A venture fund manager faces all the issues resulting from the current coronavirus (COVID-19) pandemic that virtually every other business faces: social distancing, maintaining business-as-usual in a virtual setting, local and state government shut down requirements, safeguarding the health of employees and others, and so on. Venture fund managers also face a unique set of issues and considerations, some of which are highlighted below.

1. Potential Defaults on Capital Commitments.

• Fund managers should review their available remedies for, and their ability to work out on a case-by-case basis, capital call defaults by investors ("Limited Partners" or "LPs"), including the manager's ability to delay deploying aggressive default measures until there is more certainty around the length and extent of any default situations due to LP liquidity issues.
• Fund managers should consider consulting with their LPs about upcoming fund capital needs and LP liquidity issues, and obtaining a realistic sense of when and how much capital can be expected.
• Fund managers should review the availability of lines of credit that support capital calls to alleviate short-term LP liquidity issues, and determine whether and to what extent to call on those.

2. Dealings with Existing and Potential Portfolio Companies.

• Fund managers should consider discussing with their existing portfolio companies how they can reduce cash burn rates, what additional capital they may require in the coming months, whether and to what extent the fund will be in a position to help with that funding, and what other options (including loan and other provisions in the CARE Act) may be available to support those portfolio companies.
• Fund managers also should consider whether and how much to invest in new portfolio companies during this downturn. In some cases, fund governing documents limit a fund's ability to invest in follow-on investments, while in many cases a fund manager may have more discretion to decide whether to concentrate on existing or new portfolio company investments.
• If necessary, fund managers should consider seeking Limited Partner consent to provide for additional flexibility to make follow-on investments. To be clear, some fund managers may believe it is best to focus on supporting existing portfolio companies; some managers may believe the current economic downturn presents compelling investment opportunities and valuations for new portfolio company investments; and other fund managers may opt for a combination of supporting existing portfolio companies and making new portfolio company investments.

3. Valuations.

• If a fund manager needs to conduct portfolio company valuations for any purpose, such as for Limited Partner reporting, management, fee calculations, distributions in kind, or for other reasons, those managers should carefully consider whether traditional valuation methodologies continue to be appropriate. For example, if a fund manager typically values portfolio company securities based on the value of the portfolio company as implied by that company's most recent financing round, the fund manager should consider whether some discount to that valuation is appropriate, and what methodology it will develop to determine that discount. The fund's governing documents may limit the fund manager's flexibility in developing an alternative methodology for valuation determinations.

4. Fund Operating Capital.

• Fund managers should consider calling down capital to fund an increase in fund reserves, if permitted by fund governing documents.
• If the fund has in place a line of credit or other borrowing facility to make investments, the fund manager should review its options under that facility, but also weigh the risks of relying on borrowings during what may be an economic downturn of unknown severity and duration. Fund managers also may want to consider obtaining a line of credit, if that is feasible.

5. Extensions of Key Fund Time Periods for Fundraising, Capital Deployment, and Fund Life.

• The current coronavirus crisis may cause significant disruptions to a fund manager's ability to raise additional capital, to the ability of the fund manager to deploy theoretically committed capital, and to liquidity options for portfolio companies. As a result, fund managers may want to consider seeking LP consent to extend the time limits during which the fund engages in these activities. These extensions may be particularly helpful and justified if fund LPs seek to limit the amount of capital drawn down and/or money invested in portfolio companies for the duration of the current economic downturn.

6. Fund Manager Concerns.

• Key Person Triggers. Fund managers should review key person triggers and examine the implications of key persons or team members falling ill or needing time to care for sick family members.
• Time Spent on Fund Management. Many fund agreements require a fund manager to devote all, substantially all, or other specified amounts of time on fund management matters. Consider whether the fund management team is still able to comply with any such obligations, and if not, consider whether LP discussions or consent are appropriate and/or required.
• Clawback considerations. Fund managers that already have received carry allocations should consider whether there is a risk that all or a portion of that carry may be subject to future clawback obligations. If so, the fund manager may want to consider taking proactive measures to reduce risk of clawback liability, such as segregating all or a portion of that carry allocation until the likelihood and potential amount of a clawback is clearer.

7. Communication.

• In the current economic climate, we think most fund managers would benefit from more communication with the fund's Limited Partners, with its current and potential portfolio companies, with its auditors and accountants, and with other service providers. There may be bad news and surprises; Limited Partners, portfolio companies, and others will generally in the long run appreciate hearing about those as soon as possible.
• If a fund is still in a fundraising period, consider the need to update any fund offering documents, marketing materials, and financial projections to reflect the current economic downturn.
• Consider the need to update a Form ADV and any other regulatory filings to disclose any new, material risks associated with the coronavirus and the current economic downturn, and to discuss any resulting changes to the fund's structure and operations.