal-office state, every state with a place of business, and the residency of all funds and separately managed clients — and handles any required initial notice filings and ADV filings as part of the engagement.
Can I market my fund publicly (Rule 506(c)) — and what does verifying accredited actually mean?
Rule 506(c) permits general solicitation — public marketing, podcasts, conference pitches, social media, platform landing pages — but every investor must be verified Accredited, not merely self-certified. Verification means the issuer (or a third-party verification provider) actually reviews supporting documentation: W-2s, 1099s, prior-year tax returns, brokerage and bank statements, or a written confirmation from a CPA, attorney, or registered broker-dealer that the verifier has performed appropriate review.
Rule 506(b), by contrast, allows investor self-certification but prohibits general solicitation entirely. Closed-end VC and PE funds raising from a known investor list typically pick 506(b); rolling funds and platform-administered funds almost always pick 506(c) because the platform model relies on public-facing landing pages that constitute general solicitation. The choice has to be made before any marketing activity begins — even a single public reference to the fundraise can foreclose 506(b) reliance.
What's a side letter, and what do anchor LPs typically negotiate?
A side letter is a separate agreement with a specific LP that grants rights or benefits beyond the LPA. Anchor LPs — the first one or two large LPs into the fund — typically negotiate a recognizable menu: (i) management-fee discounts (10–25 basis points is common); (ii) co-investment rights; (iii) advisory-board or LPAC seats; (iv) reduced minimum commitment thresholds; (v) most-favored-nation (MFN) clauses entitling the LP to elect into rights granted to later LPs of equal or smaller size; and (vi) reporting customizations.
Side letters require careful management for two reasons. First, MFN clauses interact: a poorly-drafted MFN can give an early LP cumulative access to every later concession, undoing the GP's negotiating room. Second, side-letter rights affecting fund economics or the LPA itself require disclosure to other LPs and sometimes require LPA amendments. The firm drafts a side-letter template at fund formation and negotiates anchor-LP side letters as part of the engagement.
After first close, what ongoing legal and compliance work do I need?
The recurring obligations fall into three buckets. Securities-law filings: Form D amendments at each anniversary of the original filing and within 15 days of any material change; state blue-sky notice filings for new investor states. Adviser-law filings: annual Form ADV update for ERAs (and full ADV updates plus interim brochure delivery for SEC-registered advisers); brochure delivery to LPs; books-and-records retention. Fund-administration support: capital-call notices and distribution notices (typically prepared by the fund administrator, reviewed by counsel for novel situations); LPAC consents; valuation policy reviews; and LPA amendments when needed.
On top of the recurring work, every fund eventually has special situations: an investor transfer or withdrawal, a fund extension vote, a successor-fund formation or a key-person event.
PPM SERVICES
The firm represents operating-company issuers and private funds raising capital through Regulation D 506 private placements — SAFE rounds, convertible note rounds, priced equity rounds, real-estate syndications, and SPV/single-purpose-vehicle offerings. A PPM engagement covers drafting of the offering memorandum and assumes that other offering documents (in particular, organizational / governing documents, capitalization table and securities purchase agreement, in the case of an operating-company, or the LPA or LLC agreement, in the case of a fund) are complete and available for review. Unless otherwise agreed in writing in the engagement letter with the client, no due diligence of the client will be performed prior to drafting.
Qualifying & Scoping
What is a PPM, and when do I actually need one?
A Private Placement Memorandum (PPM) is the disclosure document an issuer delivers to prospective investors in a private offering. It describes the company, the security being offered, the use of proceeds, the management team, the financial picture, the material risks, and the legal terms of the investment.
A PPM isn't legally required in every Reg D offering — Rule 506 doesn't mandate one when the offering is limited to Accredited Investors. But it provides meaningful disclosure protection under the federal anti-fraud rules (Section 10(b) and Rule 10b-5). The general practical rule: any offering involving general solicitation under Rule 506(c) should be done with a PPM.
What does a PPM engagement cost?
Fee quotes are engagement-specific and provided after the firm understands the scope. The principal price drivers are: (i) the security type (a convertible note round is meaningfully less work than a priced Series A; SPV and real-estate-syndication PPMs occupy the middle); (ii) regulatory profile (industry licensing, FDA, FCC, banking, foreign-investor structuring); (iii) number of investors and states (each new state of subscription adds a blue-sky notice filing); and (iv) financial-statement complexity (audited vs. CPA-reviewed vs. internal management financials).
Although the firm offers fixed-fee engagements for well-scoped offerings, most engagement wi9ll be hourly-based. We will provide a written fee estimate before work begins. The estimate is generally limited to a good first draft of the documentation.
Structural Choices
Rule 506(b) vs. 506(c) — public marketing or warm-relationship raise?
Rule 506(b) prohibits general solicitation: no LinkedIn posts about the raise, no AngelList listing, no email blasts to a non-relationship list, no conference pitches. Investors can self-certify their accredited status by signing a Subscription Agreement representation.
Rule 506(c) permits general solicitation, but every investor must be verified Accredited — meaning the issuer reviews W-2s, 1099s, tax returns, brokerage statements, or obtains a third-party verification letter from a CPA, attorney, or registered broker-dealer. Quick rule: if you're going to market the raise publicly (LinkedIn, AngelList, Wefunder, Republic, email to a non-relationship list), pick 506(c). If you're raising from a defined investor list of friends, family, prior co-investors, and warm introductions, 506(b) is simpler and cheaper to operate. The choice has to be made before any marketing activity begins.
SAFE vs. convertible note vs. priced round — what's right for my raise?
A SAFE (Simple Agreement for Future Equity) has no maturity date and no interest rate; it converts to equity at the next priced round at the lower of the valuation cap or the round price minus the discount. SAFEs are the standard pre-seed and early-seed instrument: fast, cheap, and founder-friendly. A convertible note is the same concept structured as debt — interest rate (commonly 5–8%), maturity date (commonly 18–24 months); some institutional investors still prefer notes for their legal certainty. A priced equity round (Series Seed Preferred, Series A) sets a formal valuation, includes a term sheet, investor rights agreement, and protective provisions; it's more expensive but produces a cleaner cap table.
Practical guideline: under approximately $1M raised — SAFEs; $1M–$2M — SAFEs or Series Seed Preferred (depending on lead investor preference); $2M and above — priced equity round.
How do I set my Pre-Money Valuation, and what if I don't have one yet?
Pre-Money Valuation is the agreed value of the company before the new investment. Post-Money equals Pre-Money plus capital raised; new-investor ownership equals investment divided by Post-Money. ($2M into $8M pre-money equals $10M post-money equals 20% for new investors.)
Practitioners arrive at the number through some combination of (i) comparable company analysis (similar-stage companies in the same sector), (ii) the lead investor's term sheet (when there is a lead), (iii) revenue or metrics multiples (for revenue-generating companies), and (iv) discounted cash flow (rare at seed; common at growth stage). For SAFEs and convertible notes, no pre-money is set — the firm uses the valuation cap and discount instead.
Can I raise from non-accredited investors?
In theory, up to 35 non-accredited investors may be admitted under Rule 506(b) but each must receive extensive written disclosures and the offering's overall risk profile increases meaningfully. In practice, Rule 506(b) offerings with non-accredited investors are rare.
Under Rule 506(c) (general solicitation), no non-accredited investors are permitted at all — every investor must be verified Accredited.
What if I'm raising on AngelList, Republic, Wefunder, or a similar platform?
Platform-administered offerings change the structural picture in three ways. First, the regulatory framework: most platforms operate under either Rule 506(c) (Accredited verification handled by the platform) or Regulation Crowdfunding (Reg CF, with the platform serving as a registered funding portal). Second, the investor count: platform raises often have hundreds of small-check investors, which has cap-table and Section 12(g) implications down the road. Third, the disclosure framework: each platform has its own form requirements and standard disclosures that overlay the standard PPM structure.
The firm has worked across the major platforms (AngelList, Republic, Wefunder, Sydecar, Allocations.com) and tailors the offering documents to the platform's requirements. The firm also coordinates with the platform's in-house legal team where appropriate, to avoid duplicated work.
Substantive Disclosure & Risk
What's a Rule 506(d) Bad Actor, and why does it matter for the entire raise?
Rule 506(d) — the SEC's "bad actor" rule — disqualifies an issuer from relying on Rule 506 (the safe harbor for almost every private offering) if any "covered person" has triggered a disqualifying event. Covered persons include the issuer itself, every director and executive officer, every 20%+ beneficial owner, every promoter, every compensated solicitor or placement agent, and (for pooled investment vehicles) every investment manager and its officers.
Disqualifying events include criminal convictions for securities or financial fraud (5- or 10-year lookback), court injunctions relating to securities activities, final orders from banking, insurance, or securities regulators (10-year lookback), SEC cease-and-desist or similar disciplinary orders, SRO bars (FINRA suspension or expulsion), and U.S. Postal Service false-representation orders.
Why it matters: missing a covered person and discovering a disqualifying event later kills the offering's 506 reliance — the entire raise has to be unwound or restructured. SEC waivers exist but are not assumable. The firm conducts a Bad Actor inquiry as part of intake; any "Yes" answer is escalated immediately.
Do I need audited financials to raise capital?
Not for a Reg D 506 offering to all-Accredited investors — there is no SEC-mandated audit requirement at this offering size. As a practical matter, however, the disclosure expectations scale with the raise: above approximately $2M, sophisticated investors typically expect at least CPA-reviewed financials (lower-assurance than an audit but more than internal numbers); above approximately $10M, full audited financials are typical, especially when the lead investor is institutional.
If the company has neither, the PPM can disclose "Internal management financials only" with appropriate cautionary language — many seed-stage rounds close on this basis. If audit is in progress, the PPM can be drafted with an interim disclosure and updated as figures finalize. The firm tailors the financial-statement disclosure to the raise size and investor profile.
What goes in Use of Proceeds, and how specific does it need to be?
Use of Proceeds is a required PPM disclosure section. The firm drafts it principles-based rather than line-itemed: categories and approximate percentages, not granular budgets. Standard categories include payroll and hiring, R&D and product development, sales and marketing, general working capital, capital expenditures, debt repayment (if any), and acquisitions (if planned). Example phrasing: "Approximately 50% to engineering hires; 30% to sales and marketing; 10% to general working capital; 10% reserved for opportunistic capex."
Why principles-based: a material deviation from disclosed Use of Proceeds can give rise to investor claims under Rule 10b-5. Categories and ranges give the company operational flexibility while still meeting disclosure obligations. Specific hires, specific deals, and specific dates should not be promised unless the company is certain it will deliver them.
