Capital commitments to Calm Fund 2 can be made on a quarterly basis and will be called regularly at the start of each quarter. Read the background on this structure here.
- The minimum commitment is $5k per quarter (we may reduce this on request and will prioritize folks willing to mentor)
- The minimum commitment period is 4 quarters. We assume most LPs will choose to renew. We’re still working on the exact UX for either renewing or cancelling after that but there will be a form and clear process. Longer commitments are available for LPs with larger allocations.
- Commitment level can be increased/decreased at “open season” between each 4-quarter period.
- We will create funds sequentially, every 4 quarters we’ll spin up a new fund. Any commitments received within that 1-year period go into the currently active fund. Commitment subscriptions will rollover into the next 1-year fund at the end of each period and we’ll invest sequentially out of each fund.
- Fund 2 is currently capped at $5m.
- 12.5% one-time subscription fee at capital call + 0% annual management fee + standard 20% carry once you receive 1x your capital back (calculated per fund).
Do I have to commit at the beginning of each 1-year fund?
- No. Commitments can be made at any time for any quarter and will be called at the next quarterly capital call.
- Example: Calm Fund 2 runs 1 July 2020 to 1 July 2021. A new LP commits $10k/quarter on Dec 12, 2020. This commitment will be first called on 1 Jan 2020 and committed for the next 4 quarters. Q1 and Q2 capital calls will go into Fund 2 and Q3/Q4 calls go into Fund 3. Commitment level (eg $10k/quarter) can be changed only during “open season” on 1 July 2021 in the transition to a new fund (this prevents retroactively increasing your stake in a successful fund).
Can I choose which fund my capital commitment goes into?
- No. Funds are raised and invested sequentially over 4-quarters. Capital commitments are allocated strictly to the appropriate fund for that quarter.
- Example: if you want put $100k into Fund 2 you can either commit to $25k/quarter in the first quarter of Fund 2 or commit $50k/quarter in the 3rd quarter of Fund 2 (which will include a commit for $50k/quarter of the first 2 quarters of Fund 3) etc. You cannot for example dump $100k at once into Fund 2 in the final quarter of that fund.
- TL;DR commit early to maximize exposure to any given fund.
What is the joinder agreement?
This is the equivalent of a master services agreement outlining your subscription to the Calm Company Fund which may span across multiple fund entities. For each 1-year fund we’ll execute a Limited Partner Agreement which establishes your relationship with that fund. But some commitments may be 4 quarters that splits across multiple funds. So the joinder + subscription agreement sits above the LPA and articulates that you’ll also be committing to the next fund (if applicable depending on your commitment timing).
Do I have to be an accredited investor?
- Yes. Calm Funds are 506(c) funds which allows us to publicly talk about our funds but requires that every LP go through a slightly higher level of accreditation
- We will use verifyinvestor.com to confirm accredited status. Check their FAQ here or ask us for guidance.
- Investors in Calm Fund 1 do not need to be re-verified.
- Non-US citizens do not need to externally verified as accredited. You should still meet the requirements and be willing to self-attest that you are.
- Entrepreneurs: many of you will likely be using your ownership in a company as verification of the “$1m net worth” test (e.g., “I own 100% of a company that can reasonably be assumed to be worth >$1m”) so we recommend asking for a letter from your accountant. Here is a chart of the various assets that can be used for this test. Here is a form & instructions that you can discuss with your accountant.
How does carry work?
- Much like any other early-stage fund: once investors in each fund have received 100% of the capital they contributed to that fund back, the management company will being taking 20% of profits.
- Each fund’s total capital committed, portfolio companies, and any Shared Earnings or exit proceeds from those portfolio companies are treated independently.
- LPs are entitled to a proportional amount of any distributions that come back to the fund (Shared Earnings or exit proceeds) and are distributed to LPs proportional to their contribution to that fund.
- Example: an LP contributes a total of $100k ($25k per quarter) to Fund 2 which deploys $4m into 25 companies. That LP receives 2.5% of any Shared Earnings or exit proceeds (eg income) associated with those 25 companies. Once they $100k back from those income streams, 20% of any additional income would go to Earnest Capital first as carry. This resets with each new 1-year fund.
- Distributions to LPs are aggregated and distributed on a quarterly basis.
- Each time quarterly capital is called we will take a one-time 12.5% subscription fee out of that amount which we will use to run our operations. There is no annual management fee and no fees charged against the total “assets under management” in the traditional management fee structure.
12.5%? Isn’t that way more than the 2% you hear of in “2 & 20”??
- No, it’s way lower
- The “2%” in “2 and 20” is actually typically expressed as “2% of the entire fund size, every year, for 10 years”… so on a $100m total fund, $20m will be reserved upfront and doled out $2m a year for 10 years (20% of the entire fund).
- So on an apples to apples basis: “2 and 20” is actually 20% one-time fee compared to our 12.5% fee.